Sustainability

Key Considerations In Reducing Overall Business Carbon Emissions

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22 March 2023

Organizations in the financial services industry still have a lot of obstacles to overcome before they can establish a baseline for their emissions.

Financial institutions are quickly getting involved in the effort to lead and assist the shift to a low-carbon planet. Unsurprisingly, there is a lot of interest in the developing methodologies, tools, and approaches they will utilize to calculate the emissions intensity of their lending and investment activities. A concrete first step in establishing trust that financial institutions are incorporating climate change into their primary business of providing capital is assessing financed emissions.

On average, greenhouse gas emissions (GHG) from lending, underwriting, and investment operations are more than 700 times greater than direct emissions from financial institutions. Therefore a financial organization will likely start here to get a basic understanding of its carbon impact. The current level of sponsored emissions will serve as the baseline for monitoring progress and directing funding toward those making promises like net zero by 2050 or other carbon reduction goals, such as those put out by the various net zero coalitions.

Organizations in the financial services industry still have a lot of obstacles to overcome before they can establish a baseline for their emissions. In some sections of the business, emissions data is frequently inconsistent or lacking, while it could be completely absent in others. Nevertheless, certain asset classes do not have a carbon accounting standard, while others are only conceptually related to emissions (for example, student loans). In order to construct portfolio selection and management methods that are aligned to company climate goals while managing overall growth and risk priorities, they will build on this rough framework and incorporate estimates on the rates of future global decarbonization.

This is not a one-time activity. A company should anticipate working closely with the businesses it does business with—both lending to and investing in—as it advances toward its own goals in order to help manage adjustments to lower emissions.

Determining The Level Of Action Required

How can a company decide what amount of activity is necessary to meet its decarbonization goals? The question that looms over many companies is this. A financial services company can use a variety of portfolio management strategies to carry out its decarbonization objective once it has made the commitment to do so and established an emissions baseline.

One might get a sense of how quickly changes are required to achieve climate targets by, for example, projecting a decarbonization curve per industry and asset class using the emissions data from the portfolio. It is anticipated that some asset classes and sectors will decarbonize more quickly than others. The Science Based Targets initiative (SBTi) provides recommendations outlining probable trajectory for emissions reductions by sector through time to 2050 for net-zero targets particularly.

Anticipate to find holes in the predictions of decarbonization rates that have been made thus far. One of the top GHG emitting sectors, oil and gas, is not one of the six sectors for which SBTi has created trajectory models.

Key Considerations To Reduce Company’s Carbon Emissions

Including Financial Results In The Emissions Objectives

Think about maximizing the emissions-reduction aim based on pertinent financial metrics like risk-adjusted return or term matching. By doing this, managers are better able to link the financial results of portfolio decisions to their financial performance. Companies are even able to gain understanding of the hidden costs associated with achieving the decarbonization goals, and find ways to balance the trade-offs with conventional financial management goals.

Draw Conclusions On Growth Rate And Runoff

Anticipate runoff rates and portfolio growth to be key factors in reaching a decarbonization goal. Each one may significantly alter inventories of funded emissions. Managers might discover that, with careful study, expansion in high-emitting sectors can still be matched with growth in carbon-neutral assets to meet an overall decarbonization aim. Similar to this, strategies for fixed term assets should take carbonization gains from asset runoff into account.

Modify Strategies In Light Of The Rate Of Decarbonization

The push for a funded emissions target also takes into account assumptions about the rate at which the globe (including the securities and loans of portfolio firms) decarbonizes. Portfolio managers can evaluate different decarbonization pathways to create tracking techniques that compare actual emissions with the target. When faced with the reality of progress against stated promises, having a plan for a number of emission routes opens the door for swift action.

Collaborate With Portfolio Businesses

One of the best methods for a financial institution to lower its financed emissions footprint is by working directly with clients and portfolio firms. Many organizations, like Temasek, support this strategy and collaboration with these businesses might enable less intensive portfolio management to meet emissions targets.

Further Encouragement To Reduce Carbon Emissions By Finance Teams

The finance team can play a crucial role in reducing a company’s carbon emissions by:

Developing and implementing a carbon accounting system: The finance team can work with sustainability and operations teams to create a robust carbon accounting system that tracks and reports the company’s greenhouse gas emissions. This system can help identify the major sources of emissions and set targets for reduction.

Financing and investing in low-carbon projects: The finance team can help identify and invest in low-carbon projects, such as renewable energy and energy efficiency initiatives. By providing financing for these projects, the finance team can help the company reduce its carbon emissions and save money on energy costs.

Internal carbon pricing: The finance team can implement an internal carbon price, which assigns a financial cost to each ton of greenhouse gas emissions. This can incentivize business units to reduce their emissions by providing a financial penalty for exceeding emissions targets and a financial reward for reducing emissions.

Encouraging sustainable procurement: The finance team can work with procurement teams to prioritize suppliers that have sustainable practices and low-carbon footprints. This can help reduce the company’s carbon emissions and improve its environmental impact.

Reporting and disclosure: The finance team can ensure that the company’s carbon emissions are accurately reported and disclosed in financial statements and sustainability reports. This can provide transparency to stakeholders and demonstrate the company’s commitment to reducing its carbon footprint.

Overall, the finance team can play a critical role in reducing a company’s carbon emissions by integrating sustainability into financial decision-making and helping to identify opportunities for carbon reduction across the organization.

Financing The Transition: How To Make The Money Flow For A Net-zero Economy

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21 March 2023

New report from ETC quantifies the financial need and identifies policies required to unleash investment on the scale required.

Investments in clean energy must quadruple within the next two decades according to the Energy Transitions Commission (ETC). In its latest report “Financing the Transition: How to make the money flow for a net-zero economy” the ETC highlights the critical importance of strong government policies relating both to the real economy and to the financial system if finance is to flow on the scale required. It also identifies “concessional/grant” payments needed to support early coal phase-out, end deforestation and finance carbon removals.

New Energy Transitions Commission Report, Financing the Transition

Around $3.5 trillion a year of capital investment will be needed on average between now and 2050 to build a net-zero global economy, up from $1 trillion per annum today. Of this, 70% is required for low-carbon power generation, transmission, and distribution, which underpins decarbonisation in almost all sectors of the economy.

Well-designed real-economy policies must create strong incentives for private investment in the energy transition. Examples include setting ambitious targets for renewable generation by 2030, carbon prices and product regulation to drive decarbonisation in heavy industry, aviation and shipping, and specified date bans on the sales of internal combustion engines (e.g., by 2035 at the latest).

Other key actions include various forms of financial regulation, targeted fiscal support for the development and initial deployment of new technologies, and net-zero commitments from financial institutions.

Conceptually separate from investment finance (which will deliver positive economic returns), “concessionary/grant” finance will be required to help cover the economic costs of early coal phase-out, to offset the incentives to deforest, and to fund carbon dioxide removals.

“Adequate flows of finance are the key to delivering a net-zero future and limiting the impact of climate change. Private investment, government and philanthropic money are needed to deliver the large-scale funding and international financial flows to ensure we move from targets to action and deliver a low-carbon global economy“, Adair Turner, Chair, Energy Transitions Commission.

