Climate talk will be replaced by action in 2022

The net-zero transition needs to be completed by 2050 to avoid the irreversible impacts of climate change, and the urgency means climate rhetoric needs to make way for substantive change in 2022.

In the Year of the Tiger, any government, company or investor transition plan that is toothless in substance and action will risk reputational and commercial penalties. But realistically, converting statements of intent into verifiable action will be elusive for many.

Below are some ways in which stripes will be earned in 2022.

Government

From a government perspective, the Climate Action Tracker shows more than 140 countries - covering 90 per cent of global emissions - now have net-zero targets; however very few have provided details on how it will be achieved.

Singapore launched its Green Plan in 2021, setting out pathways to achieve sustainable development, with aims to peak carbon emissions around 2030 and achieve net zero as soon as viable after 2050. Like its Asian peers, Singapore has several options to further cement its commitments.

First, we can expect this year’s Budget announcement to detail how Singapore’s current S$5-per-tonne carbon emission tax will change in 2023 (Singapore is one of only 35 markets to implement a carbon tax). Doing so will prepare the market and send strong signals to consumers that carbon emissions is a whole-of-country challenge.

We can also expect the Budget to reveal how Singapore will accelerate its mandate to adopt cleaner and lower-carbon renewable energy sources, with a potential focus on utilising hydrogen to decarbonise power generation and emissions-heavy sectors. Also, expect to see more investment in low-carbon transition technology.

Further afield, Singapore is looking to finalise its green taxonomy in 2022 - both within Singapore and among its Asean peers. This will give much-needed guidance to financial institutions, so that the sector can confidently classify client activities along the spectrum of green, transition, or inconsistent. An established taxonomy will provide a more transparent framework for financial institutions to adhere to when it comes to sustainable financing, reducing ambiguity, and preventing “greenwashing”.

Finance

The financial sector will be an important enabler for enacting government policy, including finalising a green taxonomy, embedding climate risk management principles, and developing talent for the industry.

Beyond this, banking will be intricately involved in establishing natural capital as an asset class and play a key role in channelling investment in this space. Placing a price on the world’s ecosystem services will continue to gain momentum in 2022, particularly for Singapore and South-east Asia, given its large natural biodiversity.

Similarly, we will see banking play a strong role in helping the infrastructure and energy sectors’ transition to net zero.

For example, many sustainable infrastructure projects in the region face varying degrees of barriers to bankability. Private capital can play a unique role in bridging this gap. For example, in September last year, HSBC partnered with Temasek to launch a US$150 million platform to catalyse marginally bankable infrastructure projects. We hope to scale up to US$1 billion of loans within 5 years to support commercial development of the region’s sustainable infrastructure sector.

Wealth

Wealth investment is also gaining momentum in terms of demand and performance for sustainability-related products.

In 2021, global climate stocks - on an equal weighted basis - outperformed the FTSE All World index by 9.5 per cent. The demand for these products will continue. A 2021 HSBC survey found that under 50 per cent of surveyed Singaporeans (mass-affluent and high-net-worth investors) said they expect their portfolios to comprise 100 per cent sustainable investments in the next 3 to 5 years.

Obviously, these trends will spur financial institutions to widen and deepen solutions focused on environmental, social and governance (ESG) performance, but what will distinguish solutions is the transparency and auditable evidence in demonstrating how the vehicles are delivering sustainable benefits. This will lead to increasingly sophisticated ESG frameworks, improved standardisation, and elevated transparency.

Large corporates

Analysis from Net Zero Tracker has estimated that roughly 20 per cent of the world’s top 2,000 publicly listed companies have released net-zero commitments.

Like government, large corporates can expect immense pressure from regulators, customers, and investors for actionable plans to go beyond reducing their own specific carbon emissions and examine that of their entire supply chain (otherwise known as Scope 3 emissions).

In Singapore, this is already underway. From the start of 2022, the Singapore Exchange updated its listing rules requiring “issuers to disclose their Scope 1 and Scope 2 greenhouse gas (GHG) emissions, with Scope 3 GHG emissions to also be disclosed, if appropriate”. Other jurisdictions will follow.

But Scope 3 is the Mount Everest of net-zero pledges. On average, 80 per cent of a company’s carbon footprint resides in its supply chain. This means that smaller firms will now come under the climate change radar and be under pressure to develop concrete plans.

SMEs

The biggest worry for small and medium-sized enterprises (SMEs) is that they are the least prepared and under-resourced. HSBC research found that SMEs do not have the in-house climate expertise or capital to drive and fund climate transformation.

As a result, the research found that an estimated S$25 to 50 trillion of investment - largely from multinational corporations - that is needed to deliver net-zero supply chains will have to be directed towards SMEs.

There are examples of this happening. For instance, HSBC worked with Walmart in 2019 to create a supply chain finance programme to help enhance standards and tools for their smaller suppliers. In 2021, the programme was updated to incorporate science-based targets for emissions reduction, a move that helps suppliers move towards their net-zero goals while accessing improved financing from HSBC.

Regardless of whether SMEs receive support from the further up the supply chain, they will need to step up their disclosures this year. Practically speaking, this includes delivering plans to show how 100 per cent of their company-wide Scope 1 and 2 emissions will be transitioning to zero, and how the emissions boundary will be expanded over time to cover Scope 3. To encourage and mobilise SMEs, Singapore has launched a raft of initiatives including the Enterprise Singapore Financing Scheme Green - to help SMEs’ transition capability building.

In conclusion, the net-zero transition requires the world to undergo a commercial, financial and industrial overhaul across all sectors of the economy. Thus, in this Year of the Tiger, the debate is no longer about “why” sustainability is needed, but “how” to pursue it in a practical and effective manner with bite. The changes will be swift and all-consuming, so best that Singapore-based entities get ahead of the change.