Introduction
1. A very good morning to everyone!
2. All of us are joining this conference because we believe that sustainability is a critical global agenda. In the World Economic Forum’s Global Risk Report, environmental risks remain the top threats by likelihood and impact, besides infectious diseases.
3. At Singapore Exchange, we are committed to play our part in the global fight against climate change. We believe that we can help facilitate economic growth in a sustainable manner, whether it is in our capacity as a key player in the ecosystem, a business, regulator or a listed company.
International Cross-Border, Private-Public Sector Collaboration
4. As COVID-19 heightens the focus on sustainability, the approach to tackle climate change resembles that of the pandemic.
5. I would like to highlight three areas that should underpin our efforts in advancing the sustainability agenda.
6. First and foremost, there needs to be international collaboration, across borders, and between public and private sectors. No single country, government or corporation can make a scalable impact alone.
7. The financial industry and capital markets, together with market infrastructure operators like SGX, play an important role in facilitating capital flows to finance decarbonisation and transition efforts. Exchanges also provide transparency, price discovery and liquidity. Governments and public sector organisations can further catalyse and accelerate some of these initiatives.
8. SGX serves the ecosystem as a sustainable and transition financing and trading hub. Less than two weeks ago, SGX, together with DBS, Standard Chartered and Temasek, announced our intention to develop a global carbon exchange and marketplace, called Climate Impact X. This initiative was forged as a result of a public-private sector taskforce, leveraging Singapore’s position as a leading international financial, legal and commodities hub.
9. Backed by SGX’s track record as a major price discovery venue for global commodities, Climate Impact X will enable efficient price discovery and provide companies with high-quality carbon credits to address hard-to-abate emissions. It will also use satellite monitoring, machine learning and blockchain technology to enhance the transparency, integrity and quality of the carbon credits.
10. A unique feature of this exchange is that we will be putting together an independent expert body comprising NGOs, leading MNCs, business groups and academics who will advise us on quality.
11. We recognise that carbon credits is a complex area and we need to work with diverse leaders and experts on the ground.
12. This is the mindset to adopt when it comes to developing climate solutions. We have to be open to partnerships and new ideas, and embrace diverse industry feedback.
Building a strong foundation and market structure
13. Second, to support and enable the further development of green and sustainable markets, there is an urgent need for the multiple stakeholders to work together to enhance policies, regulation, data, taxonomy and use of technology, among others.
14. These are complex tasks given the varying levels of industry standards, knowledge and market readiness, particularly in Asia.
15. As an exchange, we have a unique position at the centre of the market ecosystem. We mandated sustainability reporting in 2016, and we have seen encouraging progress since then.
16. This year’s review of sustainability reports from our listed companies showed overall improvement in the level of disclosure. There were broad-based gains across the scorecard regardless of listing board, size and industry sector. Notably, issuers of smaller market capitalisation posted the largest increase in average scores.
17. Our review indicates an overall increase in the depth and understanding of sustainability reporting, as well as sustainability management among Singapore-listed issuers. Almost half the issuers already discuss climate change as an economic, environmental, social and governance (EESG) factor in their sustainability reports. For around one third of issuers, it is a material topic.
18. Nevertheless, we are stepping up climate-related measures. We will consult the market on whether we should incorporate TCFD recommendations into our rules, including placing greater emphasis on climate-related disclosures, assurance and structured formats for reporting.
19. By guiding the distillation of key information, we hope that challenges in sustainability reporting – namely, quantification, comparability and harmonisation – can be addressed.
20. Disclosure and data as two sides of the same coin. As we look at ways to raise the quality of ESG disclosures, we are also working on how we can promote the application and integration of ESG factors across capital market stakeholders in the long term.
21. There remains a lot to resolve, with both issuers and investors wanting ESG data to be more transparent, standardised and accessible. Solutions here would unlock the growth of ESG investments in Asia.
22. We are in the process of creating a key reporting indicators tool that allows data to be easily collected from companies and shared with end users such as data providers and investors. Issuers can efficiently manage and make their sustainability disclosures for possible benchmarking more transparent. For investors, this can potentially lower the information friction they currently face.
23. At the same time, financial institutions must concurrently develop innovative climate solutions across all asset classes.
24. According to a GFMA/BCG report last year, Asia needs the largest amount of climate finance investment, estimated at USD $66 trillion over three decades. This is more than half the investment required globally to achieve a scenario of limiting temperature rise to 1.5° Celsius.[1]
25. SGX is well-placed to support these financial needs. We are the number one international green bonds listing venue in Asia. Our product shelf includes ESG-tilted indices and derivatives such as the SGX FTSE Blossom Japan Index Futures.
26. Our subsidiary, Scientific Beta, has also created the only pure climate index offering on the market that allows investors to promote real-world emissions reductions. By translating companies’ climate performance and alignment engagement into portfolio decisions, this unique series of indices can support global investors as they align to the Paris agreement.
27. SGX will, as part of our efforts to futureproof businesses, continue to build a portfolio of sustainable and transition finance solutions across asset classes.
Building a resilient ecosystem
28. My third and final point is on building a resilient ecosystem, even as we put in place the building blocks and enablers for a sustainable future.
29. Sustainability cannot be looked at in isolation. It is akin to engineering a whole new system and cultivating a new way of life. It is a tough balancing act because there will be conflicts, compromises and trade-offs. A common challenge is how developing countries can ensure economic growth without damaging the environment?
30. While climate mitigation and decarbonisation are critical, it must not come at the expense of other sustainable development goals such as biodiversity, land use for food, and social rights.
31. For a sustainable future to occur, it requires everyone from the government and businesses, to civil groups and individuals, to work together with common goals and close coordination.
32. Many industries and companies are at different stages of their sustainability journey, with climate change having different implications on their business models and processes.
33. However, it is clear that it cannot be business as usual any more. So the question is how can we move everyone along the sustainability journey, without leaving anyone behind?
34. One solution is capacity building. Small and mid-sized companies, in particular, will need support to build up internal ESG capabilities. Retail investors should also be educated on, and have access to, sustainable investment products and solutions.
35. Exchanges and financial institutions have to play our part to help corporates navigate the risks and opportunities of climate change. Besides offering investment and financing solutions, we should also help to build capacity in the ecosystem, by collaborating with like-minded partners to providing relevant training. In the near term, SGX plans to better equip the ecosystem with tools and knowledge, including richer and more relevant sustainability data to support investment decisions.
In conclusion
36. In closing, climate change, like COVID-19, is a global emergency. The world faces a tough challenge of achieving its climate targets by 2030. Individual efforts alone cannot turn the tide.
37. Singapore contributes only around 0.1% of global emissions. If a small country with limited resources can take bold actions, we hope it would pave the way for others to do likewise.
38. I would like to reiterate SGX’s commitment to work with our ecosystem to build a sustainable future.
39. From facilitating capital flows and offering trusted, quality, end-to-end solutions, to supporting the market with capacity building and market innovation, we hope to help accelerate the growth of climate-aligned markets.
40. ASIFMA has put together an excellent programme this week covering the pressing topics. I wish you all fruitful discussions and hope they will spur collective action and tangible outcomes. Thank you.
[1] 1 GFMA and BCG. Climate Finance Markets and The Real Economy. (2020) https://www.sifma.org/wp-content/uploads/2020/12/Climate-Finance-Markets-and-the-Real-Economy.pdf
