Transforming into a Sustainability Hub Transforming into a Sustainability Hub Transforming into a Sustainability Hub

Sustainability mega trends are disrupting existing operating models and behaviors. Environmental trends such as biodiversity loss, climate change, pollution, water scarcity, resource scarcity and social trends, as well as barriers to taxing carbon at consumer levels, remain a key focus for governments across the world.

For example, in late 2018, France suspended a planned tax hike on gasoline and diesel fuel following violent demonstrations. At the same time, Washington State voters in the US rejected a tax proposal on CO2 emissions. It is evident that new approaches are needed to gain public support and attract private investments,¹ especially with climate change and sustainability issues receiving so much media attention these days.

Singapore is not immune to these issues. With the future implementation of the Southern Waterfront projects, we expect more emphasis to be placed on sustainability. According to the WEF, developing countries are expected to account for roughly two-thirds of new infrastructure investments, which can help support climate goals through modest additional upfront costs. Technology and engineering then become key for climate change risks such as coastline protection and biodiversity.

We understand that the National Research Foundation has already launched the Marine Science Research and Development Programme to spur research into how Singapore can better cope with emerging challenges such as climate change, heavy shipping and urbanization. It will also work with the Centre for Climate Research Singapore to drive efforts to develop our national climate science research masterplan.

For companies to invest in climate change efforts, sustainable business models need to be adopted. As it is, we expect changes in revenue cycles, consumption patterns and financing solutions. The Singapore government can catalyze private investment in climate resilience by providing incentives and appropriate funding measures, thereby increasing stakeholder expectations around responsible behaviors. And this can happen with the provision of relevant infrastructure, funding, platforms for collaboration, and a conducive regulatory framework.

Singapore already faces several challenges arising from climate change. A 2015 study by the National Climate Change Secretariat indicated pressing issues around daily temperature, rainfall, wind, and rising sea levels. The disruption arising from extreme weather was also noted.² It has become critical that we examine the direct impact of climate change on areas such as water resources and drainage, biodiversity and greenery, network infrastructure and building infrastructure. We will then need to enable the acceleration and incubation of innovative solutions for these issues, as well as look into addressing indirect impacts such as changing consumption patterns, sustainability strategies, action plans, and targets.

Singapore has made commitments to the global climate change agenda and has ambitions to be a sustainability hub. Based on International Energy Agency data, we contribute around 0.11 per cent of global emissions and rank 126^th out of 142 countries in terms of CO2 emissions per dollar GDP. In line with the Paris agreement adopted in December 2015, Singapore has made a further commitment to reduce our Emissions Intensity from 2005 levels of 36 per cent by the year 2030, as well as to stabilize greenhouse gas emissions with the aim of peaking around 2030. ³

It is fair to note that while we are ranked as the world’s most competitive economy by WEF, more needs to be done in terms of sustainability.

Singapore is an open economy, closely tied to the global political landscape as well as business and consumer sentiments. This makes it even more important that we remain vigilant and proactive in responding to sustainability mega trends, including the opportunities they offer for us to act as a regional centre that attracts high-quality capital flows into Asia/Southeast Asia.

Singapore relies heavily on our talent pool, which means we need to compete globally to attract the best talent. In this sense, our Sustainable Singapore Blueprint not only sets out the lifestyles we hope for our people; it also serves as an important attraction for global talent.

Global talents are increasingly concerned about sustainability issues. In the 2019 Global Talent Competitiveness Report, Singapore ranked 2^nd overall, not doing as well in the areas of Lifestyle and Sustainability — key factors towards attracting and retaining global talent. Furthermore, to nurture future talent, a Forbes article also reported that enterprises which focus on sustainability put themselves in a better position to attract and retain millennial employees.

An increased focus on sustainability with regard to talent will not only help Singapore develop a new competitive advantage, it can also lead to a more sustainable and enhanced tax base moving forward as a result of the following:

• Broadening of the tax base (i.e. increased number of taxpayers within the tax net) by attracting and retaining more global talent to Singapore; and
• Increased quality of the tax base (i.e. higher income earners).

Therefore, sustainability is a key issue that should be included in Singapore’s agenda for action. For enterprises, a focus on sustainability will help them attract and retain talent.

