The second week of June in Singapore was all about Temasek-led Ecosperity — a week full of engagement and advocacy, twinning ecology with prosperity. Indeed, doing good and doing well must go hand in hand, or else all the talk for the past 27 COP (Conference of the Parties) will just be hot air.
With the theme “Breakthrough for Net Zero”, the great and the good gathered, discussed, learnt, and made commitments. As part of the main programme, the Finance Asia’s Transition (FAST) Conference was held, with co-organisers Blackrock and the Monetary Authority of Singapore.
Throughout the week, plenty of announcements were made, including how Climate Impact X (CIX), backed by the Singapore Exchange S68 , Temasek, DBS D05 and Standard Chartered, has launched its spot trading platform at the intersection of Asia Pacific and European trading hours — a rather small window in a future 24-hour trading day.
However, what was probably lost in translation was that seven trades totalling 12,000 tonnes of carbon credits, of the standardised CIX Nature X contract, changed hands on June 8, the first trading day.
The parties involved in this landmark trading day came from a broad swath of global parties: Chevron, China International Capital Corp’s Commodity Trading, DBS, Hana Securities, RWE Supply & Trading, Standard Chartered and Vitol. If the momentum continues, this might just mark the beginning of a broad global coalition using a verifiable local benchmark, traded, settled and cleared in the little red dot’s commodity hub.
If not, just like too many of the carbon initiatives introduced globally and all the previous COP-outs (pun intended), the momentum will evaporate in the summer, the way Covid or the energy crisis triggered by Russia’s invasion of Ukraine created expedient reasons for extensions to net-zero commitments, leaving coal users feeling smugly justified.
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It was impressive that the organisers managed to invite Pak Jokowi and his star power here — before next year’s Indonesia’s presidential elections. One smart alec did suggest, however, that it would be more impactful if he had come a few weeks earlier when Singapore was melting amid all-time-high temperatures of 38°C. Or perhaps a couple months later, when the haze is expected to be back with a vengeance — just in time for him to personally experience his unneighborly impact. It is, after all, an El Niño year in 2023, coming early ahead of the typical late summer or early fall schedule in the Pacific West. In the interim, pictures of New York engulfed in haze — from the tragedy of Canadian forest fires this time — give us no respite from the heat in the months to come.
Summer lovin’, had me a blast
One hot weekend morning, the Income Eco Run, organised by Income Insurance and with the theme “How Far Will You Go For Zero Waste”, was held. I am the chair of the insurance firm’s newly-formed sustainability committee, and I was glad to be reminded that I could do more in my own recycling attempts and that no effort is deemed too little. After the run, elderly volunteers from Tzu Chi went around collecting safety pins from runners’ bibs so that they can be recycled and not discarded.
We are a long way from how the Japanese have a habit of picking up themselves — look at their sporting events — but the collective starts with us as individuals. After all, regardless of the price of energy in the future, and its source (preferably renewables), the actual consumption is dependent really on our own footprint.
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It’s too early to say, but the recent warnings of failing to meet global 2050 net-zero targets because of the “lost” Covid years, juxtaposed against the super-normal profits of fossil fuel energy companies in the West, leading to more discussions about energy tax or windfall taxes, may be the first salvo of advocacy as we get closer to COP 28.
On June 7, the UK advertising standards watchdog banned some advertising by Shell on posters, television and YouTube. It had assessed these ads as misleading by exaggerating Shell’s low-carbon business activities. Similar rulings were also made against advertising by Spain’s Repsol and Malaysia’s Petronas net-zero plans.
With the beginnings of a long hot summer, further ignited by Ukraine’s long-awaited counter offensive, and the coincident indictment of former US president Donald Trump and resignation of former UK prime minister Boris Johnson as an MP, it does not signal the end of the right-wing pushback against the climate “cost” of business on its own.
