2018 – Year of Climate Action and the Carbon Tax: What companies in Singapore should know

The 2017 hurricane season was one of the most intense in recent history [1] and left extensive damage in Texas, Florida, and the Caribbean while Typhoon Hato wreaked havoc in Hong Kong [2]. Financial losses related to these natural desasters were significant. Several large reinsurers, including Munich Re, have reported big losses resulting from the cost of the disasters [3]. In the medium term, such events will also lead to assets being uninsurable [4].

Climate change is a factor increasing the frequency and intensity of climate-related disasters such as hurricanes [1]. Singapore has been experiencing more heavy storms in recent years and also dry spells such as the one in early 2014. As a low-lying coastal state, Singapore is also vulnerable to rising sea levels and floods, and is taking measures: the fifth Changi terminal will be built on land raised 5.5m above mean sea level, and the government has increased minimum heights of reclaimed land and coastal areas [5].

Climate-related impacts in other parts of the world will also have an impact on Singapore’s supply of food, water and raw materials. Globally, $4 trillion worth of assets will be at risk from climate change by 2030 [6].

But are companies aware of climate change risks, and are they doing enough to mitigate and adapt to climate change impacts? According to a survey by KPMG, almost three quarters of large and mid-cap companies worldwide and in Singapore do not acknowledge the financial risks of climate change in their annual financial reports. In addition, only 17 per cent of Singaporean firms have set carbon reduction targets, compared with the global average of 50 per cent [7].

To instil awareness of climate change and to inspire action among citizens of Singapore, 2018 has been designated as the Year of Climate Action.

The Year of Climate Action, together with a Climate Action pledge, was launched by Minister for Environment and Water Resources, Masagos Zulkifli, at the Singapore Sustainability Academy last Friday morning (26th of January 2018) [8]. According to Mr Masagos, 2017 was the hottest year in record for Singapore. For Singapore, the rate of warming from 1951 to 2012 was 0.26°C per decade, more than double the global average of 0.12°C over the same period. Singapore’s mean sea level is currently estimated to rise by about one metre by 2100 [9].

Under the 2015 Paris Agreement and as part of a global effort to mitigate climate change, Singapore has pledged to reduce its greenhouse gas (GHG) emissions per dollar of GDP (otherwise known as “emission intensity”) by 36 per cent from 2005 levels by 2030. Singapore has also pledged to stop any increase in its total GHG emissions by 2030 [10].

To meet these targets, Singapore’s strategies include implementing a carbon tax on large emitters. From 2019-2023, each tonne of CO2 is taxed at S$5. The tax rate is expected to increase to between S$10 and S$15 per tonne by 2030 [11]. The Singapore government has also increased its focus on renewables and low-carbon technologies, especially solar power [12].

Given these direct and indirect impacts of climate change on companies’ financial viability, businesses have begun to incorporate climate change considerations into financial and business decisions. Several local companies, specifically CDL, DBS, Olam, SGX, and Singtel, have endorsed recommendations by the Task Force on Climate-related Financial Disclosures (TCFD). Issued by the G-20’s Financial Stability Board (FSB), the TCFD recommends companies to disclose their climate-related financial risks and opportunities [13].

Internationally, companies such as Glencore and ConocoPhilips, have already conducted climate change or carbon scenario planning. For companies that are just starting out, tracking GHG emissions will be the first step. Stakeholders are increasingly expecting companies to report on their GHG performance and management plans – the Carbon Disclosure Project requests such information from corporations all over the world and makes it available to investors and customers.

Climate change as well as the global response to it by regulators and businesses are likely to have a significant impact on your business, regardless of the industry you are in. To respond to these developments and ensure that your company is prepared for new challenges, you may want to consider the following:

[1] https://news.nationalgeographic.com/2017/09/hurricane-irma-harvey-season-climate-change-weather/

[2] https://www.cnbc.com/video/2017/08/23/typhoon-hato-not-business-as-usual-after-hurricane-hits-hong-kong.html

[3] https://www.nytimes.com/2017/10/26/business/dealbook/munich-re-hurricanes-insurance.html

[4] https://www.ft.com/content/d8c727ee-44e0-11e6-9b66-0712b3873ae1

[5] https://www.bundesbank.de/Redaktion/EN/Topics/2017/2017_10_09_climate_risks.html

[6] https://www.cdp.net/en/climate

[7] https://home.kpmg.com/xx/en/home/media/press-releases/2017/10/companies-not-noting-financial-risk-of-climate-change.html

[8] http://www.straitstimes.com/singapore/environment/singapore-launches-its-year-of-climate-action-masagos-urges-people-and

[9] https://www.channelnewsasia.com/news/singapore/singapore-to-declare-2018-year-of-climate-action-9414346

[10] http://www.todayonline.com/singapore/spore-declares-2018-year-climate-action

[11] https://www.todayonline.com/singapore/carbon-tax-set-s5-tonne-ghg-emissions-next-five-years

[12] https://www.mewr.gov.sg/climateaction

[13] http://www.eco-business.com/opinion/climate-change-and-sustainability-disclosure-why-we-must-start/