Accelerated Investment But Balanced By Savings

Part of the investment needed will be offset by reduced investment in fossil fuels, cutting the $3.5 trillion per annum requirement to a net $3 trillion. This is equivalent to 1.3% of the likely average annual global GDP over the next 30 years. These investments will also create a lower operating cost energy system than today which could realise savings of $2-3 trillion a year by 2050 and continue thereafter, depending on how fossil fuel prices evolve. In middle- and low-income countries, much of the investment would be required to support economic growth even in the absence of a climate change challenge.

The true incremental cost of the required investment is therefore far below the gross investment need. But the scale of capital mobilisation and reallocation required will not occur without strong real economy policies in all economies and actions to address financial sector challenges in middle- and low-income countries.

The energy transition is capital intensive, pointing to a peak in investments around 2040 as we build the energy system of the future, before falling to a lower asset replacement rate thereafter.

Global Investment – Incentives To Invest Despite The Challenges

There is enough capital globally to finance the energy transition. Although there are some short-term challenges to investment in the transition (e.g., high interest rates), renewables are cheaper than new fossil fuels in over 95% of global electricity markets and there is now an impetus to invest in energy security and efficiency savings.

The scale-up of investment required differs by country income group. In high-income economies and China, annual investments to build a net-zero economy will need to reach roughly double today’s levels by 2030. In middle- and low-income countries, a four-fold increase is required by 2030.

In all countries, the vast majority of finance will come from private financial institutions and markets if well-designed real economy policies are in place. Yet even in high-income economies, public financial institutions should play a role in financing specific types of investment, such as first-of-a-kind technology deployments, shared infrastructure (e.g., hydrogen and CCUS transport and distribution networks), and residential buildings retrofits.

In some middle- and low-income countries, private financial flows alone cannot ensure adequate investment given the challenges created by high actual or perceived macroeconomic risks, inadequate domestic savings and other factors which increase the cost and reduce the supply of private finance. A significant increase in international financial flows to some lower-income economies is therefore required. As the Songwe-Stern report argued, this requires a major increase in the scale of finance provided by Multilateral Development Banks (MDBs), together with changes in MDB strategy and approach which can help mobilise greatly increased private investment.

“The financing challenge is at the heart of delivering a net-zero economy; how much do we need to invest, in what sectors and in which geographies, to achieve the unprecedented rewiring of our economies needed to address the climate crisis. This ETC reports rigorously and systematically tackles exactly these questions. Importantly, it puts a spotlight on the different levers that are needed to enable this investment to come forward: real economy policies; policies targeting the financial system; and the scale and role of concessional funds. It provides vital insights to shape the work of different institutions, including MDBs such as mine.” 

“At EBRD, we have set ourselves a target to become a majority green Bank by 2025, and this report underlines the key areas that we must focus on, the real economy policies that we must work with our countries of operations on to create the enabling conditions for investment, and the role we must play to mobilise private sector capital alongside our own investments.”  said Nandita Parshad, Managing Director, Sustainable Infrastructure, EBRD.

Supporting action by financial institutions and financial regulation can accelerate capital reallocation. Financial institutions should develop net-zero transition plans, which can play a role in capital mobilisation and reallocation into low-carbon assets and technologies. Financial regulation should ensure the transparent disclosure and management of climate-related risks and strategies.

Vital Role For Concessional/Grant Payments

Provided good policies are in place, capital investment will deliver positive returns to investors. But achieving some emissions reductions will impose an economic cost – in particular, phasing out coal early where it still remains competitive with renewables, halting deforestation which delivers a positive return to landowners and businesses, and scaling up carbon dioxide removals.

Concessional/grant payments to offset these costs in middle- and low-income countries (excluding China) may therefore be essential and could amount to around $0.3 trillion a year by 2030 if the world is to achieve its 1.5°C objectives. This money could, in theory, come from corporates via voluntary carbon markets, philanthropy, and high-income countries.

By 2030, these payments could amount to: 

  • Around $25-50bn per annum to achieve early phase-out of existing coal assets, with the need for these payments to decline to zero by 2040. 
  • Around $130bn per annum to end deforestation by 2030 – but potentially far more if red meat consumption continues to increase. The scale of these payments raises the question of whether available money would be better spent in other ways e.g., directly supporting governments which are willing and able to impose deforestation bans.
  • Around $100bn per annum to fund carbon removals. Initially primarily via nature-based solutions such as reforestation but with an increasing role in the 2030/40s for engineered solutions such as Direct Air Capture of Carbon and Storage (DACCS).

“We believe financing can play a major role in shifting the dial to a net zero global economy, especially when banks work in partnership.”

“As the ETC’s report clearly sets out, finance needs to come together with government and philanthropic efforts to deliver the significant investment needed for transition.” said Zoë Knight, Managing Director & Group Head, Centre of Sustainable Finance, HSBC.

To read the full report, visit: https://www.energy-transitions.org/publications/financing-the-transition/ 

The ETC’s report is accompanied by 5 sector sheets summarising the investment needs, challenges and actions required for decarbonising power, buildings, transport, industry and hydrogen sectors by 2050. These are available to download here: https://www.energy-transitions.org/publications/financing-the-transition/#downloads 

Looking At It Both Ways: How Climate Change Threaten Financial Systems?

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16 January 2023

It is inevitable that countries must aim for a greener economy but with the world having been reliant on carbon-sensitive assets, devaluing carbon will also pose danger to the economy.

Regulators should pay more attention to climate change and step up their efforts to mitigate it since it poses a systemic danger to the financial sector. Systemic risks in the financial system are dangers that could impair the system’s usual operation and have gravely detrimental effects on the real economy. The physical risks brought on by more frequent extreme weather events and long-lasting environmental changes, as well as the transition risks brought on by the necessary policy and technological changes to attain a greener economy, are at least two categories of climate-related risks that cross this threshold. These modifications might strand carbon-intensive assets and have an impact on other financial instruments’ values.

Physical and transition risks are expected to cause enormous losses, and given how quickly they could occur, those losses could be devastating for systemically significant financial institutions and larger financial markets. It’s important to note that financial institutions actively contribute to the physical and transition dangers of climate change by continuing to finance large amounts of activities that exacerbate the problem.

Physical Risks

Insurers, banks, and other financial intermediaries with direct and indirect exposure to various affected industries and assets may experience destabilizing losses as a result of the escalating intensity and magnitude of destructive floods, droughts, fires, and hurricanes as well as the impeding sea level rise. Stress could spread throughout the financial system if it occurs in a large, intricate, and interconnected financial institution—a corporation with significant systemic importance—or if it occurs in smaller, similarly vulnerable firms.

Because their primary business compels them to guarantee losses on physical goods and property, insurance companies are the financial intermediaries most immediately vulnerable to the physical risks of climate change, at least in the short term. Since historical datasets are proving to be less useful predictors of future underwriting losses, these companies are working to modify their loss models and underwriting procedures in response to a changing climate and severe weather patterns.

