Singapore firms expected to show net-zero progress under revised standards, instead of just set targets

A major overhaul of the world’s most widely recognised corporate net-zero framework is expected to put Singapore companies under greater pressure to demonstrate how they will deliver on their climate commitments.

Under the revised standard from the Science Based Targets initiative (SBTi), companies will no longer be judged primarily on their ability to set ambitious climate targets and secure validation.

Instead, they will increasingly be expected to show that they are making tangible progress towards those goals through implementation, governance and real-world decarbonisation efforts, sustainability professionals told The Business Times.

“There will be a stronger push to translate targets into actionable transition plans, with clearer milestones and governance,” said Fang Eu-Lin, sustainability and climate change practice leader at PwC Singapore.

“Overall, this is less about changing ambition, and more about making climate strategies more operational, transparent and aligned to real-world execution.”

Cherine Fok, a partner for ESG consulting at KPMG Singapore, noted that while companies with existing SBTi-validated targets are unlikely to make significant changes to their net-zero ambitions, they will need to strengthen how those commitments are delivered.

Nevertheless, the increased emphasis on accountability is consistent with the telco’s commitment to transparency, and there are already processes in place to monitor, measure and report its sustainability performance, she added.

A spokesperson for City Developments Ltd : C09 +0.48% (CDL) said that the property developer has established processes to monitor and disclose progress against its climate targets through regular data collection, internal governance mechanisms and public sustainability reporting.

“We anticipate that some of the refinements introduced by SBTi may influence how companies assess emissions boundaries, prioritise decarbonisation actions and demonstrate progress across different parts of their value chain,” added the spokesperson.

Extensive changes

The extensive changes to the corporate net-zero standard is part of SBTi’s wider strategic shift towards being an implementation partner, said the voluntary corporate climate initiative in a media statement on Jun 11.

The previous version of the standard would validate whether a company’s climate targets aligned with a pathway to achieving net-zero emissions by 2050.

The updated edition will require companies to set near-term targets that reflect the context they are operating in, which are then continuously tracked and evaluated before progressing to the next target cycle.

Greater flexibility has also been introduced.

Companies can now focus their targets for Scope 3 emissions – indirect emissions arising from their value chain – on the most material sources and where the firms can best take action. They can exclude limited areas of Scope 3 emissions where they cannot influence outcomes.

Under the Greenhouse Gas Protocol – the world’s most widely used framework in measuring and reporting greenhouse gas emissions – there are 15 categories under Scope 3.

Progress will be assessed on a “best-effort” basis, recognising that companies may face external constraints beyond their control that affect their ability to reduce emissions.

This is accompanied by differentiated requirements based on company size and the level of economic development of the markets in which they operate.

Supply chain emissions

Unsurprisingly, there are some concerns that these changes might give corporates more wiggle room to lower their climate ambitions, or that these could even result in greenwashing.

For example, firms could claim that they have used their “best efforts” when failing to meet targets, or they could omit less-quantifiable but highly material Scope 3 metrics.

However, the increased flexibility towards Scope 3 can help companies shift their efforts from broad ambition to action on the most material and manageable categories, said Amandeep Bedi, partner for climate change and sustainability services at EY.

“It also allows companies to take tangible actions via procurement of lower-carbon products or services to show progress. This is expected to support more favourable mechanisms for the buying and selling of green products and solutions,” he added.

Fok of KPMG Singapore said that the updated standard recognises the difficulties corporates face in addressing Scope 3 emissions, while still expecting them to demonstrate accountability and progress.

Sustainability experts noted that, to ensure that there is rigour, corporates need to conduct strong materiality assessments and integrate the relevant Scope 3 emissions into procurement and commercial decisions, instead of seeing them as just a reporting exercise.

“When companies clearly link climate action to commercial drivers such as cost, risk and growth, the same discipline applied to financial performance extends to emissions performance,” added Fok.

CDL said that the revisions are not expected to materially affect the property developer’s target-setting process for Scope 3 emissions. Singtel’s Tan noted that it was too early to say if the revised standards would have any implication on the telco’s Scope 3 coverage.

Zheng Wanshi, group chief strategy and sustainability officer at Frasers Property : TQ5 -1.79%, said that the real estate company welcomes the increased emphasis on value-chain engagement to drive decarbonisation, especially for Scope 3 emissions.

“This aligns with our long-held belief that meaningful climate action requires deep collaboration with our value chain, including customers, suppliers and partners. The majority of our business units have already established SBTi-validated near-term targets that reflect this partnership approach,” she added.

A spokesperson for CapitaLand Investment : 9CI +0.39% said that its approach for Scope 3 emissions has always been focused on materiality and impact.

The corporates also said that they would continue to engage with their supply chain partners in their decarbonisation efforts.

A new approach

The introduction of the “best-effort” framework is particularly relevant for companies operating in South-east Asia, given that it is a region with varying levels of economic development and differing regulatory environments. It is also still highly reliant on fossil fuels.

“The inclusion of context-specific target-setting and a best-effort approach allows companies to pursue credible climate action while navigating these regional complexities,” said Fok.

PwC Singapore’s Fang said that the approach better reflects real constraints facing Singapore-headquartered firms operating across the region, such as fossil fuel-dependent grids and varying supplier maturity.

She added that this new framework would make the standards more accessible for smaller companies, and may even encourage adoption among those who found the previous framework too demanding.

Lowering the barriers to entry for smaller companies, coupled with larger companies setting clearer and more actionable Scope 3 targets, could strengthen the business case for small and medium-sized enterprises in their value chains to set their own targets, noted Fang. This could create a multiplier effect across the ecosystem.

However, Bedi of EY pointed out that signing up to SBTi is the easy part.

The real challenge is in getting technical and financial support to implement the obligations of SBTi, to create business value while remaining competitive, he said. This can be difficult “given the limited decarbonisation actions that can be implemented in the Singapore context”.

In addition, the new classification system – based on the size of the company and the economic development of the country in which it is based – means that a significant number of mid-sized firms in Singapore will likely be subjected to more stringent requirements.

A comparable company in a neighbouring country, however, would likely be classified under the other category that has less-strict obligations.

“The net result is that Singapore-headquartered mid or small companies (will likely have) to manage greater expectations while being in a similar competitive environment as their Asean peers,” Bedi noted.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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