Directors of Singapore companies must also be prepared for the possibility that they may be taken to court to compel them to take action to ensure that the business activities of their companies do not contribute to climate change, or if such activities are in progress, to terminate such activities.
Transitional business models are an imperative
Apart from legal action, companies that do not have a transitional business model to achieve net zero by 2050 risk stranded assets and erosion of shareholder value, warned Dilhan Pillay Sandrasegara, executive director and chief executive of Temasek International at the launch event of the legal opinion.
“If you don’t start today, you might find that your business model may no longer be relevant in the context of what a greener world may expect from companies,” he said.
Citing the example of the carbon pricing needed to limit global warming aligned with the Paris Agreement, he said that companies that do not factor in the possible increase in carbon tax will be greatly impacted down the road.
Although Singapore announced a carbon tax for this decade of S$5 to S$15 per tonne of greenhouse gas emissions, the government has said that they are going to reassess the carbon pricing.
“To achieve a 2 degree-world or even a 1.5-degree world, you need to have carbon pricing of between US$40-80 as of now, and then US$50-100 by 2030, assuming that you can half carbon emissions by then,” Pillay said.
“So if you’re not changing your business model to cater to a potential carbon pricing of that magnitude, you are going to see an erosion of value of your company. That could have serious implications across the different stakeholders that you’re engaged with,” he said.
In addition, nine out of 10 of the asset managers in the world have decided to put in place environmental, social and governance (ESG) frameworks to measure the performance of each company.
“Climate change risks are going to factor into the asset managers’ decisions about whether to invest in a company or not. If you’re not thinking about it, you might find that capital markets will punish you down the road,” he said.
“It’s very difficult for boards to consider all the risks that they face. But if you can get through the Covid-19 situation, you still have climate risk as the biggest existential problem with your business model. So directors have to come up with proper transition plans,” he warned.
April 28, 2021