Over 95 per cent of Singapore’s electricity is now generated by natural gas. Projecting from 2005, our business-as-usual emissions are expected to reach 77.2 million tonnes in 2020, out of which 88.6 per cent arise from the industry, building and transport sectors.⁴

A detailed assessment of environmental risks at both national and enterprise levels will help Singapore understand the implications of these challenges, and equip us to make better investment decisions around key sectors characterized by long lifespans and hefty price tags such as oil & gas, maritime, infrastructure, real estate, semi-conductors, and bio-research. Services,⁵ another key sector, will also benefit from more educational efforts, as the impact of climate change is often felt indirectly through changes in consumer profiles and consumption patterns.

A structured approach of developing sustainability strategies following detailed assessments will allow Singapore to respond to climate change in a risk-based, informed and strategic manner.

Better clarity from climate risk assessments and sector or enterprise-based readiness and benchmarking studies will enable us to formulate sustainability strategies that will drive more targeted responses, leading to tangible actions and performance monitoring to ensure goals are met. This will also allow for more effective capital allocation and drive technology solutions that will collectively help manage Singapore’s overall emissions output and profile.

An example of climate risk assessments is technology-based maturity assessments. These cover the key areas of governance, strategy, risk management, as well as scenarios, metrics and targets. Technology-based maturity assessments evaluate climate risk readiness in line with global recommendations by the Taskforce for Climate Financial Disclosures (TCFD).⁶

KPMG’s 2019 Autonomous Vehicles Readiness Index (AVRI) offers another example of a sector/enterprise-based readiness and benchmarking study. The AVRI measures 25 countries’ levels of preparedness for autonomous vehicles, providing key data points and insights for governments. In the 2019 AVRI, for instance, Singapore continued to rank 2^nd globally behind the Netherlands. The study suggests that, unlike the Netherlands which benefits from European leadership in transport public policy, our ranking was a direct result of investment from global technology leaders.

The use of such tools and the formulation of the sustainability strategies that follow can lead to numerous solutions and benefits. For example:

• Infrastructure and real estate assets (green-fields and brown-fields) tabled for private financing to boost supply of high-quality projects that attract global private capital funds into Singapore and the region.
• A review of real estate portfolios to increase the green status of properties and attract target tenants with strong sustainability mandates, or customers with increasing preferences for green residences and buildings with green features.
• More impetus to use technology such as proptech and autonomous vehicles which were previously unavailable.
• Support for the uptake of alternative clean energy by enterprises and consumers.
• Building of a green economy architecture that encourages financial institutions and corporates to undertake sustainability bonds and loans to open up new sources of capital for organizations as they gain access to new investor groups and lower costs of capital.

i. 200% tax deduction for costs related to development of sustainability strategies
    To include both manpower and consultancy costs.

ii. Grants to set up sustainability teams within organizations
    Co-fund 50% of salary costs.

iii. Rebate of property tax
    Conferred where the buildings/infrastructure erected on land meets certain criterion or thresholds e.g. link to higher standards for sea defenses, urban     farming, energy, water and waste reduction etc.

i. Co-fund 50% of R&D work
    Introduce grants and assistance for R&D on proptech and autonomous vehicle solutions.

ii. Concessionary tax rate of 5% on income derived from businesses for proptech solutions
    Applicable for proptech solutions used in green buildings.

iii. Enhance certainty of the R&D Tax Incentive Scheme
    Enhance the 250% tax deduction on qualifying R&D costs by including development of new or enhanced proptech and autonomous vehicle solutions as     pre-approved areas under the scheme.

iv. Introduce refundable tax credits
    Refundable tax credits of up to 42.5% of qualifying R&D and innovation costs (pegged to current R&D Tax Incentive Scheme benefits) to support     companies, especially smaller proptech players that have yet to generate profits.

