It should step up investments in green energy innovation and chart diplomatic pathways to make the country an ESG choice location for sustainable businesses
By Sharad Somani, Partner, Head of Infrastructure Advisory, KPMG in Singapore; Tay Hong Beng, Partner, Head of Real Estate, KPMG in Singapore; Cherine Fok, Director, Sustainability Services and KPMG IMPACT, KPMG in Singapore
Environmental, social and governance (ESG) concerns have risen to the top of the agenda for governments and enterprises in the past year. At the recent COP26 climate summit, Singapore stated its full commitment in accelerating its transition to a low-carbon future.
Yet, while the Singapore Green Plan 2030 has provided a comprehensive outline and statement of intent across key broad areas, there will be a greater urgency to achieve these goals and fast-track the initiatives planned.
Certainly, businesses across all sectors will require support to be operationally and strategically ready for a sustainable future. Pragmatically speaking, efforts are likely to begin with the financial services and climate-sensitive sectors such as energy, infrastructure & real estate, transport & logistics and food.
Critical to these efforts will be Singapore’s reputation for ESG in Asia, along with the green innovation investments, talent and business growth that the country can offer.
Singapore has an opportunity to firm up its place as a regional ESG leader amidst rising global competition, while securing its energy future and complying with low-carbon commitments.
Implications include implementing legislation to combat greenwashing, such as mandating independent assurances for material data in ESG reports. Benefits also need to be apparent to incentivise industry players to move forward, with a clear economic model for companies to go green beyond complying with regulations.
Understanding and prioritising ESG issues and approaches remain a concern: KPMG’s 2021 CEO Outlook survey found that 40 per cent of Singapore CEOs said they struggle with articulating a compelling ESG story, while 16 per cent of them face difficulties in addressing the ESG reporting needs of various stakeholders.
Finance Minister Lawrence Wong has laid out plans for Singapore to grow a greener home for present and future generations in his Budget 2022 speech. To take these efforts a step further, KPMG would like to highlight possible measures to aid Singapore’s rise as: 1) the gateway to Asia in sustainable finance; 2) a green energy innovation leader; and 3) a role model in green buildings.
Considering the different development trajectories of industries for ESG, the government can consider prioritising climate-sensitive sectors, such as infrastructure, real estate and energy.
Global competition is heating up as countries and companies capitalise on climate change for economic growth. Green financing will become an important enabler in these efforts, as in the case of capital-intensive infrastructure projects; yet, most banks and multilateral agencies may not be ready, even though they have started lending with an ESG lens – it will still take a few years before their portfolios decarbonise, given the nature of their lending to various sectors of the old economy. Sustainability ambitions have to continue moving at pace to meet net zero ambitions and cannot wait for the financial sector to further evolve.
This opens up opportunities for Singapore to demonstrate its credibility as a regional sustainable finance hub. As a gateway to Asia, it can set up a green financing bank to fund Asia’s sustainable infrastructure projects. This could be in collaboration with multilateral banks to accelerate Asia’s transition to a low-carbon economy in the form of a multi-year project.
A green financing bank can develop a framework to identify and qualify the projects to be supported. It can also develop a research and development line of credit to help fast-track innovation and pilot use cases in emerging areas of storage, hydrogen and energy efficiency. In addition, the bank can seek to drive more ESG investments by facilitating capability building and knowledge-sharing across industry verticals.
Another long-term initiative Singapore can address is positioning the Singapore Exchange as the preferred issuer of green bonds, thereby further anchoring the country’s reputation as a green finance hub.
In last year’s Budget, the government announced that it will issue green bonds on public infrastructure projects to catalyse the flow of sustainable development in Singapore and Asia. Up to S$19 billion in public sector green projects were identified.
To fast-track issuances by infrastructure companies, Singapore could look at defraying issuance costs for a period of 12 months. While some projects have set successful precedents, there is room to accelerate progress in this area one year on, with benchmarks from different issues in Singapore being key to attracting more regional players here.