This makes the sector vulnerable to significant losses from a single or a combination of natural catastrophes that were either not anticipated or were assumed to be practically impossible. In order to raise enough money to cover potentially devastating losses or to otherwise satisfy the financial needs of creditors and counterparties wanting to lessen their risk to the distressed organization, insurers may be obliged to sell off illiquid assets at fire sale rates. This fire-sale dynamic may cause asset prices to decline, impacting financial institutions that hold related assets and increasing the cost of funding for businesses that depend on such markets.

The physical concerns of climate change also directly affect the basic banking system. Mortgage, commercial real estate, business, and agricultural loans, as well as derivative products linked to these markets, are liable for losses resulting from extreme weather conditions and other environmental changes in various regions of the country. For instance, the severity and frequency of hurricanes, droughts, floods, fires, and other environmental changes may increase, which might reduce the value of affected assets and make it harder for borrowers to pay back lenders, increasing the default rate and losses on these credit portfolios.

Thousands of homes which amount to billions of dollars would actually be submerged if sea levels rose by the projected 6 feet by the year 2100, which would have a negative financial impact on the country. Banks and other financial intermediaries may be even more exposed to physical dangers if insurance firms decide to leave certain regions and business sectors. Banks that are experiencing financial hardship due to greater-than-anticipated losses may be able to spread stress via both the asset liquidation and exposure transmission channels.

Despite the direct negative impact on the value of assets, severe weather events and environmental changes can cause second-order economic disruptions in local or regional economies. According to research, major natural disasters increase poverty rates in impacted towns, cause outmigration, and drop home prices. Additionally, some data suggests that economic output is often higher in colder years compared to hotter years, although recent years have, on average, been warmer. Increased than anticipated losses on the credit portfolios of banks and other financial intermediaries could result from the deteriorating economic conditions in the impacted areas.

Transition Risks

In addition to these direct hazards, the urgently required shift to a greener economy may result in quick losses to carbon-intensive assets, which could collapse the financial system. Carbon-sensitive assets connected to the electricity, energy, transportation, manufacturing, as well as other sectors may lose value if regulators take the necessary steps to decarbonize the economy and if technology advancements enables that move to be commercially appealing.

Such a course of action or innovation might sharply raise the price of carbon, leaving some fossil fuel assets stranded and lowering the value of other assets that are carbon price exposed. One estimate places the present worth of potential losses at $18 trillion – considering all stranded assets as well as those that are directly related to the fossil fuel industry. Up to one-third of all equities and fixed income assets are thought to be connected to carbon-sensitive businesses.

The investors and financial intermediaries who own these assets would suffer losses as a result of their revaluation. A price shock could have an impact on the entire financial system as firms and investors offload assets at fire sale prices, creditors flee from companies that are particularly vulnerable to revaluation pressures, and stressed companies default on their debt obligations or counterparties in derivative transactions. Stress can spread through both the asset liquidation and exposure transmission channels. 

The financial system might become unstable as a result of losses, which would have negative implications on the real economy. This will result in a scenario where asset prices suddenly fall due to the breakdown of the carbon price bubble, resulting in broader financial instability.

Financial institutions and investors may promote this by factoring in the effects of a change to a greener economy over time and modifying their risk management frameworks and models accordingly. This would allow the transition to happen gradually with very little disruption in the financial markets. They might incur some inescapable losses on some assets that are very vulnerable to changes in the price of carbon, but they might also take advantage of fresh chances to fund green businesses. Regulators shouldn’t, however, wager that this hopeful result will materialize without their involvement.

It is the responsibility of regulators to take precautions against the worst-case scenarios so that workers, families, and taxpayers are not made to pay for the regulators’ lack of creativity. In fact, the longer policymakers postpone taking action on climate change, the more possible it is that the economy will rapidly become green and that carbon-sensitive assets would be valued in an unruly manner. A smooth transition would be made possible, the likelihood of a climate-driven financial catastrophe would be reduced, and climate skeptics wouldn’t be able to exploit predicted financial disruptions as an argument against the strict measures required to reach net-zero emissions by 2050.

Financial Regulators Must Act

Financial regulatory measures are intended to reduce the likelihood and severity of disruptive crises by enhancing the financial system’s resilience. Every country’s  financial system needs to be ready to securely address the physical and transition risks posed by climate change, therefore it’s essential for policymakers to take strong regulatory and supervisory action. It may be more likely that policymakers will take the required transitional action if the financial stability effects of a rapid transition are reduced.

Additionally, policymakers should attempt to incorporate climate risk into other facets of the framework for supervision and regulation. Higher risk-weighted bank capital requirements for assets that are sensitive to the price of carbon are all worthy of regulators’ consideration, as are increased supervisory expectations for climate readiness.

KPMG Proposes Budget 2023 Measures To Drive Singapore’s Green & Inclusive Growth

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13 January 2023

To drive Singapore’s green and inclusive growth towards lasting paths for businesses, KPMG announced its Budget 2023 which covers 3 key areas.

  • Green finance will be key to powering Singapore’s sustainability – spurring blended finance and transition finance ecosystems will be instrumental in intensifying green investments
  • Forging a fit-for-future ‘Forward Singapore’ social compact and catalysing capital to create new opportunities for enterprises and talents will be critical
  • In view of a potential economic slowdown, support measures for businesses to digitalise, transform, and embed ESG will need to be expanded

KPMG today announced its Singapore Budget 2023 Proposal for the Government, covering the three focus areas of: (i) Sustainability; (ii) Talent; and (iii) Digitalisation and transformation. Highlights are summarised below.

1. Powering Sustainability

Implement a National Blended Finance Framework to spur green financing

Singapore has taken steps on its climate commitments through its Singapore Green Plan and its recent appointment of a Government Chief Sustainability Officer. The key challenge ahead, particularly with economic headwinds expected worldwide, will be in financing the green agenda.

A strategy KPMG recommends is for the Government to implement a national framework to spur the growth of blended finance to address the trilemma of security, affordability, and sustainability. This framework can include broad-based schemes with low entry thresholds and targeted initiatives for emissions-intensive industries or transition projects.

Ong Pang Thye, Managing Partner, KPMG in Singapore said:

“A national blended finance framework can be pivotal for sustainable change to happen at-scale nationally and regionally. Countries and companies in the region are also keeping sustainable development on top of their agendas. However, securing funding can be challenging with individual countries facing ongoing economic headwinds, while dealing with domestic developments and priorities.

“As part of this framework, the Government could encourage financial institutions (FIs) to step up their involvement in the climate transition (through incentives) – this can involve FIs redirecting the necessary capital to areas with the highest needs. At the same time, authorities can also extend access to Singapore’s Sustainable Bond Grant Scheme to a wider audience of issuers that need financing for green projects. The successful implementation of such a blended finance framework in the longer term will position Singapore as a leading green finance hub to anchor ASEAN’s green and just energy transition.”

