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Summary:
The recently announced US $1.8 billion budget from the Singapore central bank, the Monetary Authority of Singapore (MAS) is a hallmark for the new wave of green investments arriving in Singapore.
MAS states these funds will allow it to mitigate environmental-related risks when investing in its portfolio, and is a signal to both businesses and investors how Singapore’s shift to green will start to affect the bottom line.
These steps are in line with the Singapore Green Plan 2030, a masterplan that includes goals such as reducing the country’s peak carbon emissions by 50% before 2050.
Research is a first major step for Singapore; examples including a $23 million commitment from local universities to investigate energy-efficient methods for data center cooling.
Green investments are a next major step. Examples include the S$43 million green loan from UOB to fund Singapore-based renewable company Sunseap Group’s expansion of solar energy projects.
Scale is the final step for Singapore’s green investment strategy. Major examples include Climate Impact X, an upcoming carbon credit exchange that will be used by the world’s largest firms including Microsoft, Google, and Amazon.
This comes off the coattails of a $5 carbon tax per ton of greenhouse gases for Singapore-based companies. Carbon credits allow businesses and investors to trade a permit equivalent to 1 ton of greenhouse gas emissions, which factors into businesses offsetting their emissions to achieve carbon neutrality.
Sustainability governance is also essential for businesses to stay accountable to targets. 64% of 566 Singapore-listed companies now disclose sustainability reports in this manner, up from 22% in 2019.
However, subjectivity and verifiability remain major challenges in governance, with a lack of standardization and verification of sustainability reporting posing issues for investors and other stakeholders to objectively assess actions from corporations.
$1.8 Billion of Firepower for Green Investments
Imagine if you were given a cool US $1.8 billion to budget for whatever you wished. No big deal. What would you do with it?
The Monetary Authority of Singapore (MAS), Singapore’s central bank, clearly has something in mind it would do with that kind of money. MAS’s recent announcement to dedicate US $1.8 billion to green investments for its portfolio shows us one thing is clear – Singapore is getting serious about green investments.
On last week’s edition of Insights at REANGLE, we discussed Singapore’s strategy to integrate renewable energy. This week, we’re going to dive even further and take a look at how it’ll all be made possible: with the power of green finance.
Singapore’s Mission to Go Green
There are three key stages Singapore will embark on to invest in its ever-greening economy: research, investments, and scale. These stages are essential to achieve the goals in the Singapore Green Plan 2030, which outlines a number of long-term objectives for sustainability, including halving its peak carbon emissions by 2050.
These stages will also require Singapore to leverage its investments in areas such as education, public infrastructure, business ecosystem, and its status as one of the world’s top financial hubs.
Stage 1: Research
Singapore has a pool of highly-educated talent in science, engineering, and technology, thanks to its high-ranking local universities. Most recently, the National University of Singapore and Nanyang Technological University announced a $23 million program to research cooling systems for data centers to increase energy efficiency and reduce their carbon footprint. Research like this is particularly important since cooling systems for data centers in tropical climates like Singapore make up as much as 40% of each data center’s energy usage.
By investing in its local STEM talent and ecosystem, Singapore will be able to produce in-house innovations via research. This gives the nation an edge in driving its own sustainability goals, particularly as there is a major shortage of STEM talent in the world to begin with.
Stage 2: Invest in Green Financing
Singapore is already a hub in the Asia-Pacific region for investors and financiers, but with recent reports of trillions of dollars pouring into green financing, Singapore is starting to get in on the action too. As outlined earlier in this article, MAS has set aside US $1.8 billion for green investments for what it calls a “climate-resilient portfolio”, focusing on investing in businesses and innovators that prioritize sustainability and decarbonization in order to mitigate the risk of negative environmental impact.
Banks, corporations, the government, and individual investors are also joining the fray, using green-focused financial instruments including loans, bonds, and green investments. The United Overseas Bank (UOB), for instance, gave the green light to a S$43 million green loan to renewable energy company Sunseap Group, which would be used to fund the construction of upcoming solar energy projects in Singapore.
Green Bond Market in Singapore
Green bonds are also being issued by companies and the government, particularly those in industries with high carbon emissions output, using so-called green transition bonds – debt that companies take on in order to finance their transition to a greener method of doing business. In Singapore, issuers have raised a total of US $3.5 billion in green bonds within 2020, and some upcoming green bonds include those from the Singapore government, which would be issued to fund an estimated S$19 billion in infrastructure projects to help the government transition the country to greener operations. This would include Tuas Nexus, Singapore’s first integrated water and solid waste treatment plant, which would open in 2025.
Stage 3: Scale
Singapore is a highly affluent nation that is considered to be one of the world’s top financial hubs, with PricewaterhouseCoopers ranking Singapore 2nd in its Cities for Opportunity Index. With this history and status in mind, it is perhaps unsurprising Singapore is able to attract both local and foreign investment, business expenditure, and even startups to come to Singapore seeking opportunities to reach scale.
