Greening The Lion City: Opportunities in Green Finance Regulations

Big Picture: Three-Faceted Pressures

Sustainability regulations are increasingly being enforced globally and Singapore is actively aligning with global sustainability regulatory frameworks. Currently, not all regulations are mandatory, and it is in the interest of governments and corporations to voluntarily disclose climate-related risks and opportunities. We expect more regulations to be made mandatory soon.

Opportunities Outweigh the Risks in Regulations

Opportunities: With disclosures, corporations can avoid penalties from government regulations such as carbon tax and attract investment opportunities in their sustainable business and operation. Corporations that target consumer products can build a genuinely sustainable product line and avoid reputational risks knowing they have complied with regulations. By disclosing proven evidence of sustainable product lines, corporations can build a stable customer base as they have earned the credibility and trust of consumers.

Risks: Nonetheless, preparing and reporting climate-related disclosures can be time-consuming and resource-intensive, leading to increased costs for corporations. Climate-related disclosures often involve multiple reporting frameworks that can be challenging to apply consistently. In addition to the tumultuous economic conditions, corporations are faced with the need to disclose climate-related information.

Takeaway: Regulations with penalties are not yet mandatorily enforced and incorporated into green finance and corporate activities. However, corporations are facing pressures from global investors and consumers on greenwashing and sustainability disclosures. These pressures might be more significant than legislative regulations. Pressures from investors can affect share prices and fundraising for corporations, and consumer backlash can directly affect the top and bottom lines of businesses. Decarbonization and green finance are the core parts of corporate management and strategy for the foreseeable future.

Singapore’s Game Plan

Singapore aims to be the leading centre for green and sustainable finance in Asia and globally. In recent years, Singapore has taken significant steps to address climate-related risks and opportunities to promote sustainable economic growth. Through partnerships with China, the China-Singapore Green Finance Taskforce (GFTF) aims to facilitate financing to help Asia reduce carbon emissions. Various initiatives and funding schemes have been set up to support the country’s sustainability goals as part of Singapore’s Green Plan 2030 to reach net zero by 2050.

Singapore’s Government Regulations

One crucial aspect of Singapore's green finance regulations is the emphasis on transparency and disclosure. The Monetary Authority of Singapore (MAS) has introduced guidelines that encourage financial institutions to disclose their environmental risks through the Environmental Risk Management Guidelines (ENRM) and align their business strategies with international sustainability frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD). MAS will consult on introducing mandatory disclosure requirements as soon as a global baseline sustainability reporting standard is established by the International Sustainability Standards Board (ISSB). The ISSB aims to deliver a comprehensive global baseline of sustainability-related disclosure standards to help corporations avoid double-reporting and reduce greenwashing.

The Singapore Exchange Ltd (SGX), mandates climate and board diversity reporting for all listed corporations under SGX through an industry-based phased approach. The combined financial and sustainability reports enable a better assessment of the issuer’s financial prospects and quality of management. By doing so, Singapore aims to enhance investor confidence, enable informed decision-making, and channel investments towards environmentally responsible projects.

Singapore Green Bond Market

Singapore has made significant strides in developing its green bond market. The government is set to issue up to S$35 billion of green bonds by 2030 to build on MAS’ efforts to develop green financing solutions and investment opportunities. MAS’ Finance for Net Zero Action Plan (FiNZ) is set to include Transition Finance to aid decarbonization efforts by 2030. These initiatives facilitate capital flow into renewable energy, green infrastructure, and other sustainable ventures, stimulating economic growth while addressing climate change.

Bond Issuance Volume in Singapore (2017-2021)

Source: MAS Sustainability Report 2021/2022

Singapore’s Environmental Laws

There are several other climate-related disclosure regulations under various environmental laws that corporations in Singapore must follow.

Firstly, the Energy Conservation Act 2012 requires corporations to monitor and report energy use, greenhouse gas emissions and submit energy efficiency improvement plans.

