Risks and opportunities with climate change, carbon neutrality: Report

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, 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 yesterday at the Ecosperity Conversations organised by Temasek.

Temasek's 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.

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.

In 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.

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... This will, in turn, affect the operations of related industries and companies," it noted.

But the increasing investments in energy can also create jobs in clean-energy generation and energy efficiency development, and 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 the capabilities of Asian central banks to manage climate risks 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.

Still, steps have been taken, with the awareness in the region growing, experts said during a panel discussion. 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 have definitely increased."

Temasek's Mr Mainprize also said 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."

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