Balancing ambition with cost: How Budget 2025 can enable Singapore’s green transition

THE Singapore Green Plan 2030 lays out a bold vision for sustainable development in the face of climate change. Yet, while sustainability is critical to the nation’s future, the cost of this shift remains a significant obstacle for businesses.

Small and medium-sized enterprises (SMEs), which form the backbone of Singapore’s economy, often hesitate to participate in the green transition due to financial concerns, while hard-to-abate industries face additional hurdles tied to expensive, emerging technologies.

Despite these challenges, Singapore’s status as a leading financial centre, including in green finance, provides a robust foundation for supporting businesses in this transition. Initiatives such as the Finance for Net Zero Action Plan, the Enterprise Financing Scheme – Green, and the Sustainable Bond Grant Scheme have been instrumental in directing capital to sustainability projects. However, the limited progress by SMEs underscores the need for a more targeted, tailored approach to accelerate transformation across the broader business ecosystem.

The upcoming Budget 2025 offers an opportunity to build on the Republic’s efforts by introducing targeted financial support, skills development initiatives, and robust governance measures, ensuring that the path to net-zero emissions is both inclusive and impactful.

Addressing cost concerns and expanding green finance

For SMEs, the upfront costs and longer-term financial risks of green initiatives remain significant barriers. Many fear these investments could diminish their competitiveness, while hard-to-abate sectors such as aviation, shipping, and heavy industry grapple with the prohibitive costs of technologies that are not yet commercially viable.

Innovative green finance solutions can make decarbonisation more accessible. Beyond the current suite of policies, Budget 2025 could introduce a tax deduction initiative modelled after the Productivity and Innovation Credit Scheme. This scheme would reward companies with additional tax deductions for qualifying investments aimed at enhancing sustainability. Such a measure would help businesses, particularly SMEs, offset the financial risks of green technologies while addressing their concerns about losing competitiveness. Budget 2025 could consider setting up a decarbonisation fund, with dollar-to-dollar matching to raise more private and commercial capital. This fund could curate decarbonisation project opportunities and help establish use cases which then can be replicated easily. A starting corpus of S$100 million could be considered to kick-start the decarbonisation for SMEs. Overall, this could accelerate decarbonisation across the value chain, help optimise Scope 3 emissions and create new project financing opportunities.

Furthermore, enhancing the application and accessibility of long-term financing options could encourage businesses to adopt cleaner energy technologies. Instruments such as green bonds, which allow firms to independently fund large-scale sustainability projects, should be complemented by government-backed loans or grants specifically tailored to SMEs and firms in high-risk sectors.

Streamlining ESG reporting and strengthening corporate governance

Mandatory environmental, social, and governance (ESG) reporting for listed firms is already reshaping Singapore’s corporate landscape. While these requirements propel larger companies towards greater accountability, they indirectly pressure smaller firms within supply chains to align with sustainability standards. For SMEs, this represents both a hurdle and a chance to forge stronger partnerships and meet global market expectations.

To ease the compliance process, the government could establish a centralised ESG reporting hub. This platform would help firms decode complex international frameworks, build sustainability road maps, and identify ESG-related risks. Additionally, it could provide resources for job redesign and green skills training, ensuring that businesses remain competitive on the global stage.

Corporate leadership also plays a pivotal role in driving change. Introducing a structured ESG training requirement for directors could establish sustainability as a core element of strategic decision-making. Improved governance templates, backed by Budget 2025 guidance, would build trust in Singapore’s green agenda and consolidate its position as a sustainable financial hub.

Collaboration and regional expansion

Sectoral partnerships can unlock significant synergies, particularly for SMEs in the early stages of their sustainability transition. Sharing knowledge and best practices across industries can shorten learning curves and boost confidence in adopting green technologies.

Regionally, Singapore’s position as an Asean financial leader allows businesses to scale their green efforts beyond national borders. By fostering collaboration on cross-border sustainability initiatives, Budget 2025 could empower companies to tap into high-growth regional markets. Expanding concessional financing options to support these projects would further enhance competitiveness while contributing to the region’s net-zero ambitions.

Enhancing supply chain sustainability is equally important as global regulations on Scope 3 emissions grow stricter. Cash grants to offset costs associated with sustainable procurement or certification processes could strengthen businesses’ ability to comply with these evolving expectations while maintaining their competitive edge.

Looking ahead

Achieving Singapore’s ambitious climate goals hinges on the ability to address the financial, operational, and compliance barriers faced by businesses, particularly SMEs and industries with significant decarbonisation challenges. Budget 2025 provides an opportunity to introduce tailored financial tools such as enhanced tax deduction schemes, refine existing green finance initiatives, and allocate carbon tax revenue transparently to bolster green investments.

Simplifying ESG reporting, strengthening corporate governance, supporting skills development and fostering collaboration will further enable businesses of all sizes to participate effectively in the green transition, positioning sustainability as a competitive advantage rather than an added cost. With the right blend of ambition, technical support, and financial incentives, Singapore can secure its role as a global leader in environmental stewardship and sustainable economic growth, balancing immediate cost concerns with long-term resilience.

The writers are with KPMG in Singapore. Sharad Somani is partner and head of ESG consulting; Mark Addy is partner, energy & natural resources, telecommunications, media & technology, tax.