Fighting climate change in Asia: an exchange-led approach

By: Herry Cho, Head of Sustainability and Sustainable Finance, Singapore Exchange Aug 2021

While no country is spared from the effects of climate change, Asia is seen as more vulnerable because of its geography. With more people in Asia living in coastal cities, coupled with the dependence of many Asian economies on agriculture and natural resource industries, rising sea levels and temperatures will undoubtedly have a significant impact on this region.

Asia is diverse, with varying levels of development across economic, social, and governance metrics. There is no one-size-fits-all approach when it comes to ESG in Asia. With this in mind, we have developed SGX Future in Reshaping Sustainability Together (FIRST) – a multi-asset sustainability platform that cuts across a series of elements to facilitate collaboration within the ecosystem, designed to catalyse change and deliver growth in a sustainable manner.

This represents our approach on how to tackle sustainability for all.

An exchange-led sustainability platform

Through our unique position at the centre of the market ecosystem, exchanges have an important role to play. Singapore Exchange (SGX) believes that shaping a sustainable future requires the ecosystem to work in partnership.

To address climate change in Asia, SGX FIRST is working towards offering end-to-end multi-asset solutions and actively building capacity in the ecosystem to facilitate the sustainability transition. We are increasing issuers’ and investors’ access to ESG information and solutions, while pushing for greater disclosure.

Providing actionable corporate climate mitigation steps

We are conscious that industries and companies are at different stages of their sustainability journey, with climate change having various implications for their business models and processes. Hence, at the forefront of our thinking when developing the easily accessible FIRST platform is how we can assist all stakeholders without leaving anyone behind.

To assist corporates in navigating the myriad climate action initiatives, SGX has released a guide on “Credible decarbonisation and transition for corporates in Asia” that provides corporates with a set of actionable climate mitigation steps. Written in collaboration with the CDP, the Climate Bonds Initiative and HFW, these steps are:

  • Measure your carbon footprint
  • Set targets according to the carbon mitigation hierarchy
  • Reduce the absolute emissions footprint within the company’s operations and value chain
  • Neutralise unabated emissions
  • Concurrent compensation
  • Disclose the progress of your journey year-on-year for steps 1 to 5

As more companies embed this approach, we expect disclosures to continue to improve, providing more information for investors to accurately assess sustainability and climate risks.

To set an example for the market to follow, SGX has become the first Asian exchange to commit to science-based emission reduction targets in line with a 1.5°C future. We are following our own recommendations to guide the market to adopt best practices when reducing GHG emissions. Our aim is to support our partners, companies, investors, and other stakeholders along the way to a more sustainable ecosystem.

Enhancing the quality of disclosures and data

We mandated sustainability reporting in 2016 and have seen encouraging progress since then. This year’s review of sustainability reports from our listed companies showed overall improvement in the level of disclosure. There were broad-based gains across the scorecard regardless of listing size or industry sector. Notably, issuers of a smaller market capitalisation posted the largest increase in average scores.

We are continuing to step up climate-related measures. We have been actively encouraging listed companies to adopt the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and will be updating our sustainability guidance. By guiding the distillation of key information, we hope that challenges in sustainability reporting – namely, quantification, comparability, and harmonisation – can be addressed.

Disclosure and data are seen as two sides of the same coin. As we look at ways to raise the quality of ESG disclosures, we are also working on promoting the application and integration of ESG factors, across capital market stakeholders, in the long term. As an example of this integration, in partnership with the Nasdaq Sustainable Bond Network (NSBN), we are enhancing accessibility to and transparency of green, social, and sustainability bonds in Asia Pacific.

We are collaborating with partners to develop an ESG data platform so that SGX-listed companies will be able to align their disclosures with major sustainability standards, foster best practices via industry benchmarking, and ultimately, meet investor needs for a consistent and reliable source of ESG data.

Directing investments for impact

Besides better data, market participants must be able to make sustainable investments easily, with appropriate risk-management tools, to see real impact.

As part of FIRST, SGX has launched a pioneering suite of ESG equity index futures, together with FTSE Russell, covering various developed and emerging markets. We also introduced the world’s first ESG REIT derivatives with Nikkei.

Our subsidiary, Scientific Beta, launched a unique series of Climate Impact Consistent Indices (CICI) in April 2021. Designed to implement the recommendations of net-zero investment coalitions at the portfolio-construction level, CICI is the only pure climate index offering on the market to help make investment decisions and engagement practices consistent, in order to maximise their impact.

Backed by SGX’s track record as a major price-discovery venue for global commodities, our upcoming joint venture, Climate Impact X (CIX), will enable efficient price discovery and provide organisations with high-quality carbon credits to address hard-to-abate emissions. We are in the process of putting together an independent expert body comprising NGOs, leading MNCs, business groups, and academics who will guide the market on the complexities related to carbon credits.

Progressing together 

Today, achieving a sustainable Asian financial market, with the support of our ecosystem, is more attainable than before. Moving forward, we intend to unlock the growth of ESG investments in Asia by rolling out an increased suite of ESG-focused investment and risk-management products to meet investors’ needs.

Sustainability is a journey, not an end destination. Through SGX FIRST, and the various initiatives launched or under development, we hope to be a positive influence as a leading sustainable and transition finance and trading hub. By offering trusted, quality, end-to-end products, solutions and resources, we can foster collaboration and partnerships to connect stakeholders and drive industry sustainability efforts.