Sustainable Finance In Singapore – Policies, Effect On Carbon-Reliant Companies & Acceleration Of Green Transition

5 mins read

19 April 2023

As the world faces mounting sustainability challenges, sustainable finance has a vital role to play in building a more sustainable and resilient future.

Sustainable finance refers to the financial services industry’s efforts to integrate environmental, social, and governance (ESG) factors into investment decisions and operations. It is a rapidly growing field that aims to promote sustainability and mitigate risks related to climate change, biodiversity loss, social inequality, and other sustainability challenges.

The concept of sustainable finance has gained momentum in recent years due to increasing awareness of the impact of human activities on the environment and society. Governments, businesses, and investors are recognizing the need to shift towards a more sustainable economic model that balances economic growth with social and environmental responsibilities.

The financial industry plays a crucial role in this transition by channeling capital towards sustainable investments and incentivizing companies to adopt sustainable business practices. Sustainable finance encompasses a range of financial products and services, including green bonds, sustainability-linked loans, impact investing, and environmental, social, and governance (ESG) funds.

Green bonds are a type of debt instrument that raises capital for projects with environmental benefits, such as renewable energy or energy efficiency improvements. Sustainability-linked loans are loans that are tied to a borrower’s sustainability performance, incentivizing companies to achieve sustainability goals. Impact investing involves investing in companies or projects that aim to generate positive social or environmental impact alongside financial returns. ESG funds consider ESG factors in investment decisions to promote sustainable and responsible investment practices.

Sustainable finance also involves the development of sustainability standards and frameworks to guide investment decisions and promote transparency and accountability. For example, the United Nations-supported Principles for Responsible Investment (PRI) provides a framework for investors to incorporate ESG factors into their investment decisions. The Task Force on Climate-related Financial Disclosures (TCFD) provides guidance on how companies can disclose climate-related risks and opportunities in their financial reporting.

The benefits of sustainable finance extend beyond the environment and society. There is growing evidence that integrating ESG factors into investment decisions can improve risk management, enhance long-term performance, and create value for investors. 

Sustainable finance is an emerging field that seeks to align financial flows with sustainability goals. It offers a range of financial products and services that promote sustainable investments and incentivize companies to adopt sustainable business practices. The adoption of sustainability standards and frameworks is also crucial in promoting transparency and accountability. As the world faces mounting sustainability challenges, sustainable finance has a vital role to play in building a more sustainable and resilient future.

To find out more about sustainable finance in Singapore, DigitalCFO Asia spoke with WWF-Singapore’s spokespersons, Kristina Anguelova, Head of Asia Sustainable Finance and Swati Mandloi, Assistant Market Transformation Manager.

Definition of Sustainable Finance in Singapore

Although taxonomies and decarbonisation strategies vary across geographies, it is essential that sustainability and sustainable finance mean the same thing across the global financial system: this means taking environmental and social (E&S) considerations when making financing and investment decisions. The criteria for these decisions should be aligned with scientific evidence and the data inputs obtained via reputable sources. 

Hence the goal for everyone is the same – Paris aligned 1.5C by 2050, while the pathway or journey will differ. For Singapore, these are high-emitting sectors such as energy (energy mix and energy efficiency), green buildings and transportation, circularity and waste, and deforestation and conversion free financing in supply chains, among others.  

The Existing And Upcoming Policies Singapore Is Enforcing To Achieve A Net-Zero Economy

Enhancing the Carbon tax: To support Singapore’s net zero target, the carbon tax will be raised to S$25/tCO2e in 2024 and 2025, and S$45/tCO2e in 2026 and 2027, with a view to reaching S$50-80/tCO2e by 2030. 

Green Buildings: Singapore firms can improve energy efficiency through programmes like Green Mark standards for buildings, green procurement, public transport, fuel efficiency standards, home appliance efficiency standards, industrial energy efficiency, and waste management.

Energy Efficiency: Singapore recently announced enhancements to the Energy Efficiency Fund (E2F) to support investment in energy efficient technologies.

Green transport: Singapore launched the EV Common Charger Grant in July 2021 to catalyse the deployment of EV chargers by co-funding installation costs.

The Effect of Net-Zero on Carbon-Reliant Companies & The Options Available For Them To Stay In Business In The Long Run

Currently our economies are highly dependent on carbon-intensive processes and some sectors face the challenge of decarbonisation more strongly than others. These “hard-to-abate” sectors include some of the most critical elements of modern economic development like steel, cement, aviation, maritime, etc.

Achieving net-zero emissions for such companies implies that every step in the provision of goods and services achieves a level of emissions compatible with climate stability (i.e. zero or residual levels). 

This requires concerted efforts from leaders in these industries to help move the needle. They can do so through supporting and pushing for policy frameworks and financial support in order to build up markets for clean technologies. 

An example of this is the building and construction sector. Transitioning to low- and zero-carbon building and construction materials is complex because of the size of its carbon emissions footprint and value to the economy. This required addressing those emissions through product substitution that sees a carbon-intensive material replaced by a low or zero-carbon alternative, and financing the energy efficiency interventions for instance.

Things Companies Can Do To Accelerate The Country’s Green Transition

Based on the sector and impact, there are a myriad of actions companies can take in their journey to contribute to the net zero transition of Singapore’s economy. Some important steps include stepping up adoption of some key technologies and enabling its scaling. An example of this is electrifying their fleet. 

Another way is to institute greener policies that ensure their supply chains are steadily greening. This can particularly be effective as practices like green procurement and green leasing can enable transition of the small and medium enterprises in Singapore that account for 99% of Singapore’s registered businesses and employ 70% of the country’s workforce. 

Lastly, by making products and services that allow consumers to be green without taking on extra cost and effort would go a long way in enabling the green transition. Schemes to enhance recycling by the private sector or designing innovative systems that make it easier for Singaporeans to make choices that consume less electricity and water. These are some of the many ways companies can take the steps to build their reputation, business and simultaneously address the climate crisis we face.