Spearhead asset recycling mechanisms and alternate funding options

Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore added:

“Singapore can lead the development and implementation of asset recycling frameworks to refinance brownfield infrastructure, while achieving Singapore and ASEAN’s broader Environmental, Social and Governance (ESG) objectives. These mechanisms will optimise private sector innovation, investment and efficiency in operating infrastructure assets, while freeing up capital that can be deployed to other priority greenfield infrastructure projects. An Energy Transition Mechanism involving early retirement of coal-fired power projects is one area with high potential and impact.”

Intensify green investments

To tap the potential of green bonds in energy transition, KPMG proposes to set frameworks for analysing a project’s qualification for green investments, including introducing a green credit scoring system with new environment and energy factors. As renewable energy technologies begin to mature in this decade, investments into green infrastructure projects and research and development (R&D) capabilities will be critical. The Government can consider pumping investments into large-scale alternative energy projects in ASEAN countries under a “generate and transfer model” to accelerate the nearshore import of renewable energy and decarbonise the grid at a quicker pace.

Other measures to further drive the decarbonisation agenda include:

  • Working with industry bodies to boost support for FIs, such as setting up a new subset of qualifying activities under the Financial Sector Incentive scheme which provides for concessionary tax rates, enhanced deductions or cash grant schemes
  • Extending consumer tax incentives, such as the EV Early Adoption Incentive and the Vehicular Emissions Scheme to further bridge price differentials between electric vehicles and internal combustion engine vehicles 
  • Incentives to bridge the green building demand-supply gap, including a 200 percent tax deduction on financing costs and rental of green properties, a 30 percent property tax rebate and a 50 percent exemption on taxable gains from green building sales.

2. Opening Doors to Opportunity

Attract top talents to augment Singapore’s economy amid a talent war

With a global war for talent and an ever-evolving business landscape, Singapore must continue to attract the best minds to its shore, while ensuring that policies to facilitate new ways of working remain robust. At the same time, these new challenges have prompted Singapore’s leaders to refresh the country’s social compact and foster renewed resilience, led by its Forward Singapore roadmap.

Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:

“To be a global leader in attracting and retaining talent, Singapore should extend the tax exemption days for foreign employees working in priority sectors of the economy to 90 days. This will attract talents who may not wish to relocate but are still eager to be based in Singapore on a short-term basis.”

Strengthen hybrid and remote working regime

As more Singapore businesses leverage talents overseas to grow, Singapore is likely to benefit from the higher corporate tax revenue generated. In step with this, Singapore should initiate at least an ASEAN-wide framework to address tax issues that may arise for Singapore companies with remote workers in another country. Potential challenges to be addressed under the framework include the creation of a Permanent Establishment in an overseas jurisdiction and the taxing rights over the salaries and related remuneration of remote workers.

Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:

“Companies are building a future-forward workforce, where hybrid or remote work is now a long-term option for many. However, safeguards against income tax leakages need to be strengthened. This means reviewing underlying policies and setting the relevant guidelines for remote-working employees based in Singapore, to provide more clarity to foreign employers and employees.

Catalyse private and public capital to build Singapore’s social compact

Singapore has been reviewing its tax system to boost revenue generation potential, but any enhancements should be carefully considered in terms of rate and scope to remain fair and progressive. Alongside this, KPMG recommends for the Government to catalyse private and public capital for social spending through innovative blended finance structures and social bonds – as already seen in several Asia Pacific countries. Early-stage grants to support the design of social bonds as well as partial guarantees to bond holders to lower investment risks and bring in private investors should be explored. Additionally, platforms such as social stock exchanges can also attract new investment.

3. Strength in Adversity

Singapore will need to demonstrate how it can bolster its fiscal resources while protecting prospects for growth as it enters challenging times. To stay ahead, the country should also step up its support for businesses to digitalise, transform and seize new markets.

Decisive measures for Singapore to remain attractive to multinational corporations (MNCs)

Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:

“In the coming months, policymakers in Singapore will need to move more decisively to restructure its incentives to attract and retain investments from MNCs impacted by global tax developments that will gain momentum in 2023.

“KPMG proposes that a percentage of collections from Pillar Two measures be channelled into a pool of funds that would be used to attract and retain investments not just from global MNCs, but also local MNCs affected by the rules. This pool of funds can provide flexibility to economic agencies to provide targeted programmes to both global and local multinationals.

“There can also be an increase in the number of expenditure-based tax incentives (offered in the form of Qualified Refundable Tax Credits rather than enhanced tax deductions). These can take the form of expanding the list of intellectual property categories that can qualify for writing down allowances. Existing R&D tax incentives should also be redesigned to a Qualified Refundable Tax Credit scheme so that there will be minimal impact under the rules, alongside the increase in grant caps of existing programmes.”

Boost Singapore’s digital asset ecosystems

KPMG’s research has shown promising use cases and innovation of digital assets, including non-fungible tokens (NFTs) and Decentralised Finance (DeFi), to boost digital connectivity and economic integration. Singapore should carefully study the changing landscape and look at providing certainty on the regulatory and tax treatments of these new investment products to strengthen its digital asset ecosystems. To further fuel growth, Singapore should also promote the use of digital accelerators or hackathons that allow industry advisory boards to guide and sponsor fintechs to solve industry-wide problems.

Targeted grants for GST-registered businesses

Some businesses are likely to be impacted by the staggered Goods & Services Tax (GST) hike over the next two years, with top concerns on compliance costs. The Government can offer grants to specific businesses, such as small and medium enterprises (SMEs) which are more concerned about the cost of complying with the two-step GST rate hike.

Provide certainty on new wealth taxes

Ongoing speculations on whether Singapore will see new forms of wealth taxes have led to market uncertainty, in particular for the wealth management sector and high-net-worth individuals contemplating if they should move their assets here. The Government should clarify if it will be introducing wealth taxes in the near future, and what this might mean for the country.

Ajay Kumar Sanganeria, Partner, Head of Tax, KPMG in Singapore, said:

“Singapore has been raising the progressivity of its tax policies in a calibrated manner. However, the market continues to have concerns over the possibility of a new wealth tax or a reintroduction of estate duty or inheritance tax. Budget 2023 will need to be decisive in addressing these speculations.”

Tax rebates and incentives to cope with rising costs

Amid concerns over inflation and rising costs, enterprises will benefit from support as they strive to be more innovative and future ready. We recommend the following measures:

  • A one-off 10 percent corporate income tax rebate and an increase in the number of installments that companies can take to pay their income tax liabilities (p.32)
  • Expand coverage of the enhanced R&D tax deduction to include costs incurred for overseas R&D activities, beyond its current scope of activities performed in Singapore only (p.32)
  • Help businesses invest in the local talent pool with an additional 100 percent deduction on training expenses, with similar conditions to the Productivity and Innovation Credit (PIC) scheme for qualifying training expenditure (p.32)
  • Increase Enterprise Development Grant support for overseas mergers & acquisition activities to up to 90 percent for SMEs and up to 70 percent for non-SMEs for an initial period of two years to drive internalisation efforts (p.31)
  • Up to 80 percent of funding support under the Productivity Solutions Grant for companies to adopt advanced manufacturing solutions, along with a two-year extension of the 100 percent investment allowance to encourage the sector to shift towards automation. (p.31)

Enable businesses to transform supply chains and embed ESG

Ong Pang Thye, Managing Partner, KPMG in Singapore, said:

“Beyond economic factors, Singapore has also had to contend with climate change. However, even as carbon markets are set to expand significantly, carbon trading is not a long-term solution to reducing carbon emissions. Ultimately, large emitters will need to adopt greener and more cost-efficient solutions and the Government has a critical role in driving a mindset change.”

