Powering sustainability

The rise of the City in Nature

Sowing the seeds of green finance

Sustainable development has become a topic of global interest in recent years. However, adequate funding remains an area of concern as countries face ongoing economic headwinds while dealing with domestic challenges.

Singapore has the potential to play a regional leadership role in green funding, while advancing its national ESG agenda as a city of green possibilities, through the following strategies.

Multi-pronged strategies, comprising broad-based schemes and low-entry thresholds, with more targeted schemes focusing on priority sectors, can accelerate the growth of blended and transition finance in Singapore.

For instance, a blended finance equivalent of the Singapore Green Bond Framework can increase funding for Singapore’s sustainability efforts with scope for the country to serve as a base for financial institutions to provide green financing solutions to the region.

Singapore’s strong financial ecosystem and geographical position also offers an opportunity to lead an energy transition mechanism initiative to facilitate the clean energy transition in Southeast Asia.

Our interactions with industry players indicate that issuers would welcome the extension of the Sustainable Bond Grant Scheme beyond 31 May 2023. The scheme offsets up to $100,000 of additional expenses for external reviews of eligible green, social, sustainability and sustainability-linked bonds and promotes the adoption of internationally accepted standards.

We also recommend lowering the minimum issuance size to enhance the accessibility of the scheme to a wider audience of issuers.

The transition to net zero is not just the responsibility of corporates. Financial institutions (FIs) will also soon be held accountable for who they finance and do business with. Engagement and education are key to helping them understand the cost of carbon and climate inaction.

Blended finance can help FIs reduce their overall carbon footprint and redirect much-needed capital to markets that require support in their net-zero efforts. To encourage green financing from FIs in Singapore, we recommend a 5% or 10% concessionary tax rate under the Financial Sector Incentive Scheme on the interest derived from green loans.

Flipping the energy switch

Achieving net zero by 2050 will require concerted action from various stakeholders, including the Government, businesses and the public, along with international cooperation. These recommendations share how Singapore can constantly review its portfolio of energy options, complement it with emerging alternatives based on technological advancements and leverage its geographical position as a nexus of regional connectivity.

Singapore can be a test bed for green technologies that can later be replicated in other ASEAN countries. It can also promote pilot projects in energy storage, energy efficiency and distributed generation to drive the low-carbon agenda across sectors. We propose additional tax deduction on top of the 150% enhanced tax deductions for research and development activities on technology that can translate to sustainability outcomes.

Deploying a multi-layered grid with digital technologies can further ensure a secure and optimised system. We propose enhanced capital allowances for the purchase of sustainable technology, such as lower-energy consumption equipment, intelligent energy management systems and alternative renewable energy sources. Incentives can also be given to businesses who repurpose existing manufacturing plants to transition into clean energy storage and production.

Singapore can invest in sensor infrastructure, network and communications technologies and big data analytics to help optimise costs and drive energy efficiency. For instance, it could optimise load and generation capacity across grids by running analytics on operational data to help anticipate grid congestion and planning capacity upgrade and redundancies.

The use of smart meters can also enable companies to replicate, anticipate and automate energy systems that provide real-time insights on power outages, line disturbance and grid stability, improving operational efficiency and enhancing predictive maintenance.

Singapore can help countries develop and implement asset recycling frameworks as a mechanism to refinance brownfield infrastructure while achieving broader ESG objectives. An asset recycling mechanism allows governments to bring private sector innovation, investment and efficiency to operating infrastructure assets, while freeing up capital for other priority greenfield infrastructure projects.

An energy transition mechanism involving early retirement of coal-fired power projects could be a good test case and impactful decarbonisation initiative.

Improvements in renewable energy technologies and energy storage are paving the way for countries to reduce their reliance on oil and gas as feedstock for power generation. To support the green energy transition, green bonds should be a theme for Singapore statutory boards. We propose setting frameworks to analyse projects’ qualification for green investments and introducing a green credit scoring system with new environment and energy factors.

To decarbonise the grid, Singapore can collaborate with capital providers to pump up investments in large-scale solar projects in other ASEAN countries under a generate-and-transfer model. Collaboration between the authorities and relevant industry bodies to increase support for FIs in this area can further strengthen the Republic’s position as a green finance hub and boost its decarbonisation agenda.

Driving decarbonisation

Budget 2023 has the potential to ramp up sustainable practices in the property and electric vehicle industries through fiscal support and stronger regulation on Singapore’s road to net-zero emissions by 2050. These strategies may guide the nation towards this goal:

Green buildings

New requirements to embed sustainability in building design, construction and management formulated in consultation with academia and industry can support and increase the ambition of the Singapore Green Building Masterplan and Green Mark Scheme 2021. The Government should also define a decarbonisation roadmap for real estate and harmonise industry standards.

The following targeted temporary support can bridge the green building demand-supply gap:

200% tax deduction on financing costs and rental of green properties
30% property tax rebate and 50% exemption on taxable gains from green building sales
Subsidies for four to five years for retrofitting of existing buildings
10% concessionary tax rate for FIs on interest income from loans for the acquisition and green redevelopment of older properties with tax exemptions on income from green bonds

These measures could help promote the use of sustainable materials for Singapore buildings:

Establish sustainability certifications for building materials and equipment
A comply-or-pay model set against benchmarks on use of recycled materials in new builds
GST rebates on imported green materials and equipment for non-GST-registered businesses
A grant to help construction contractors acquire offshore material supply companies to establish vertically integrated supply chains for sustainable products
A greater push towards off-site manufacturing

Electric vehicles

To promote EVs, the Government could bring forward the current 2040 deadline for an outright ban on petrol and diesel vehicles. Faster deployments of the Government’s target of 60,000 EV chargers could further help the nation reach 100% cleaner energy vehicle adoption faster.

The Government can continue tactical subsidies such as the Electric Vehicles Common Charger Grant, which supports installation of charging infrastructure in non-landed private residences.

Current subsidies such as Singapore’s EV Early Adoption Incentive and the Vehicular Emissions Scheme can save consumers up to $45,000 on a new EV. These have been critical in boosting EV purchases and could be extended for two years beyond their respective current expiry dates of 2023 and 2025 to help eliminate price differentials between EVs and internal combustion engine vehicles.

Other incentives could include offering subsidised parking and/or high-occupancy vehicle lane privileges to EV drivers or waiving electronic road pricing charges for EVs for a limited period.