However, it does appear that this topic is starting to unify, even if adoption ebbs and flows. In May, AXA, Allianz and 10 other insurers left the Net-Zero Insurance Alliance (NZIA) as a consortium of 23 Republican state attorney general’s threatened an antitrust review of the legality of their commitments to collaborate with other insurers and asset owners in order to “advance an activist climate agenda”. The consortium asserted that NZIA’s January 2023 target-setting protocol, whilst non-binding, has “comply or explain” requirements for its members, driving up costs amid an already crushing inflationary environment.
The politically-driven prosecutors have also targeted other climate coalitions of financial companies, including the Net Zero Banking Alliance, and Net Zero Asset Managers initiative, with less success, as principally, US states are the regulators of insurance, unlike major banks and asset managers which are overseen primarily at the federal level.
In addition, the departing insurers have generally appeared to keep their own already-declared climate commitments even if they had left the alliance to avoid antitrust accusations. It is therefore likely that listed companies who dance to the tune of environmental, social and governance, or ESG (beyond reporting per se as listing or accounting regulations) — or better still, pivot their businesses from brown to green — will continue to benefit as asset owners withdraw capital and relocate to green.
Summer lovin’, happened so fast
This has been the story of Sembcorp Industries U96 , whose singular focus on renewables and decarbonisation has seen an eight-fold re-rating from Covid-lows of 80 cents, as its strategy was delivered step by step in execution.
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True, it had been mired in greenwashing accusations of how it fobbed its Indian coal asset off its balance sheet to Oman. Evidently, that episode late last year did not hurt its already-steadily-gaining share price. After navigating that bump, Sembcorp Industries shares gained more than a third to close at $5.73 on June 14.
What makes the rise more remarkable was the steady increase — the daily volume was hardly in the top 20 most active counters. With each pullback, more investors buy in as they appreciate the relative under-valuation of Sembcorp Industries relative to its global energy peers.
This ESG trend is certainly a friend that has buffeted larger index listcos that have been included in ESG indices from MSCI and FTSE. Thus, it is time for both our mid and small caps to stop seeing ESG reporting as a burden and seriously consider building sustainability into their business thinking beyond just material accounting and risk or regulatory compliance.
Investors here should also pay more attention to how companies they are invested in are able to attract the institutional investor dollar, or ensure sustainable business models. There are gems to be ferreted out in our long tail of mid and small cap stocks that could be M&A targets, including microcap Mooreast Holdings 1V3 , a 1V3 beneficiary of the offshore wind farm boom.
Tell me more, tell me more
Much has been said about being home-biased in defensive Singapore equities for 2023, aside from the dark horse of Japan. I was asked about how narrow the US index gains referenced in last week’s column were. Goldman Sachs did the number crunching. The “Magnificent 7” — Apple, Alphabet, Microsoft, Amazon, Meta, Tesla and Nvidia — are up an average of 52%, leading the market cap weighted index up 12% and prompting Bloomberg to call a bull market. Before rushing in, one must note that the 493 others are flat on average. Is this the condition for a bull market or for the top excesses to level down?
Similarly, globally PE deals were at the 2021 peak being priced at 13x ebitda — or higher, in the case of SoftBank-led deals — before hubris set in. The trough was in the aftermath of the Global Financial Crisis, or about 9x.
The market is now clearing about closer to 10x. It’s certainly cheaper now than in 2021, but there’s maybe another 10% to go. The key dynamic for both public and private markets is that cash is no longer an opportunity cost of zero. Clipping 4%–5% in US dollar money market funds is giving the Fed a different type of headache. But given that it’s “ok” to sit in there provided inflation is flattening out and or coming down, cash-heavy institutional and private banking investors are in no hurry to chase deals, including IPOs.
Will a melt-up of the rest of the market occur if global indices stay firm by the end of the summer as sidelined cash starts having to chase rising stock indices? My normal contrarian views against the market this time do not hold. I await another equity shoe to drop in the West, and some lightning to flash, before considering leaving our sunny isle and its opportunities at our doorstep.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
