ESG Series: Getting Your Act Together – Climate Disclosures for Commodity Traders

ESG requirements for commodity traders are here to stay. Policies need to be formulated taking into account the relevant business and the one of the first areas that a company in Singapore needs to address is climate disclosure. Singapore’s sustainability reporting regime has progressed from voluntary guidelines to mandatory standards, aligning with global benchmarks such as the International Sustainability Standards Board (“ISSB”) frameworks. As mandated by the Singapore Exchange (“SGX”) and the Accounting and Corporate Regulatory Authority (“ACRA”), starting from FY 2030, all large non-listed companies (market cap between S$500m and S$1B) will have to file ISSB-aligned Climate-Related Disclosures (“CRD”). Listed companies have an earlier timeline for mandatory compliance with CRD filing requirements; by 2025-2030, depending on the type of emissions to be disclosed and the company’s size.

For commodity traders, material CRD-related issues range from emissions across upstream and downstream operations, exposure to high-risk jurisdictions and environmental impacts, to energy and fuel transition risks. Properly identifying, assessing, and disclosing these matters is critical not only for compliance but also to maintain access to trade finance, green lending, and counterparty trust. This article provides a practical framework on the issue of CRD disclosure.

1. Regulatory Shift: Key Disclosure Requirements

As per the SGX and ACRA disclosure requirements, there are three broad categories of CRDs required:

First; in respect of emissions. Scope 1 encompasses direct emissions into the atmosphere from business activities which are unlikely to be significant for asset light or trading companies. Scope 2 refers to indirect emissions, such as from the purchase and use of electricity. Scope 3 refers to all emissions that occur in a company’s value chain, including both upstream and downstream activities, which can be challenging for a trader to assess and calculate.

Second; in respect of external assurance needed to verify emissions calculations/disclosures.

Third; the CRDs should be aligned to ISSB standards. The ISSB’s IFRS S1 standards provide general requirements for disclosing sustainability-related financial information, while IFRS S2 standards focus specifically on climate-related risks and opportunities. With respect to the latter, disclosures generally should cover climate-related physical and transitional risks, as well as climate-related opportunities available to the company. Each of these risks or opportunities disclosed need to be financially material. Four pillars of disclosure, as set out in IFRS S2, bear emphasis:

Governance: Structures and processes for overseeing climate-related risks and opportunities, including board oversight and management’s role.

Strategy: How different climate scenarios (which account for varying types and severity of physical and transitional risks) impact business models, with qualitative and quantitative assessments.

Risk Management: Integration of climate risks into overall risk frameworks, including identification and mitigation strategies.

Metrics and Targets: Carbon emissions (Scope 1, 2 and 3) and climate-related targets, such as targets for emissions reduction.

Specific practical examples of CRDs which commodity traders should note are set out in the Annex hereto.

2. Understanding Materiality in Commodity Trading

As mentioned in the previous section, the risks and opportunities disclosed need to be financially material. Materiality is the lens through which climate-related risks are evaluated and disclosed. IFRS S1 states that information is financially material if “omitting, obscuring or misstating it could be reasonably expected to influence investor decisions”. As such, financial materiality which encompasses impacts on revenue, operating costs, or credit access, is a key touchstone. Examples of such risks applicable to different types of trades can be found below:

Physical risk: Extreme weather, has not only devastated crop yields but also created a conducive environment for pests to multiply (e.g. recent cocoa yields in West Africa), leading to supply shocks. This may lead to defaults on supply obligations due to reduced supply or even purchase obligations due to price spikes. A similar analysis could be applied to traders in other agricultural products like coffee, rice, soy and corn.

Transitional risk: Traditional steel, with its high carbon footprint, is already facing sluggish demand while the demand for green metals (including green steel) is increasing. Metal suppliers are increasingly focusing on trading lithium, nickel and cobalt critical to electrification, EVs and other green initiatives. The recent moves by big energy traders themselves keen to hedge against the structural shift from fossil fuels to develop their metals trading teams are reflective of this transitional shift.

Opportunity: The move away from fossil fuels to green energy is a clear opportunity for those involved in green fuels or green metals (for example those used in solar panels). The development of biofuels through decarbonisation policies, aviation mandates and marine regulations have enabled energy traders to diversify from oil. Biofuels, like sustainable aviation fuel, ethanol, methane and green hydrogen now represent real opportunities for traders to diversify from a decades old staple of crude oil.

Parties generating their CRDs should also look to disclose matters which concern their reputation, and any applicable legal/regulatory compliance obligations. This is because a company’s reputation and its proclivity to keep on the right side of legal and regulatory lines are significant factors affecting investment.

3. Building Readiness and a CRD Framework: A Commodity Trader’s Roadmap to FY 2030

For commodity traders, a practical approach in preparing for compliance with the SGX and ACRA climate disclosure requirements would likely involve the following broad steps:

Governance and Policy: Establish a cross-functional committee dedicated to issues and internal policymaking concerning CRD. Create a board-approved CRD policy detailing thresholds, verification processes, responsibility for management and oversight, and sign-off responsibility.

Data Capture: Begin compiling Scope 1 and 2 emissions data using ISSB-approved methodologies (e.g., the GHG Protocol). Prepare for Scope 3 reporting by mapping value chains, fuel usage, and supply chain carbon emissions metrics. Data from suppliers and counterparties may be obtained via CRD questionnaires incorporated into KYC or onboarding.

Maintaining an internal register: Build, maintain and continually update an internal CRD register mapping climate risks and opportunities across the trade lifecycle.

Gap Analysis: Evaluate current sustainability practices against IFRS S1/S2 requirements, focusing on the four pillars of disclosure set out in IFRS S2. Identify gaps in data quality, governance structures, or risk assessments. Traders may use free templates from ISSB or paid third-party tools like Workiva to map deficiencies, or services like Greenprint which aid in identifying and addressing reporting and data gaps.

Scenario Testing: Assess climate risks (physical and transition) as well as opportunities for growth, under multiple scenarios, such as the ‘business as usual’ scenario involving up to 4°C warming and the Paris Agreement objective scenario of only 1.5°C warming.

Assurance Partner Selection: Engage accredited auditors for carbon emissions verification. These need to be audit firms registered with ACRA, or Testing, Inspection and Certification firms accredited by Singapore Accreditation Council.

Contractual Clauses: Include climate-related representation and warranty clauses in sale, charterparty, and storage agreements defining data-sharing, audit rights, and termination triggers for breaches of those climate-related representations and warranties.

Continuous Monitoring and Adaptation: Keep updated with SGX, MAS, ACRA and international regulatory developments, and adapt to them as needed.

In addition to the above broad steps, commodity traders may take guidance on the framing of their CRDs around the categories and examples of disclosure identified in the Annex hereto. With these tools, a commodity trader would stand in good stead for ensuring it is both compliant with local regulations when the time comes, and prepared to fortify its climate mitigation and adaptation efforts as needed, incrementally, to match an ever-changing global climate and sectorial needs.