Secondly, the Carbon Pricing Act 2018 is imposed on operators of business facilities that emit more than 25,000 tonnes of Scope 1 CO2 emissions. Singapore became the first country in Southeast Asia to introduce a carbon tax on greenhouse gas emissions. The industries applicable are manufacturing-related services, supply of electricity, gas, steam, compressed air and chilled water for air-conditioning, water supply, sewage and waste management. These operators must submit their emissions report relating to their greenhouse gas emissions to the National Environmental Agency (NEA). The carbon tax is set at $5 per tonne for 2019 to 2023. Carbon tax rates will be raised to:

• $25 per tonne in 2024 and 2025

• $45 per tonne in 2026 and 2027

• with a view of reaching $50 to $80 per tonne by 2030

Key Updates to Singapore’s Carbon Tax Post-2023 (Effective from 1 January 2024)

Source: National Climate Change Secretariat Singapore

Businesses may use high-quality international carbon credits to offset up to 5% of their taxable emissions from 2024.

Lastly, the Resource Sustainability Act 2019 will give legislative effect to producers of e-waste, food, and packaging waste to submit packing reports to NEA and submit a plan to reduce, reuse or recycle packaging. The Act partially came into force on 1 January 2020 and will be implemented in stages between now and 2025.

Singapore’s Funding Schemes

Singapore has implemented various funding schemes to support the country’s sustainability goals as part of Singapore's Green Plan 2030. Here is a list of schemes that REANGLE believes are suitable and relevant for corporations looking for support for their sustainability projects.

The Enterprise Development Grant (EDG) supports sustainability projects that help businesses upgrade, innovate, and grow. corporations eligible for the grant will get enhanced funding support of up to 70% from 1 April 2023 to 31 March 2026.

The NEA’s Energy Efficiency Fund (E2F) consists of an umbrella scheme of 5 different grants to support businesses with industrial facilities to improve energy efficiency (EE). To help the manufacturing sector including small and medium enterprises (SMEs) mitigate the impact of a higher carbon tax, the NEA will raise the maximum grant support for energy-efficient technologies under the E2F from 50% to 70% of qualifying costs. This would enable corporations to build capabilities and decarbonise early by adopting energy-efficient technologies.

The Singapore Eco Fund is one in which businesses and individuals may obtain funding for projects that engage the community in improving the environment in Singapore. $50 million has been set aside for projects that support environmental sustainability and involve the community. Businesses and Individual Applicants may receive funding of up to 80% of the supportable cost items on a reimbursement basis, subject to a maximum of S$1 million

Green Finance Regulations as a Catalyst

As climate change is becoming more prevalent, Singapore cannot ignore the importance of regulatory frameworks and policies to reduce carbon emissions. Regulations serve as a catalyst for environmental responsibility and economic resilience.

Governments such as Singapore must demonstrate commitments to meeting international climate goals to maintain their reputation as the forefront of innovation and gain a competitive market advantage in green finance and sustainability. This will help generate new jobs in the sustainability sector amidst an uncertain economic environment and attract foreign investments, leading to an increase in tax revenue.

Corporations are also facing pressures from various stakeholders to comply with regulatory disclosures of Scope 1, 2 and 3 emissions and avoid penalties on their operations. Governments adopting regulatory frameworks such as TCFD and ISSB require corporations to disclose climate-related risks. Even without government regulations, corporations face mounting pressures from institutional investors and consumers that they cannot afford to ignore. Institutional investors implement climate-related protocols for corporations to comply with to continue attracting investment opportunities. Corporations that are not sustainable in their operations will result in consumers withdrawing their support and even boycotting the company.

Corporations complying with climate-related regulations will help them gain competitive advantages and business opportunities in green finance. Sustainable operations in the long run will result in more operational savings and increased revenue.

Singapore is Pioneering Asia’s Green Finance Market

Singapore's green finance regulations demonstrate the country's unwavering commitment to addressing climate change, promoting sustainable economic growth, and driving innovation in the financial sector. By prioritising transparency, facilitating green bond market development, fostering sustainable investing practices, building expertise, and strengthening international collaboration, Singapore has positioned itself at the forefront of the global green finance movement. As other nations look to adopt similar frameworks, Singapore's experiences serve as a valuable blueprint for achieving a sustainable and resilient future.

REANGLE’s Green Finance Consulting

REANGLE provides comprehensive Green Finance consulting services for corporations seeking finance for their sustainability business and remodelling their business towards sustainability by analysing sustainable-related financial data and complying with green regulations.