SINGAPORE - Companies here need to take a harder look at how they make sustainability investments in tough times or risk missing opportunities when the market recovers, says CapitaLand Investment’s chief sustainability officer.

Interest rates are high, inflation has risen and the costs of operating a business have climbed, but sustainability investments should not stop, Mr Vinamra Srivastava told The Straits Times in an interview.

For instance, he said, there is now a lot of dry powder or cash reserves in both the public and private real estate sector.

“Once the market turns back, all this money will get invested and where will this get invested – it will be in high-quality assets. So if you don’t continue to upkeep your assets to a certain level, you will face the music when it’s time for you to sell the assets.”

The key for companies is to be wise about where they spend their money in sustainability investing, Mr Srivastava said.

Describing the sustainability journey as “a portfolio management exercise”, he noted that there will be other economic ups and downs in the years ahead.

Singapore in 2016 ratified the Paris Agreement, a legally binding international treaty on climate change. It is committed to reach net-zero greenhouse gas emissions by 2050.

Currently, Singapore has a carbon tax rate of $5 per tonne that is applied to facilities that directly emit at least 25,000 tonnes of carbon dioxide-equivalent (tCO2e) in greenhouse gas emissions per year. The Republic, in support of its net-zero target, is raising the carbon tax to $25/tCO2e in 2024 and 2025, and to $45/tCO2e in 2026 and 2027, with a view to reaching $50-$80/tCO2e by 2030.

On the corporate side, business regulators are mandating climate-related disclosures for Singapore-listed and non-listed companies.

The Singapore Exchange from FY2022 started requiring all companies listed here to incorporate climate-related disclosures into their sustainability reports on a “comply or explain” basis.

From FY2023, climate reporting is mandatory for issuers in the financial, agriculture, food and forest products, and energy industries. A committee that advises on sustainability reporting proposed in July that all listed issuers, including business trusts, real estate investment trusts and those incorporated overseas, make disclosures that are in line with international standards from their FY2025.

It suggested that non-listed companies with an annual revenue of at least $1 billion make such disclosures from FY2027, while entities with an annual revenue of at least $100 million are supposed to start around FY2030.

With the shift to becoming greener, firms that do not invest early enough will be hit by the carbon tax, said Mr Srivastava.

He said that in the real estate sector, firms benefit from sustainability investments in various ways. It is as simple as switching from a normal lamp to an LED light in the office, which gives energy savings and hence cost savings.

Clients who have their own net-zero targets could be willing to pay a small premium on rental for greener buildings, he said, adding that others who do not want to pay extra might avoid a building that is less green.

“If I’m going to take longer to lease my building, it’s going to impact my returns anyway because in real estate, once you build the building, the clock is ticking,” said Mr Srivastava. “When you sell assets and they’re not green enough, you may have a smaller pool of buyers or the buyers may also have to spend money to clean it up, so they’re going to pay you less for it.”

Firms might end up having stranded assets or assets that they cannot lease or sell because of the emphasis on sustainability.

Meanwhile, banks now offer loans that are tied to green goals that could translate into interest rate savings or better environmental, social and governance (ESG) credit ratings.

“If you’re green enough as a company, it may expand your pool of investors or debt financiers, which may lower your cost of capital,” said Mr Srivastava.

That said, he noted that not every dollar invested will give a return to shareholders, so firms have to be wise about how best to use their funds.

On how there are many small businesses that do not have the resources to dive into sustainability issues in the breadth and scope as CapitaLand Investment, Mr Srivastava said the most important piece of the puzzle is to get the data organised correctly.

“They don’t have the systems. They don’t have the processes. They don’t have the people. They don’t have ways in which to collect and organise data in a way that is clean enough and that is comprehensive,” he said.

His advice to smaller companies is to outsource parts of the process such as data collection and disclosures.

Business owners should set realistic targets that are flexible, he said, adding that it is vital to be clear about decarbonisation pathways. “You don’t have to copy and paste from what others are doing. If your bigger problem is water, then you really focus your targets and your execution on the water problem.”

Mr Srivastava added that governance structure is especially important for smaller firms as they might inadvertently trip on greenwashing due to the lack of knowledge or lack of experience. Greenwashing refers to activities that make people believe that a company is doing more to protect the environment than it really is.

CapitaLand, one of Asia’s largest real estate groups, is one of the first Singapore-listed companies to produce a global sustainability report in 2010. It became a signatory to the United Nations Global Compact in 2015 and pledged support for the Task Force on Climate Related Disclosures in 2019.

CapitaLand Investment, among the biggest listed real estate investment managers in the region, in 2020 launched its 2030 Sustainability Master Plan, which was refreshed in June 2023.

Under the refreshed plan, one of the goals is to reduce carbon emissions intensity by 72 per cent by 2030. Another is to increase renewable energy use by 45 per cent of its entire portfolio by 2030, up from an earlier goal of 35 per cent.

In 2022, the company elevated its commitment by pledging to achieve net-zero emissions by 2050. To get there, it aims to reduce absolute Scope 1 and 2 greenhouse gas emissions by 46 per cent by 2030, up from 28 per cent previously. Scope 1 covers direct emissions while Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by its clients.

But the journey has not always been smooth, said Mr Srivastava, noting that companies must have the patience and the willingness to experiment with different technologies to see what makes sense.

“Often we are enticed to do one or two of these big things to get our emissions low. Unfortunately, it doesn’t work like that. The technologies are maturing in different stages. If you’re a multi-geography business, then there are country-level challenges... So what we have learnt is you got to fire on all fronts, you got to spread your bullets, be willing to experiment with different technologies and see what blooms, what doesn’t.”

Small firms starting on their sustainability journey should not be fazed by it, he said.

“Sometimes, do the boring stuff, because that’s what’s creating real impact.”

In the past few years, CapitaLand Investment has centred its ESG efforts on strengthening and deepening its master plan targets, placing more emphasis on transparent reporting and ESG risk management, as well as doubling down on energy efficiency and procurement of renewable energy.

Currently, it has 20 start-ups piloted across 24 properties to find ways to deal with the energy and water waste situation.

On Oct 26, CapitaLand awarded 10 winners of its CapitaLand Sustainability X Challenge 2023 with up to $1 million funding to test their innovations. These include a filtration technology that improves the efficiency of air handling units and reduces the energy load on fans’ motors, as well as a technology that converts contaminated and unsorted plastic waste into a sustainable construction material.

Across its properties, the firm also looks at where it can fit in sustainable elements. For instance, at CQ@Clarke Quay, more sustainable building features account for about 34 per cent of the total project cost, including upgrading the chiller to make it more energy efficient and improving the canopies to further reduce solar heat gain by 70 per cent. At Funan, a food waste biodigester has been installed to convert raw and cooked food into grey water and compost without the use of chemicals. 

Electricity for the firm’s business parks in India is generated on-site as well as procured from off-site renewable sources, while malls in China have features that reduce energy and water consumption.

Mr Srivastava said that in the months ahead, his team will focus more on green leases across its buildings, to partner tenants to lower carbon emissions, and work with vendors and suppliers through different incentives and programmes to bring them up to speed on their ESG focus.

He said that across Singapore and China, the firm has more than 100 properties with green leases. By the end of 2022, the company had 43 per cent of tenants in Singapore and China that had signed green leases.

The firm will also continue to look at low-carbon technologies for the construction materials used in the properties.