That said, in response to supply chain disruptions and the push towards ESG, more companies are looking to invest in digital transformation to be more efficient and sustainable, and could benefit from these measures:

  • Enhanced deductibility of expenses incurred on supply chain digitalisation and transformation
  • Special taxation regime and/or financing for companies involved in investment, development and trade of renewable energy, hydrogen and carbon credits.


A copy of our Budget 2023 proposal is available for download at this link.

IMA Releases Report on Climate Risk and Readiness in Business

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solar panels on roof

DigitalCFO Asia Newsroom | 21 December 2022

Research on the current state of internal corporate functions regarding climate and ESG risks found slow response and significant challenges in meeting accelerating demands

solar panels on roof
Photo by Scott Webb on Pexels.com

IMA® (Institute of Management Accountants) today released a green paper that offers insights on how the finance functions of companies are responding to climate-change and other sustainable business risks, often referred to as ESG for environmental, social, and governance. Based on a survey of IMA’s diverse, international membership, “Climate Risk and Strategies: Finance Function Readiness to Meet Accelerating Demands” provides a snapshot on the current state of risk management processes around these emerging areas. The perspectives of IMA’s unique constituency, accounting and finance professionals in businesses of different sizes, industries, and geographic regions, provided a means for understanding internal practices and dynamics. 

Despite both internal and external drivers to advance corporate reporting mandates around climate change, the results suggest that while large, public organizations have taken some steps toward identification, assessment, and management of these risks and potential opportunities, movement among companies in the broader economy remains slow. As a green paper, the study invites other researchers and thought leaders to continue to investigate deeply into the perspective and needs of participants in the broader economy, particularly small and medium sized businesses, in responding to climate change and similar ESG matters. 

“There are significant opportunities for businesses to shift from initial climate risk identification to the valuable activities of assessment, mitigation, and management,” said Shari Littan, CPA, director of corporate reporting research and policy at IMA and co-author of the study. “Developing risk management and accounting processes around climate-related and other sustainability risks can help businesses identify opportunities that can become the basis of carefully developed and resilient strategy and objectives to preserve assets, enhance business performance, and build long-term value.”

“Management accountants have a key role to play in internalizing a strategic response by businesses, and managing and controlling effective systems of implementation. Our survey shows the lack of preparedness that exists in dealing with scenario analysis tools and points to the need for revised portfolio risk views as indicated by the COSO Enterprise Risk Management Framework,” said Cornis van der Lugt, study co-author and senior lecturer at Stellenbosch University business school.

“Management accountants can support organizational climate and sustainability adaptation by advancing their skills in risk identification, assessing vulnerability, strategy development and process management in these areas. This report synthesizes the research findings and sets the scene for future research and practice in these areas,” said Josh Heniro, Ph.D., Senior Director, Southeast Asia at IMA.

To read the report, visit IMA’s website: https://www.imanet.org/insights-and-trends/the-future-of-management-accounting/climate-risk-and-strategies-finance-function-readiness-to-meet-accelerating-demands?ssopc=1.

Regulatory Challenges Businesses Faced In 2022

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Fatihah Ramzi, DigitalCFO Asia | 29 November 2022

The three most significant problems that organizations have encountered in the year.

The difficulties faced by business owners never cease. To keep their businesses afloat and relevant to the situation of the market, they are always forced to come up with new strategies. The difficulties facing entrepreneurs in 2022 are considerably larger. Despite the pandemic’s slow economic recovery, it will take some time for businesses to fully bounce back. Numerous organizations continue to face challenges, including those related to recruitment, finances, and digital transformation.

However, business entrepreneurs have always been renowned for their tenacity and ability to consistently find solutions to any problems that arise. This is true whether we’re discussing businesses that are just getting started or ones that have been operating for a while. But what are some of the most urgent issues that entrepreneurs will deal with in 2022? In this post, we’ll take a look at the three most significant problems that organizations have encountered in the year.

1. Fairness & Inclusion 

Many businesses are being forced to increase their commitments to corporate social responsibility with an emphasis on equality and justice for underserved communities as a result of pressure from activist investors, the general public, and their own employees. Over the past two years, fairness issues have gone beyond DEI.

Through the use of regulations intended to eliminate unfair advantages in personnel decisions, businesses have historically attempted to promote fairness. To prevent hiring managers from judging candidates based on their supposed gender or race, recruiters, for instance, remove the prospects’ photographs from their resumes. To prevent employees from being paid more or less than their coworkers at the same level, a business may also establish stringent pay bands.

These regulations can reduce unfairness, but they are insufficient to produce a very fair working environment. And when employers paid more attention to where workers felt injustice occurred, they discovered that hiring, promotion, and pay accounted for only 25% of this view. The majority of these encounters take place during regular work hours. Organizations require new ideas, not simply rules, to handle these increasingly ubiquitous fairness concerns. Instead of eliminating unjust advantages, they ought to look for ways to lessen disadvantages so that most or all of the workforce benefits.

2. Climate & Sustainability

Simply put, many species won’t live through the 21st century if businesses do not behave responsibly as members of the global community. According to Environmental Sustainability, the rate of species extinction due to human activity now is hundreds of times higher than it was originally.

Given that corporations account for the majority of global emissions, sustainability has thus become a crucial problem for them. This is why companies will inevitably foster a dying planet if they do not contribute to the solution. The “Race to Zero” campaign, which aims to take strict and urgent action to halve global emissions by 2030 and deliver a healthier, fairer zero carbon world in time, has forced many businesses to make organizational changes in 2022 to implement effective sustainability strategy and initiatives.

In the long term, investors, clients, and consumers may be less eager to support businesses that do not make sustainable decisions in their processes. Sustainability must be prioritized if the company hopes to stay relevant in the long run.

3. Fraud & Financial Crimes 

As the globe recovered from COVID-19, criminals adapted and took advantage of possibilities. In 2022, supply chains are still disrupted, fraud is rising, ransomware assaults are commonplace, and digital payment systems are still under constant attack. The year also saw an increase in the amount of data breaches.

Among the most frequent outside offenders are hacker groups and organized crime networks. In the past two years, their activity significantly increased. With objectives, rewards, and bonus schemes, organized crime organizations are evolving to become more specialized and professional. Additionally, malicious actors are banding together, which raises the frequency and level of sophistication of attacks. Specialists in data breach, false ID creation, attack methods, and other complex areas may connect, coordinate, and transact inside a developing criminal economy thanks to chat rooms, the dark web, and cryptocurrency.

