Q: What was the carbon footprint for the jamboree that just concluded in Glasgow and was it worth it?
A: Well, #NetZero is not the return we will get if one were to read the tea leaves in the making
A good friend pointed out that anything called Conference of the Parties (COP) is doomed. The United Nations Framework Convention on Climate Change (UNFCCC) in Rio 1992 — also known as the Earth Summit for those of us old enough to remember — resulted in the third COP and Kyoto Protocol in 1997. As a commentary in The Guardian notes: “But since then the annual meetings have swung between the fractious and the soporific, interspersed with moments of high drama, and the occasional triumph (Paris Agreement 2015), or disasters like Copenhagen 2009.”
Sceptics point out that more than 400 private jets flying to COP26 ferrying heads of states and business leaders will produce more carbon dioxide than what 1,600 Scots pump out in a year. “Rank climate hypocrisy” it was labelled while the politicians quibbled about the conspicuous absence of Xi Jinping and Vladimir Putin who avoided the jamboree altogether. In a similar vein, amid the local grouses of cost of listing compliance and sustainability reporting, folks have asked how 60 additional pages in an annual report help save trees. Well, there is always the all-digital option for listed companies, if the rules, which require submission of a hardcopy annual report, catch up with the times. I am guessing the rules will change as soon as the last ones among us stop insisting on having to receive a hardcopy too!
Money grows on trees
Leaving aside the politics and focusing on finance, the Glasgow summit did bring together financial institutions with assets over US$130 trillion ($175.77 trillion) aligning themselves to the Paris Agreement’s 1.5 degrees Celsius limit for global heating. UK finance minister Rishi Sunak claimed that this represents a “historic wall of capital for net-zero transition around the world” as Mark Carney (Chair of GFANZ — Glasgow Financial Action for Net Zero) pointed out has increased from a paltry US$2 trillion a few years ago.
However, NGOs and academics contend that without the halting of financing of fossil fuel infrastructure and relying on “self-regulation” among companies with heavy carbon footprint, GFANZ, TCFD, or NZBA proposals were all likely to fail, and COP26 is a “greenwash” event.
To be sure, it is easy to point out the obvious on fossil fuels but much harder to address two key problems. First the impact on societies, jobs and lives dependent on fossil fuel industries in many parts of the developing world or Aussies who have an ozone layer hole above them but are equivocal about exporting lots of coal everywhere else. It’s all tricky politics, you see.
Second, the more practical problem is not enough supply of renewables to meet our earthly needs. While the pandemic may have given Mother Earth a pause for about 15 months, the energy shortages as production, travel and consumption recovers from the UK to China are clear and present. It is also a tricky political problem that electricity wholesalers start to fail around the world as spot markets rise before the winter.
The global supply of renewables will grow by 35GW (gigawatts) from 2021 to 22 but global power demand growth is expected to increase by 100GW according to S&P Global Platts.
While the electricity generated from renewables is increasing in high single digits according to IEA statistics, from its lower base, it will not meet the needs of global electricity demand growing at 4%–5% still. While it may indeed be Code Red on climate change now and it has taken a long time from the talks since the 1990s, the fact is that for banking, governance, investment and asset management, the trend is your friend. There is more money allocated which will drive behaviour as transparency demanded by investors and consumers shift corporate thinking and practices. Coal mining companies are announcing their plans to plant back the forests; energy firms maintain that transitioning their fossil fuel business to clean energy is the better way forward.
At some point, capital allocation will price green bonds better than the pure corporate credits, and equities markets will vote more with their feet to actualise the noise. That is if both institutions as well as ourselves as investors put money where our mouth is.
Climate Impact X, a Singapore-based global carbon exchange and marketplace, is backed by the Singapore Exchange, DBS, Standard Chartered and Temasek. It just transacted its first pilot auction, and could establish and garner the trust for the market with potential verifiable projects from Sabah, Bhutan or Africa, to help move the world to net zero — with a neutral (non-US, European or Chinese standard). Would a market, Adam Smith style, solve for the global collective market failure on climate ultimately? And where will Singapore sit?
The gift that could keep on giving
In 2019’s National Day Rally, PM Lee Hsien Loong flagged that $100 billion or more may be needed over 100 years to deal with the many threats posed by climate change. A $5 billion coastal and flood protection fund was established. Since then across corporate Singapore, from Temasek’s leadership across the various Temasek-linked companies to private companies that have won international accolades such as City Developments, going green is not just about box-ticking or greenwashing an investor relations report.
Across the ecosystem in Singapore’s year of climate action — including its pledge to phase out unabated coal in the electricity mix recently, the old school, boring brown infrastructure, real estate, traditional telco and banking sectors here are pivoting and not just digitising.
Singapore’s market may be bereft of loss-making global tech and platform companies trading at valuations based on hope and eternal prayer in some instances. However, if one remembers that in the gold rush, the folks who sell the pickaxes and pans make the money — and not the panhandler themselves, it may be worth taking another look across the transformations going through established companies like Sembcorp Industries, Olam International and Wilmar International and new ones such as Nanofilm Technologies International, which is going big into hydrogen economy initiatives, or the latest IPO, Mooreast Holdings, which serves the offshore renewable energy industry, among others.
Slowly but surely, such companies will get an increasing share of global capital allocation in Singapore’s trust hub. Here, though to be transparent, I am talking my own book.
Chew Sutat retired from Singapore Exchange in July this year. He was senior managing director of SGX, and member of SGX’s executive management team for 14 years. He serves on the board of ADDX and chairs its Listing Committee. Chew was awarded FOW Asia Capital Markets Lifetime Achievement Award this year
Photo: Swedish environmentalist Greta Thunberg at the COP26 in Glasgow. More than 400 private jets were used to fly in participants of the climate talks. / Bloomberg