Beyond green bonds, Singapore also has the capabilities to explore initiatives that can finance the transition from a brown economy to a greener one, such as through transition bonds. This would target businesses that are keen on green investments in the future but may not have projects or assets that currently qualify as being green.
Allowing these businesses to tap financial support for this transition is crucial. Driving these highly pollutive industries towards a green future will create a significant positive impact on the environment. This will enable Singapore to make great strides on its net zero ambitions while strengthening its position as a regional sustainable finance hub.
The recent global energy crunch has shown that Singapore cannot take its energy security for granted. While the country has been exploring new sources of energy, these developments are still in their nascent stages. Giving emerging green technologies a boost through innovation and investments will help the Republic enhance energy security, while demonstrating leadership in global decarbonisation efforts.
Taking the lead in green innovations will also put Singapore in a better place to cope with volatile electricity prices and other uncertainties.
There is potential for Singapore to announce a multi-year S$1 billion Green Energy Investment Fund to drive green innovation and low carbon tech adoption, as it works towards fulfilling global green targets. This new fund could be in the form of partnership between the government and the private sector, with involvement from academic institutions and research agencies.
Singapore has already pumped S$10 million into low-carbon research and S$55 million for projects in hydrogen and carbon capture, utilisation and storage. The fund will send a strong signal of its commitment towards innovation in emerging green technologies through to 2030.
The fund could also help to drive an ecosystem of innovative solutions across industries, involving areas with untapped potential such as hydrogen fuel cells, carbon sequestration, distributed generation and energy storage.
Beyond investing in new technology companies, the fund will also support the deployment of use cases by industry, driving regional green efforts, while similarly playing on Singapore’s expertise in green investments.
Singapore has an ambitious target of greening 80 per cent of its buildings by 2030. From the same year, it also aims to have 80 per cent of its new buildings to be Super Low Energy (SLE) buildings.
Currently, about 57 per cent of all buildings in Singapore are yet to be “greened”. These have an average age of 26 years. Amidst Covid-19, developers and landlords have been reluctant to go green, as cashflow concerns remain their top priority.
To reach the desired outcome of its Green Plan, Singapore will need to incentivise developers to build SLE buildings, while raising capital for the retrofitting of old buildings. The greening of the country’s stock of older buildings is a key challenge but it can be overcome potentially by reinstating the Green Mark Gross Floor Area (GM-GFA) incentive scheme in Budget 2022. This reintroduced scheme should re-emphasise the green building initiative and allow developers to purchase “Green GFA” from the government, which would be additional GFA that can only be used in SLE buildings.
Laws can also be set so that energy-intensive developments such as data centres can be built only by purchasing Green GFA. The proceeds from the Green GFA thus sold can, in turn, raise capital for the retrofitting of old buildings. The capital can be disbursed in the form of very low or zero interest loans to landlords, especially for those who are unable to secure bank funding due to a low credit rating. Capital raised from Green GFA can also be used to grow an innovation ecosystem for climate-friendly construction techniques, building materials and technologies through providing early-stage financing.
Focusing resources on fostering green innovation and technology will enable Singapore to reach its climate goals, while strengthening its reputation as a policy leader in green buildings.
Sustainability has become a top priority for governments and corporates in the past year. Following Budget 2022, Singapore will need to initiate long-term ESG plans to send a clear signal to enterprises and citizens of the urgency of national commitments.
Singapore’s net zero journey cannot be disconnected from the rest of Asean, in view of its strategic position as a regional hub. Hence, the country should explore ways to raise its profile and visibility as a regional leader in sustainable developments, green finance and renewable energy – stepping up investments in green energy innovation and charting diplomatic pathways for Singapore to thrive as an ESG choice location for sustainable businesses.
The ultimate goal is to engender not only ESG-related economic growth for the country, but also lasting impressions on the sustainable front that other countries will look to emulate.