The use of new technology by businesses is widespread. Digital platforms like social media, services (like ridesharing or accommodation), and e-commerce provide hazards for fraud and economic crime that most businesses are only now starting to recognize. Four out of five businesses that experienced fraud in the past two years have a connection to the digital platforms they use. Undoubtedly, the pandemic increased vulnerability as organizations expedited the shift to digital operations; as a result, 2022 was a year in which many firms placed a high priority on cyber security activities.

In 2023, it is likely that these issues will still persist, but there will also be a new set of priorities. This is a result of the ongoing worldwide economic situation. The effects of high inflation and geopolitical concerns would be further issues of focus in 2023. In the face of unfavorable uncertainty, it is preferable for firms to maintain their flexibility and adaptability. Businesses should make continual infrastructure investments as 2022 draws to a close.

Singapore Can Unlock Finances To Accelerate Net-zero Push

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DigitalCFO Newsroom | 14 November 2022

 The managing director of the Monetary Authority of Singapore (MAS) said climate change is “a race of our lives”.

The managing director of the Monetary Authority of Singapore (MAS) said climate change is “a race of our lives”, as he addressed delegates at the UN climate summit in Egypt on Wednesday (Nov 9).

Mr Ravi Menon delivered a keynote speech at the COP27 Singapore Pavilion, highlighting how Singapore could help unlock some of the financial capital needed to address the existential threat that climate change poses.

Finance took centrestage as the main theme of the fourth day of talks in the coastal town of Sharm el-Sheikh, with trillions of dollars of investment needing to be committed and mobilised to help counter the impacts of a still fast warming planet.

“Climate change is no longer a prediction, it is becoming a reality,” he said. “We need to act now to start reducing emissions. The world is currently far from a net-zero emissions trajectory.

“Global greenhouse gas emissions are still rising, not falling. If we do not act now to start decarbonising, we risk breaching tipping points that will lead to catastrophic and irreversible climate change, with unimaginable risks to lives and livelihoods,” he said.

Mr Menon highlighted the massive gulf that exists between finance needed for the world to transition to net zero carbon emissions and what was currently available for investment.

He said Singapore could help, with three clear strategies; blended finance, meaning mobilizing private capital to combine with funds provided by governments for climate investment projects, developing and facilitating carbon markets, as well as “good-quality data to support credible disclosure and track progress”.

Blended finance can help make green projects in emerging markets, such as throughout Southeast Asia, that seem like risky projects far more bankable, with the injection of capacity building, technology transfer, and institutional support.

“Blended finance is not new but scaling it requires a fresh approach, he said, while giving examples of several initiatives that Singapore is involved with to help with the net-zero transition.

Those include partnering with the The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and the The Glasgow Financial Alliance for Net Zero Asia-Pacific Network.

On carbon markets, he said that the country is well positioned to be a leader in an emerging and critical space for both carbon services and as a trading hub. But these markets need to become bigger and more efficient.

“We have sound infrastructure, good governance, and a premium on trust – critical ingredients for a marketplace,” he said.

“We are located at the heart of Southeast Asia which is fertile ground to harness the potential of nature-based solutions for carbon sequestration,” he added, referencing the vast potential of the region’s mangroves and degraded forest that could be restored.

Source: CNA

UOB Commits To 2050 Net Zero Targets To Support A Just Transition For ASEAN

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DigitalCFO Newsroom | 8 November 2022

Using internationally-recognised climate science models, UOB based its sectoral targets on regional pathways that align with global net zero goals.

UOB today announced ambitious commitments to reach net zero by 2050. This underlines its goal to support a just transition that advances sustainable socioeconomic development in tandem with decarbonisation in Southeast Asia.

UOB’s commitments cover six sectors, which make up about 60 per cent of its corporate lending portfolio. These six sectors are power, automotive, oil and gas, which are part of the energy value chain, as well as real estate, construction and steel, which are part of the built environment value chain.

Using internationally-recognised climate science models, UOB based its sectoral targets on regional pathways that align with global net zero goals. This approach to net zero reflects UOB’s strong belief in the need for a just transition in Southeast Asia that continues to support economic growth and improve energy access across the region’s diverse economies.

Mr Wee Ee Cheong, Deputy Chairman and Chief Executive Officer, UOB, said, “In Southeast Asia, our net zero ambitions must go hand in hand with an orderly and just transition to take into account socioeconomic challenges. Even as we cut our carbon footprint, we must ensure that people’s lives and livelihoods can continue to improve.

“It is important to balance growth with responsibility on our net zero journey. Our targets are ambitious, yet realistic, and they also meet the global goals of net zero for ASEAN.”

UOB’s commitments include interim 2030 targets to reflect the necessary near-term progress on the path to net zero.

In addition, UOB has committed to exiting financing for the thermal coal sector by 2039. This is on top of its existing prohibitions on new project financing of greenfield or expansion of coal-fired power plants and thermal coal mines.

UOB is integrating its net zero plans into its business strategies and will step up its efforts in working closely with clients and other stakeholders towards decarbonisation. It will conduct annual reporting to track progress against its net zero commitments. Over time, the Bank will expand the scope of its targets to include additional sectors as data and climate scenarios become available.

Underlining its commitment to regional and global decarbonisation efforts, UOB has joined the Net-Zero Banking Alliance (NZBA)[1], which is made up of 121 banks from 41 countries with US$70 trillion in global banking assets.

DBS And Global Partners To Support The Development Of Green Solutions

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DigitalCFO Newsroom | 8 November 2022

DBS and global partners sound clarion call to climate innovators developing solutions to address carbon dioxide and greenhouse gas removal.

Sustaintech Xcelerator launches the second cycle of its six-month accelerator programme focused on innovative climate tech solutions that can help businesses become more carbon efficient

A total of SGD250,000 in grants as well as research, mentoring, networking and office space support to be awarded to up to five successful applicants.

With the risk of carbon dioxide and other greenhouse gas emissions pushing past dangerous warming thresholds, DBS together with seven partners and supporters, have committed to further build on efforts to nurture and scale the climate tech ecosystem.

DBS and global partners today launched the second cycle of Sustaintech Xcelerator, a six-month climate-focused hybrid accelerator programme organised in partnership with Temasek, GenZero, Google Cloud, the World Bank, Capgemini, and the Centre for Nature-based Climate Solutions at the National University of Singapore (NUS). Verra will support Sustaintech Xcelerator as an independent standard setter. The group aims to accelerate the development of practicable climate tech solutions that will help businesses reduce their carbon dioxide and greenhouse gas emissions at a faster rate.

The second run of Sustaintech Xcelerator will focus on solutions in three main areas:

  • Nature-based approaches such as afforestation and reforestation
  • Technology-based approaches such as carbon capture and storage
  • Enablers such as digital tools and capabilities on carbon accounting and sourcing of ESG data, with a preference for solutions that can help SMEs implement viable technology solutions to green their operations

A total of SGD 250,000 in grants will be awarded to up to five successful applicants to scale their solutions. These successful applications will also get access to Sustaintech Xcelerator’s network of world-leading research and commercial partners and will also be paired with senior mentors in the climate tech ecosystem. In addition, they also have the option of receiving in-kind support such as mentoring and office space at DBS’ innovation hub, DBS Asia X (DAX).

