SINGAPORE Telecommunications (Singtel) released its first report on Thursday (Jun 30) disclosing the company’s climate-related risks and opportunities, according to a framework developed by the Task Force on Climate-related Financial Disclosures (TCFD).

Singtel has found that surface water flooding and bushfires are critical hazards that would bring about the highest financial impact across its Singapore and Australia assets, while its 3 most material transition risks were related to carbon pricing, capital risk and risk of stranded assets, as well as risks from its suppliers and customers.

The reporting of a company’s physical and transition risks based on different climate scenarios, as well as its financial impact, are part of the recommendations made by the TCFD to help investors and lenders make more informed financial decisions.

The TCFD framework consists of 11 recommended disclosures across 4 elements relating to governance, strategy, risk management, as well as metrics and targets, and the Singapore Exchange is mandating that issuers here provide such disclosures.

While other listed companies in Singapore have included TCFD-recommended disclosures in their sustainbility reports, it is believed that Singtel is the first in the city-state to dedicate a report solely on these disclosures.

Physical risks

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In its TCFD report, Singtel found that surface water flooding will potentially have the highest financial impact on its capital expenditure to repair or replace its Singapore assets. This is the case after risk modelling for 2 climate scenarios, one in which temperatures rise by up to 2 degrees Celsius by 2100, and another worst-case scenario where temperatures increase by more than 4 degrees Celsius over the same time period.

Extreme heat was another critical hazard, with telephone exchanges expecting to experience heat-related failures once every 1.4 years by 2100 due to its low-temperature thresholds for heat failure.

“Contrary to our expectations, the modelling found that the risk of sea level rise is low, as all coastal assets are currently sufficiently elevated,” read the report.

Without any adaptation to network design and deployment, Singtel estimates that telephone exchanges are likely to incur the highest average technical insurance premiums. The average premiums could potentially increase from S$433,020 to S$476,475 per asset from 2030 to 2050 in the scenario where temperatures rise by more than 4 degrees Celsius, due to their high replacement costs in Singapore.

“By 2100, all 10 assets analysed could be at high risk of failure without adaptation due to physical climate events interrupting electricity supply,” said Singtel.

As for Singtel’s Australia business, bushfires were found to have the highest financial impact across 2030, 2050 and 2100 due to increased vulnerability of Australia’s native vegetation to hotter and drier conditions.

Riverine flooding were estimated to cause the highest financial impact in the long term for control rooms, with moderate impact in the near to mid-term, but it has low impact for all other assets.

The macro cell assets of Optus, which is Singtel’s Australia subsidiary, have the highest average hazard technical insurance premiums in both climate scenarios and across all analysed years, with average premiums potentially increasing from about A$4,898 to A$5,508 per asset from 2030 to 2050, due to the high volume of macro cell assets at risk across Australia.

“By 2100, without adaptation and mitigations, 27 per cent of assets analysed could be at high risk of failure due to physical climate events interrupting electricity supply, up from less than 1 per cent in 2050,” read the report.

Transition risks

Carbon pricing was found to have a minor financial impact on earnings before interests and taxes (Ebit), with earnings declining by between 1 and 2 per cent in 2030. The financial impact, however, increased by 2050, with Ebit expected to be hit by between 1 per cent and 8 per cent then.

This is the case across Singapore and Australia, as well as in both transition risk scenarios which were modelled.

The first scenario is where temperatures rise by up to 1.5 degrees Celsius by 2100 with the global community agreeing on the need to decarbonise, while the second scenario is where temperatures increase by up to 1.8 degrees Celsius by the same year as decarbonisation is delayed and disrupted.

The financial impact from carbon pricing in 2050 was also found to be more severe in the second scenario, as carbon prices go up in response to a disorderly decarbonisation path.

Under both scenarios, purchasing a combination of renewable energy and carbon offsets as mitigating measures for the residual emissions is likely to lead to a lower impact on Ebit than directly incurring a carbon price over time. The financial impact on Ebit in 2050 under the delayed decarbonisation scenario could be 5 per cent, instead of 8 per cent.

On capital risk and risk of stranded assets, this transition risk was found to be more relevant for Singtel’s operations in Singapore as the bulk of investments are in data centres which are more energy intensive.

Singtel expects a high chance that national energy efficiency targets for data centres would be introduced in Singapore, and the telco risk losing its market share to more progressive service providers if it fails to meet these requirements.

The report stated that the majority of its capital expenditure on energy efficiency improvements needs to take place between now and 2030 to meet internal targets.

As for its Australia assets, mostly in mobile network infrastruture, the report stated that the Australian government will not likely introduce any significant energy efficiency targets on electricity-reliant assets given that its pace of grid decarbonisation is expected to be faster than in Singapore. Hence, the retirement of assets will more likely be due to technology upgrades undertaken regularly, instead of having them stranded due to energy-related requirements.

To understand transition risks from its suppliers, Singtel looked at its exposure to suppliers that are unable to transition to net-zero carbon emissions, and found that more than half of its most critical suppliers, which represent over S$750 million annually in contract value, appeared ready for the transition.

Turning to risks from its customers, Singtel said that about 5 per cent of its Singapore and Australia enterprise customers are from high carbon-emitting sectors. This number is expected to decline as these sectors transition.

Governance and emission targets

Singtel also introduced a remuneration plan for its executives that is tied to its sustainability targets in FY2021, which is laid out in its TCFD report.

Key performance indicators (KPI) linked to environmental, social and governance (ESG) targets will make up 20 per cent of the long-term incentives of all top executives, and 10 per cent of annual short-term incentives for management committee members.

Climate-related targets are 1 out of 5 ESG-related KPIs, and represent 4 per cent of total long-term incentives KPIs and 2 per cent of total short-term incentives KPIs.

It also disclosed its Scope 1, Scope 2 and Scope 3 emissions for FY2022. By definition, Scope 1 emissions are from direct, controlled sources, while Scope 2 emissions are from purchased energy consumption.

With a total of 6,322 tonnes of Scope 1 emissions and 488,358 tonnes of Scope 2 emissions, after taking into account renewable energy certificates and large-scale generation certificates, Singtel produced a total of 494,680 tonnes of Scope 1 and 2 carbon emissions in FY2022. This was 7.2 per cent lower than in FY2021.

It produced 7,316,678 tonnes of Scope 3 emissions, which are defined as indirect emissions, often by suppliers or partners.

Singtel is targetting to reduce absolute carbon emissions by 25 per cent for Scope 1 and 2 by 2025, using its 2015 emissions as a baseline, and for 100 per cent of its electricity in Australia use to come from renewable sources by 2025.