SINGAPORE - Climate change and the transition to carbon neutrality pose both risks and opportunities for businesses and countries, noted a report produced by Tsinghua University for Singapore investment firm Temasek.

It added that Asia will be disproportionately hit, with Singapore facing serious challenges from rising sea levels and heat stress, even losing 46 per cent of gross domestic product (GDP) in the worst scenario.

But Singapore is also prepared to tackle these effects, noted the report, which was produced by the Centre for Green Finance Research in the National Institute of Financial Research of Tsinghua University and released on Wednesday (April 20) at the Ecosperity Conversations organised by Temasek.

The conversations are a series of year-round dialogues on sustainability topics and megatrends.

Temasek head of risk management Robert Mainprize said: "The transition to a carbon-neutral world presents tremendous opportunities for businesses.

"To achieve sustainable returns over the long term, businesses need to model and mitigate the risks associated with climate change. Climate risk analysis can help businesses identify and quantify emerging risks and opportunities early."

This is especially vital in Singapore and the region, as the report shows how Asian countries are more vulnerable to natural disasters induced by climate change.

According to a rating in the report, six of the 10 most climate-vulnerable countries are in South and South-east Asia - Myanmar, the Philippines, Bangladesh, Pakistan, Thailand and Nepal.

It also noted that Asia's GDP may shrink 26.5 per cent by 2048 if no action on climate change is taken, compared with a 18.1 per cent reduction of the global economy under the same scenario.

Under the most severe scenario, which sees a 3.2 deg C rise in temperature and the most extreme physical outcomes, the collective Asean GDP will shrink about 37 per cent by 2048.

"An island nation, Singapore faces high risks through several channels of impact, including rising sea level, heat stress and reduced tourism revenue," the report said.

"It could lose 46.4 per cent of its GDP in the worst scenario.

"However, it has demonstrated resilience by preparing to combat the adverse impact of climate change."

It noted that the Monetary Authority of Singapore (MAS) has taken steps, such as releasing the guidelines of environmental risk management for banks, insurers and asset managers in December 2020.

These guidelines help prepare financial institutions for environmental risks and strengthening the sector's expertise in sustainability.

The MAS is also accelerating its climate information disclosures, the report added, with a task force that issued a detailed implementation guide last year for such disclosures by financial institutions.

But even in the transition to a low-carbon economy, Asian countries face both risks and opportunities, the report said.

"Governments in Asian countries have already started to implement carbon-mitigation measures, including increasing the costs of carbon emissions and adopting renewable energy technologies. This will, in turn, affect the operations of related industries and companies," it noted.

But the increasing investments in energy as the world pursues its net-zero carbon targets will also add to global GDP growth, it said.

Such spending in countries can also create jobs in clean-energy generation and energy efficiency development, driving growth in engineering, manufacturing and construction. These investments will lift global GDP growth by 4 per cent in 2030, it added.

But it also acknowledged that there are still issues that have to be grappled with at present, as businesses may not fully understand how their operations and profits may be affected by the transitions due to limited expertise and exposure. The capabilities of Asian central banks to manage climate risks also remain nascent.

"A mismatch between the long-term nature of climate risks and businesses' preferences for short-term profits further weakens the motivation for significant initial investments," it added.

There is also a data gap as most companies that are starting to account for climate risks do not have sufficient high-quality data, it said.

Still, steps have been taken, with the awareness in the region growing in the last few years, experts said during a panel discussion at the Ecosperity Conversations.

Ms Karen Tan, Swiss Re managing director and head of life and health products for Asia, said: "In the last three or four years, I think that the awareness and the action here in the region has definitely increased. We see a lot of push and a lot of very concerted action from regulators and the governments."

She added that as an insurer, an important part is also not just pricing in the risks for companies, but taking the opportunity to have discussions on best practices to mitigate them while engaging in new transitional technologies.

Temasek's Mr Mainprize also said that engagement goes a long way: "The critical thing is to actually sit down and talk to the management companies that we tend to invest in.

"Good management teams will understand the risks... that's a very good indication that you're going to get a good outcome as an investor. If they're not aware of those risks and (don't) have a good plan to gauge the change, then that's a clear red flag for us."

The report's lead author, Dr Sun Tianyin from Tsinghua University, was also on the panel, which was moderated by Mr Dominic Chan, Temasek assistant vice-president of environmental, social and governance investment management.