Helge Muenkel, Chief Sustainability Officer at DBS, said, “We need to accelerate climate action at scale. Sustaintech Xcelerator is well-placed to drive real action by providing sustaintech start-ups with mentorship from some of the best businesses and academics globally as well as technical and financial assistance so that these innovators can bring next generation solutions to life.”

While the race to reduce carbon emissions remains an important strategy in managing the climate crisis, climate math is showing that gigatonne-scale carbon removal is needed in the coming decades to avoid the worst effects of climate change. According to World Resource Institute (WRI) and Centre for Strategic and International Studies (CSIS), Carbon Dioxide Removal (CDR) is increasingly recognised as a critical strategy for the world to achieve its target of becoming a global net zero economy by 2050[1].

When paired with the simultaneous deployment of carbon management and mitigation measures, CDR is an effective tool that can address emissions from the hard-to-abate sectors such as agriculture and transportation to remove legacy carbon dioxide emissions in the atmosphere[2].

Bidyut Dumra, Group Head of Innovation at DBS, said, “From the first cycle of the Sustaintech Xcelerator, it has been evident that there is both quantity and quality in the start-up ecosystem within the CDR domain. DBS and partners want to tap into that rich pool of innovative solutions and take a few through an amplification process where promising climate tech start-ups can draw on the deep and diverse expertise of our globally recognised partners. The time has come to amplify our efforts to green our emissions and business models.”

Encouraging Small and Medium-sized Enterprises (SMEs) to accelerate their net zero commitments

An inaugural survey of 800 SMEs across six markets in Asia conducted by DBS and Bloomberg Media Studios in August found that Environmental Social and Governance initiatives are a business priority for more than 80% of SMEs in Asia. On the flip side, the top three challenges that SMEs face are – balancing the roll-out of sustainability solutions with business priorities, a lack of knowledge and know-how on which sustainability solutions to implement and the difficulty in calculating clear return-on-investment (ROI). 

Muenkel added, “SMEs are the backbone of economies globally, they make up 90% of businesses and provide more than 50% of employment worldwide. As such, they have a very important part to play in the green transition. It is essential that they are given access to viable sustaintech solutions to green their operations in an efficient and practical manner. We hope that the solutions borne out of the Sustaintech Xcelerator will empower SMEs on their net zero journeys.”

Even as Sustaintech Xcelerator starts its second cycle, its first cohort has continued to scale-up their offerings:  

  • Perennial (or formerly known as Cloud Agronomics), developing standards and technology to underpin the generation of soil-based carbon removal credits for the voluntary carbon market, recently raised a funding round with investors including GenZero and Temasek. Its vision is to unlock soil as the world’s largest carbon sink.
  • Sylvera, the leading carbon credit ratings platform, has gone on to raise a SGD 32m Series A from investors, Index Ventures, Insight Partners, Salesforce and LocalGlobe, to accelerate it’s mission to become a source of truth for carbon markets.
  • Taking Root, accelerating the restoration of the world’s forests, works with organisations to enable smallholder farmers to grow trees and earn money from the carbon they remove from the atmosphere. After participating in Sustaintech Xcelerator Cycle 1 and the inaugural Google Climate Change Accelerator, Taking Root has expanded their flagship CommuniTree Carbon Program across the entire country of Nicaragua.
  • Treevia, smart technological solution for monitoring forest assets, joined Google for Startup Accelerator (agribusiness) in Brazil; received investment and recently started multiple projects (in amazon and in other biomes) with corporates and governments to deploy its IoT sensor-to-satellite technology with Treevia SmartForest, an intelligent platform for Digital MRV and forest operation management.
  • Rainforest Connection (RFCx), using acoustic technology to stop illegal deforestation and monitor the biodiversity of threatened wildlife and rainforests, in the past 12 months, has deployed 103 RFCx Guardians for various projects around the world and expanded their work to an additional 19 countries.

Improving Financial Inclusion, Sustainability And Integration In Greater Bay Area

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DigitalCFO Newsroom | 3 November 2022

Ping An committed to developing financial services and technology to improve financial inclusion, sustainability and integration in Greater Bay Area.

At Hong Kong FinTech Week, Jessica Tan, Co-CEO of Ping An Insurance (Group) Company of China, Ltd., reiterated the Group’s commitment to growing its operations within the Greater Bay Area (GBA). Speaking at a moderated panel with Nicolas Aguzin, Chief Executive Officer of Hong Kong Exchanges and Clearing, Ms. Tan outlined how the Group has invested in developing financial technology, online healthcare and developed financial products working alongside institutional and governmental partners to improve efficiency and harmonize financial operations for individuals, small-and-medium sized enterprises (SMEs) and local and regional government bodies.

Conceptualized in 2017, the GBA comprises the two Special Administrative Regions of Hong Kong and Macao, and the nine municipalities of Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing in Guangdong Province. Highlighting the tremendous growth in both population and the economy across the region, Ms. Tan outlined how the project was still in its infancy but holds significant promise.

“With the vast majority of the cross-border e-commerce companies in Mainland China being based in Southern China and nearly 16 million migrating to the region in five years, there is definitely a lot of vibrancy and opportunity in the Greater Bay Area,” she said. “People from across Mainland China and many other countries have been attracted to the region in recent years, with the entrepreneurialism and innovative technology development in Shenzhen, especially with data scientists eagerly sought after across the market, complimenting the finance knowhow and the international outlook in Hong Kong, as it serves as an international financial hub.”

Over five years, Ping An has enhanced its presence in healthcare and technology development through the rapid growth of Ping An Health, an online-to-offline healthcare service platform, and OneConnect Financial Technology (“OneConnect”), a technology-as-a-service provider for financial institutions. Meanwhile in Hong Kong, Ping An OneConnect Bank (“PAOB”), a virtual bank, has helped improve financial inclusion for SMEs as well.

Ms. Tan also outlined how Ping An’s technology subsidiaries have helped improve access to banking for SMEs, helping them secure unsecured loans by leveraging alternative data and they have also improved linkage between GBA ports. To date, 23 out of 41 ports in the region have been connected by OneConnect using blockchain technology, which has greatly improved transportation efficiency of cross border trade by more than 70% and reduced logistics costs by approximately 30%. Moreover, OneConnect has also been involved in projects to develop financial infrastructure across Southeast Asia and the Middle East.   

Ms. Tan stated her aspiration for better harmonization of banking and financial processes within the GBA, increased financial education to familiarize stakeholders with financial products across the region and increased involvement of governmental bodies to spearhead adoption of cutting-edge financial technology solutions. Ms. Tan highlighted how the Guangdong provincial government has served a key role as a major customer, to facilitate the development of an SME financing platform with OneConnect, that has benefitted 1.3 million SMEs in Southern China. In Hong Kong, PAOB has worked with the Commercial Data Interchange securing permissioned access to financial data that has facilitated quick and easy account opening for SME customers.

