Experts identify the winners and losers as decarbonisation efforts intensify

Singapore

THE United Nations' (UN) climate panel recently sounded its most dire warning to date, saying that the world is dangerously close to runaway warming, with consequences expected to be particularly bleak for Asia's disaster-prone poor.

The Intergovernmental Panel on Climate Change's (IPCC) call for immediate, rapid and large-scale action to bring down greenhouse gas (GHG) emissions will impact economies and corporations around the world - some to a greater extent than others. The Business Times spoke to experts on the businesses and industries that would be most affected and how this would influence investors' decisions going forward.

"The recent IPCC report has rung the loudest alarm bell yet, warning of the irreversible changes to our climate already underway," said Liam Woods, head of Business Development, APAC (Asia-Pacific), at global financial services provider Apex Group. "We believe that this report is a call to action for all companies regardless of sector, size or ownership of these businesses."

UN secretary-general Antonio Guterres described the report as a "code red for humanity", and urged an immediate end to coal energy and other high-polluting fossil fuels.

Gabriel Wilson-Otto, director, Sustainable Investing, at global investment management firm Fidelity International, told BT that the implications of the report include greater physical and transition risks for companies than previously expected, which would mean more direct and indirect impacts from extreme weather events, as well as enhanced risks from the rapid shift in decarbonisation policies.

"Many of the adverse impacts of climate change are systematic and will affect everyone. However, policy initiatives targeting rapid decarbonisation are more likely to target sectors with the largest carbon footprint such as power generation, transportation, steel, manufacturing, construction and agriculture.

"In Singapore, the manufacturing, real estate, transportation and construction sectors, which play a significant role in the economy will be closely watched for updates on decarbonisation plans."

He added that policy initiatives to achieve rapid decarbonisation could also serve as strong tailwinds for companies that support renewable energy, energy or production efficiency, carbon trading markets, and low carbon transportation.

Echoing that sentiment are David Smith from Aberdeen Standard Investments and Sandy Gwee from Nomura Research Institute (NRI) Singapore.

Mr Smith, who is senior investment director - Asian Equities, at global asset manager Aberdeen Standard Investments, said positive developments can already be seen in terms of leading-edge climate strategies being developed by major players in the banking and real estate sector here.

"We've certainly seen regional and arguably global leadership from the local banks, as well as firms like CDL (City Developments) and CapitaLand in real estate."

And there would be further opportunities for these sectors; Mr Smith said the role Singapore can play as a hub for green finance would benefit the local banks, while local real estate players that have developed green buildings would benefit from growing preferences for green real estate from tenants.

He went on to say: "We've seen firms like Sembcorp Industries move very decisively on a decarbonisation path, something that has resonated well with investors given the opportunities that can be found in renewable energy.

"There are opportunities in the oil and gas sector to help the world decarbonise, where experience in offshore oil and gas is extremely helpful for offshore wind given the transferable knowledge. Players who are able to pivot to renewables could see opportunities in this space, given the role offshore wind could play in renewable energy."

Ms Gwee, who is principal consultant (Energy and Smart Cities) at global management consulting firm NRI Singapore, believes energy-intensive and direct emission-intensive sectors in Singapore will be most affected by the heightened global push to reduce harmful emissions.

"Examples of such industries include heavy industries, manufacturing, data centres, aviation and maritime.

These industries will face challenges such as securing cleaner sources of energy and implementing new operational capabilities to reduce carbon footprint.

"Without sustainable investments, many will face risks of incurring hefty environmental costs coming from carbon tax and abatement alternatives. In particular, companies serving the global supply chain that is shifting towards carbon neutrality goals, broadly by 2050, will be facing the most risk at incurring these costs."

Those likely to benefit, Ms Gwee said, would be suppliers of green solutions or clean energy: "(These) will stand to benefit from accelerating and scaling (their) solutions in both industrial and urban areas in creating a sustainable environment.

"A good example will be to identify how to accelerate and scale the framework for deploying district cooling solutions, beyond the current plans for areas such as Tengah, Punggol and Tampines.

"In this, providers of such district cooling network solutions will stand to benefit by working closely with government agencies in speeding up the deployment of such initiatives. This underscores how critical private-public collaboration is in deploying larger scale green solutions."

District cooling systems centralise the production of chilled water for distribution to buildings in an area for air-conditioning purposes. SP Group, for example, runs various such systems in Singapore, including the smart energy town at Tengah and the world's largest underground cooling network in Marina Bay; Engie South East Asia will build, own and operate an underground district cooling system for the Punggol Digital District.

The heightened call to reduce emissions and its anticipated impact on businesses and industries will expectedly also affect the investment and asset allocation decisions of investors.

Carsten Kebbedies, managing director and head of Alternatives and Strategic Transactions, APAC, at global real estate investment manager Nuveen Real Estate, told BT: "We believe that climate risk is investment risk, and that asset pricing will react to an inevitable low carbon transition and growing physical impacts of climate change.

"As our clients and participants experience more extreme heat, devastating wildfires, and persistent droughts, the IPCC report helps tie those events back to human-induced climate change. Climate strategy for investors takes on even greater importance against these concerning trends."

Mr Woods noted that recent research from consultancy Wood Mackenzie predicted that investment in the Asia-Pacific in renewable energy generation is likely to double to US$1.3 trillionby 2030, from the previous decade, which would dwarf fossil fuel power investment that is expected to drop by some 25 per cent to US$54 billion annually.

"New and fast growing 'clean tech' businesses that enable carbon capture and storage and green fuels including hydrogen, ammonia and biomass into coal and gas generation will be key in reducing power sector emissions and are fast becoming hot sectors for the region's private equity, private debt, infrastructure and VC (venture capital) investors," he said.

Ms Gwee noted that green investments and green bond issuances have burgeoned in the region. "As global financing and investments are speeding up the shift away from coal in recent years, we can expect further rebalancing of portfolios towards transitional and clean energy, carbon capture technologies, energy management systems, integrated power grids, carbon markets."

Mr Wilson-Otto said: "In our investment portfolios, we are focusing on companies that are taking the necessary steps to align their businesses for long-term sustainable growth, including those which we assess to be genuinely taking steps to reduce their carbon emissions and enhance their climate resiliency in line with the objectives of the Paris Agreement."