Now, the same is happening with businesses that are going green which are operating in Singapore, and scale will be an essential component for Singapore to reach its sustainability targets. For example, Amazon has just announced in March 2021 that it will be undertaking its first renewable energy project in Singapore, a 62 megawatt solar energy facility which would be used to power its offices, AWS servers, and other company operations, scaling its use of renewable energy along with its growth in the Southeast Asian region.
Climate Impact X: Carbon Trading is about to begin
Singapore is also leveraging its strong commercial sector, status as a financial hub, and government-industry relationships to build new large-scale solutions that can tackle climate problems in a big way. The most recent example of this can be seen in Climate Impact X, a carbon exchange platform spearheaded by the Monetary Authority of Singapore and funded by DBS Bank, Temasek, Standard Chartered and the Singapore Exchange (SGX).
Carbon exchanges are platforms that facilitate the trading of carbon credits, a novel form of investment that is only recently starting to catch on in Asia. On a carbon exchange like Climate Impact X, businesses and investors can buy and sell carbon credits, with businesses who purchase carbon credits being able to use them to offset emissions. Each carbon credit is a permit that is equivalent to 1 ton of greenhouse gases, and unused carbon credits can even be sold for a profit.
The introduction of such a large-scale solution is also a timely arrival due to the carbon tax of $5 per ton of greenhouse gases introduced by the Singapore government in 2019 to make corporations pay for additional greenhouse gas emissions that result from their business activities, which is why companies including Microsoft, Amazon, and Google have already expressed interest in using Climate Impact X to purchase carbon credits. This shows yet another way Singapore is demonstrating its ability to build solutions that have enough scale to reach the country’s sustainability goals.
Read also
The Future of Singapore’s Green Business Ecosystem
Right now, it is obvious that every business needs to be a digital business to survive in our rapidly digitalizing economy. Very soon, there will be a new saying: “Every business will be a green business.” This is the future we can see in Singapore’s ever-greening economy, starting from the ecosystem that is primed to sprout, evolve, and grow.
First, sustainability reporting has already started to catch on in Singapore in a big way. Sustainability reports are issued by companies to disclose their strategies and actions taken to mitigate against environmental or social issues, and 2020 saw 64% of 566 Singapore-listed firms disclose sustainability reports with performance in the context of targets , up from 22% in 2019.
Data Verification is the key to secure Green Finance
Sustainability reports can come with their own issues, such as containing a lack of clarity and unverifiable claims, but steps will be taken in that domain too, with public blockchain ledgers poised to be a potential long-term solution to validating the claims, transactions, and outcomes companies state in their sustainability reports. Guidelines, including those released and maintained by MAS, will also be integral to ensure consistent standards apply to sustainability reporting from businesses and financial institutions.
Infrastructure is another big way Singapore is heading towards greener pastures, with electric vehicles powered by renewable energy being one of the prime methods Singaporeans will be able to see this change. Singapore has had a colorful history of resisting uptake of electric vehicles until recently, but now the government and businesses are now going all in, with Singapore’s Housing Development Board (HDB) announcing that all public HDB apartment complexes within 8 select towns will have electric vehicle charging stations by 2025. This will need to be paired with renewable energy to be truly green, and currently, Shell’s Recharge service is taking the lead with their pilot program to use solar-powered charging stations in the country.
A final example of Singapore’s future green ecosystem can be seen with the new era of businesses popping up to specifically cater to environmental, social, and governance (ESG) issues. Carbon consulting services including law firms, project financing advisors, and business consultants have already been launched in the country to help clients navigate the new world of decarbonization. Startups such as renewable energy companies and even sustainably-sourced clothing companies are also catering to both the commercial and consumer sectors. These businesses not only add value to the green ecosystem in Singapore, they also pose attractive opportunities for investors and financiers in the region.
Singapore Sings: Is it Easy Being Green?
“Green is the color of spring!”
Kermit the Frog, “It’s Not Easy Being Green”
There was once a world-famous frog who bemoaned in his chart-topping song, “It’s not easy being green.” Singapore has shown being green comes with its challenges, but it’s definitely worth it.
After all, Kermit would eventually change his mind and proclaim, “Green is the color of spring!” And Singapore’s spring of billions in dollars pouring into green investments clearly agrees.
At the end of the day, Singapore’s lofty goals for sustainability and carbon neutrality by 2050 can only be achieved by implementing efforts with scale, whether it is installing massive solar farms, or creating a whole platform for carbon credit trading.
And as the saying goes, “money makes the world go round”, so green finance is what will help Singapore reach this critical scale. With its facilitation of green investments, dedication to new innovations, and commitment to more and better sustainability reporting for governance, Singapore is demonstrating to the world that it is going all in on green, and is a key area of promise for a new era of investors*.
About REANGLE
Our mission is to bridge the gap between deserving talent and opportunities, particularly for digital and green businesses in the Asia-Pacific region. Contact REANGLE for digital talent development, business development and transformation, or consulting for green companies at info@reangle.co.
* Disclaimer: No Investment Advice
None of the information contained in this article constitutes professional and/or financial advice, and does not constitute an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular investment strategy.
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