“Building a Greater Bay Area is a long-term project and it will be important to develop a good financial, technological and physical infrastructure at this early juncture,” she said. “In order to increase adoption of new technology and solutions, proactive governments have led the way and we see opportunities for further integration within the region and will work on developing technology to improve wealth management, healthcare and sustainability.”

Ms. Tan believes the Cross-boundary Wealth Management Connect (WMC) will continue to develop in three directions: seamless online connectivity, investor education (especially significant in the current interest rate hike environment) and a strengthening of the integration of online and offline financial advisory services.  Being one of the first to participate in the pilot phase, Ping An Bank has ensured convenient online access to wealth management products, mutual funds and fixed income securities for the Northbound Scheme and helped investors in Mainland China open a cross-border investment account so they can invest in eligible wealth management products available in the Southbound Scheme, without traveling to Hong Kong or Macau. Through its technology and banking solutions, Ping An will continue to work on integrating the financial ecosystems in the Greater Bay Area.

Lazada Releases First ESG Impact Report

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DigitalCFO Newsroom | 1 November 2022

Lazada’s first ESG impact report commemorates its tenth anniversary and mark the Group’s commitment to building a sustainable business and creating positive impact.

Southeast Asia’s leading eCommerce platform, Lazada, today released its first Environment, Social, and Governance (ESG) Impact report, Shaping the Future of the Digital Economy for 2022. The report details the company’s efforts to leverage eCommerce as a force for good to uplift communities, champion accountable and sustainable business practices and manage its impact on the environment.

“As Lazada celebrates its 10th anniversary this year, we also celebrate 10 years of digital commerce in Southeast Asia. It is also a timely milestone to release our first ESG Impact report and I am pleased to share our progress in accelerating the growth of digital commerce in the region and making a difference through our operations,” said James Dong, Chief Executive Officer, Lazada Group. “This report is only the start of our journey. I am looking forward to stronger collaborations with our partners and stakeholders around how we can leverage our position as a leading eCommerce platform to shape the future of a sustainable digital ecosystem.”

The report unveils the company’s ESG framework and its four core pillars: Empowering Communities, Future-Ready Workforce, Responsible Stewardship, and Effective Governance. It highlights many notable achievements for the company under these pillars, including:

  • Empowering Communities:

– Positive socio-economic impact to support development across the region: Across its six markets, Lazada created 1.1 million economic opportunities[1] within its ecosystem of sellers, digital commerce enablers, third-party logistics partners and dedicated employees.

– Provision of services, infrastructure and capacity-building for the empowerment of Southeast Asian communities:

– Lazada’s commitment is to give back to societies and communities in recovery efforts and building a more resilient society. Initiatives such as Lazada’s COVID-19 and disaster relief responses across the markets have been in place since its early years.

– Lazada works with local stakeholders to develop programs that support women in their journeys to becoming entrepreneurs and celebrates female entrepreneurs who have overcome obstacles to grow their businesses successfully with Lazada. In March 2022, Lazada honored the achievements of 18 female entrepreneurs across the region on Lazada’s platform with the Lazada Forward Women Awards 2022.

  • Future-Ready Workforce:

– A diverse and inclusive work environment for employees: In the past two years, overall workforce across the Group has grown by 18%. Women make up 43% of Lazada’s workforce, a higher percentage than that of the overall technology industry in Southeast Asia at 32%[2].

– Development of skillsets and knowledge for the broader digital talent pool: Lazada established initiatives such as Lazada University, an exclusive education program to empower its sellers, and the Lazada Learning Festival 2022, the biggest virtual learning festival in Southeast Asia to educate and engage with the general public.

  • Responsible Stewardship:

– Lower carbon footprint: Lazada introduced a baseline carbon inventory to identify key sources of Greenhouse Gas (GHG) emission across its operations. The results from the carbon inventory exercises will serve to enhance Lazada’s decarbonization roadmap in the coming years and align with global ambitions to reduce GHG emissions.

– Reduced material uses and engage in a circular economy: RedMart, Lazada Singapore’s grocery arm, avoided approximately 30 tons of virgin plastic alone by switching RedMart Label water bottles to 100% recycled PET materials. 

  • Effective Governance

– Strengthened cybersecurity measures: Lazada is one of the few eCommerce platforms in Southeast Asia to be certified against the ISO 27001:2013 standards, an international standard for information security that sets out a holistic approach to securing the confidentiality.

– Best practices for intellectual property protection and processes: Lazada is the first Southeast Asian digital commerce company with a dedicated Intellectual Property Rights (IPR) Protection Team. In March 2020, the team piloted a proactive detection and takedown of counterfeit goods, which resulted in 98% of proactive removals occurring before a transaction took place in 2021.

“The progress we made in the last few years has laid the groundwork for sustained success and momentum as we push forward with our ESG impact,” said Frank Luo, Chief Financial Officer, Lazada Group. “As Southeast Asia’s pioneer digital commerce platform, we are committed to enabling a sustainable and healthy ecosystem that connects buyers and sellers. Our approach is to adopt an ‘ecosystem mindset’, by increasing collaboration with our partners and stakeholders along our value chain to create a positive impact.”

Most recently, Lazada Logistics in Indonesia was also honored as the winner of the Responsible Consumption and Production (Plastic) category under the B20 Sustainability 4.0 Awards, a joint European-Indonesian project and a side event of B20 Indonesia 2022. The prestigious awards celebrate businesses and individuals that embed sustainable practices in their strategies and processes by embracing the environment and societies in their agenda.

Hong Kong And Singapore Lead Green Fintech Development Among The Five Economies In APEC

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DigitalCFO Newsroom | 28 October 2022

Study finds government support and talent development are crucial in driving the growth of green fintech.

GoImpact, an ESG and Sustainability education firm, together with The Chinese University of Hong Kong’s Business School (“CUHK Business School”) released the findings from their working paper, Exploring the Green Fintech Ecosystem in Asia: Insights from Five Economies in APEC. This study finds that government support plays a vital and essential role in facilitating green fintech development, while talent shortage is a common concern in the five economies in the region.

Derived from three elements — environment, finance, and technology — the industry report defines green fintech as financial activities that utilize green technologies that bring better environmental outcomes.

Industry experts from five APEC economies, namely Hong Kong SAR, China (“Hong Kong”), Indonesia, the Republic of Korea (“Korea”), Singapore and Thailand, have urged policymakers to establish a conducive environment for green fintech to flourish. According to them, governments can help through offering incentive schemes for startups to develop in this area and spearhead the change by setting sustainable regulatory frameworks and mandating disclosures, reporting, and thresholds.

The study also suggests that financial institutions should embrace the sustainable agenda to achieve the triple bottom line: profit, people, and the planet. Given the current competitive banking environment and the global shortage of green talent, financial institutions should utilise their unique positions in the business ecosystem to develop more in-house sustainability talent to promote the sustainability agenda, the report further explains.

The study examined policies, markets, and opportunities regarding fintech’s role in driving green finance in the five selected APEC economies through desk research, interviews, as well as focus group discussions involving green fintech startups, government and quasi-government organisations, green fintech-related associations, and financial institutions.

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