Navigating Change: How SGX Group is Using Climate Change Scenario Analysis to Navigate Transition Risk

The global financial landscape is being reshaped by the urgent need to address climate change. Exchanges are at the heart of this transformation – not just as market operators, but as enablers of the transition to a low-carbon economy. For the Singapore Exchange (SGX Group), this is both a responsibility and an opportunity.

As Singapore’s stock exchange and a gateway to global capital, SGX Group plays a unique role. We serve not only as a regulator and international marketplace, but also as a financing and trading hub with a commitment to sustainability. Our Climate Transition Plan reflects this commitment. It outlines how we are reducing our own emissions, and more importantly, supporting our ecosystem in navigating the climate transition.

A key component of our plan, and likewise for any financial institution navigating the complexities of climate change, is climate-scenario analysis. It helps us and our market understand how different climate futures could unfold, and how those futures might affect financial stability, business operations and long-term investment trends. For this special sustainability edition of the World Federation of Exchanges’ (WFE) newsletter, we are presenting our experiences and perspectives on this progressively evolving field.

The Unique Challenge for Exchanges: A Different Lens on Climate Risk

Climate-scenario analysis is a forward-looking, strategic tool. Recommended by the Taskforce on Climate-related Financial Disclosures (TCFD), it is used to explore the implications of multiple climate pathways, including transition and physical risks.

For financial institutions, climate-scenario analysis helps uncover risks and opportunities in portfolios and loan books. For exchanges, however, the lens is different. Our exposure is more indirect, systemic and complex.

Exchanges do not hold assets on balance sheets but facilitate capital flows for those who do. That means our ability to function relies on the health of the wider capital-market ecosystem, including issuers, intermediaries, clearing infrastructure and investor confidence. A disruption at any point in that system could have cascading effects.

Climate-related risks often do not show up in direct, measurable ways for exchanges. Instead, they appear at second-order level. A disorderly transition could lead to sudden shifts in asset pricing, affecting market stability. Extreme weather events could disrupt the operations of listed companies or impair physical infrastructure critical to trading and clearing. These kinds of shocks even if not immediately traceable to climate events, can influence confidence, liquidity and pricing mechanisms across the market.

As an exchange, our role is to provide trusted data, efficient trading, orderly clearing and a reliable venue for capital raising. All these functions can be affected by climate-driven uncertainty. That is why our scenario analysis must go beyond direct exposures to consider systemic risks, and the way they ripple through financial networks.

Charting Our Course: The Scenarios We Use and Our Evolving Views

In line with the recommendations of the TCFD, we adopted a scenario-based approach to assess our climate-related exposures. We began by referencing climate scenarios developed by the Network for Greening the Financial System (NGFS), widely recognised and used by central banks and financial regulators.

These include pathways like "Net Zero 2050" and "Delayed Transition," each representing a different mix of policy responses, technological change and climate outcomes. By applying these scenarios to our business and ecosystem, we examine both:

• Transition risks such as shifts in investment sentiment, new carbon-pricing policies or changes in technology adoption.
• Physical risks such as the increased frequency and severity of extreme weather events, based on Representative Concentration Pathways (RCPs) developed by the Intergovernmental Panel on Climate Change (IPCC).

We assess which sectors may be most vulnerable to these risks and which may stand to benefit from green innovation and assessment. This dual focus enables a richer understanding of how our ecosystem could evolve under different climate futures.

Our climate-scenario work has evolved over time. Early efforts focused on qualitative insights, identifying broad risks and engaging stakeholders. Today, our analysis is more quantitative and data driven. We are developing models that capture the unique interdependencies across market participants and infrastructure.

Still, this remains a journey of continuous improvement. Our aim is to refine our methods as climate science, disclosure standards and data availability improve. We see scenario analysis not as a one-off, but a living process that adapts with new information.

The Data Challenge

Robust climate scenario analysis depends on reliable and comparable data. For SGX Group, this challenge is two-fold.

First, we must assess our own operational footprint and exposure, including our energy usage and physical climate vulnerability. Singapore’s small geographic size and urban density make us uniquely exposed to weather risks like rising heat and flash flooding.

Second, and more significantly, we need decision-useful climate-related data from the ecosystem. This includes listed companies’ emissions, climate targets and exposure to both transition and physical risks.

While global standards like the TCFD and International Sustainability Standards Board (ISSB) are helping close the disclosure gap, many listed entities, especially smaller companies, still face challenges in reporting consistent and meaningful data.

We are tackling this head on by investing in capacity building. This includes supporting issuers on disclosure journeys and convening market dialogue on climate risks and opportunities.

Our Analytical Toolkit: A Blend of Art and Science

At SGX Group, we treat scenario analysis as both an art and a science. It draws on climate science, financial modelling and strategic foresight. Our approach involves three main steps:

• Climate Change Scenario Selection and Customisation: We start by selecting a plausible range of global climate scenarios. These are then customised to reflect regional conditions, such as the policy and energy mix in ASEAN.
• Impact Assessment: We assess how different scenarios could affect SGX Group’s operations, revenues and ecosystem. For example, how might a sudden shift in carbon pricing affect market structure? Or how would rising temperatures impact clearinghouse operations?
• Risk Mitigation and Opportunity Identification: The insights gained are used to inform our risk management processes and strategic planning. They also guide the development of new products, such as green finance instruments and identify ways to strengthen market infrastructure.

A Call to Collaboration: Joining Forces for a Sustainable Future

Climate-scenario analysis is not something any single institution can do alone. The risks and opportunities of transition are deeply interconnected. That is why collaboration, across exchanges, regulators and market participants, is essential. We are pleased to share our experiences to contribute to building capacity across the global community of exchanges.

We believe the WFE has an important role to play in fostering a global conversation on how exchanges can better manage climate risk.

We look forward to launching a follow-up initiative with the WFE on climate-scenario stress testing. This upcoming series will explore technical methodologies in greater detail and serve as a platform for peer learning.

Looking Ahead

At SGX Group, our climate-scenario journey has been one of continuous learning. We have moved from high-level framing to more sophisticated, quantitative insights. We have identified data gaps and worked to close them. We have recognised the systemic nature of climate risk and the need for shared understanding across the financial ecosystem.

As we continue to refine our models and collaborate with global peers, our goal remains the same – to support a more resilient, transparent and sustainable marketplace for the future.

We invite fellow exchanges to join us in this effort. Let us build the tools, share the knowledge, and shape the pathways that will help markets adapt and thrive in a changing climate.