    This would be similar to schemes in Canada and Australia, which provide alternative sources of financing for proptech companies which are yet to be     profitable.

i. Introduce a new Commercial Building Allowance for owners who modify buildings to make them green and adapt facilities for clean energy consumption
    This will encourage investments in green buildings by providing a tax depreciation for costs incurred such as building modification and fittings for clean     energy/energy reduction facilities.

ii. Reduce income taxes from property rental income for landlords of green buildings
    50% reduction in tax payable on rental income derived from buildings that undergo green renovation and retrofitting.

iii. 200% enhanced tax allowance on capital expenditure (including professional fees) on green building and clean energy/energy efficiency initiatives
    This is in addition to normal capital allowances, Commercial Building Allowance (see above) and tax deductions.

iv. 50% property tax rebates for three years following a building being certified green

v. Exclude building and environmental sustainability enhancing structures from taxation
    This will entail modifying the existing property tax regime.

vi. To increase funding and extend the Green Mark Incentive Scheme for existing and new buildings to achieve energy efficiency/adopt clean energy

i. 5% concessionary tax rates for sustainability bonds and loans
    For financial institutions on interest income from loans for acquisition and development of green residential and commercial properties, and arrangement     fees relating to green bonds, social bonds, sustainability bonds and sustainability-linked loans.

ii. Tax exemption for investors
    Applicable on income from green bonds and social impact bonds.

i. Extend the existing Land Intensification Allowance for industrial buildings(set to expire after 30 June 2020) for an additional 10 years
    To introduce energy efficiency as an additional requirement.

ii. Grant exemption of property tax for machinery or installations where the taxpayer is able to substantiate the benefits generated from the use of the said machinery or installations
    Benefits include automation of trade or business processes, increase in efficiency or productivity, reduction of work-related risks to employees or other     economic benefits to Singapore. Examples of machinery include the automatic storage and retrieval systems, automatic sorting systems, etc.

Technology offers new solutions to the challenges arising from environmental and social mega trends. Singapore is well placed to create innovative, data-driven solutions and attract capital flows to support the research, development and commercialization of sustainable solutions.

With technology, we can enable more informed decision-making by providing access to more granular, robust and predictive data, and making available more responsible options to choose from.

Examples include:

• Move towards data-driven predictive machine models with data analytics modelling to forecast the impact of a range of solutions that will optimize resource use, avoid wastage and maximize budgets.
• Enable the growth of data-driven and technology-based social entrepreneurship and innovation to encourage individual ownership of contributing to a Sustainable Singapore and boosting the range of innovative solutions.
  

50% co-funding for smart city solutions

Introduce grants and assistance to co-fund 50% of innovations which use data to address urban density issues such as waste collection, electricity use, efficient transport, etc.

Enhance the R&D Tax Incentive Scheme, as follows:

• Include development of new or enhanced data-driven and technology-based environmental solutions as pre-approved areas under the scheme. Solutions to be covered would include smart city solutions, as well as solutions to encourage businesses and individuals to take greater ownership and accountability around responsible choices.
• Introduce refundable tax credits of up to 42.5% of qualifying R&D and innovation costs (pegged to current R&D Tax Incentive Scheme benefits) to support companies, especially smaller technology players developing environmental solutions that have yet to generate profits. This would be similar to schemes in Canada and Australia, which provide alternative sources of financing for technology companies which are yet to be profitable.
• Extend the definition of R&D under the R&D Tax Incentive Scheme to capture wider data-driven innovation activities. The development of new machine-learning and data analytics models may involve more collection and training of data sets which may not fit in exactly with the current definition of R&D for tax purposes.

Singapore ranks high on the Most Liveable Cities index. Quality of life is critical to attracting top talent to our nation – this includes a high regard for environmental and social issues that impact day-to-day living.

To attract top talent, Singapore must be able to communicate the value of our sustainability initiatives. We need to develop impact measurement frameworks that quantify the intangible value of our environmental and social initiatives (e.g. more green and open spaces, sense of security, community-bonding platforms, workforce upskilling initiatives, digital connectivity etc.).

This will allow us to put an appropriate price tag to these initiatives as part of decision-making, and help communicate more effectively the value of such initiatives to individuals.

Include requirements of environmental and social impact in awarding land tenders

This should be applied to all building projects, as far as possible.

Businesses to include impact accounting in their corporate disclosures, as follows:

• Encourage more companies to undertake impact accounting by providing 250% tax deduction for costs of undertaking impact accounting for the first five years.
• Provide 50% financial grant on energy audits and health checks on energy efficiency of existing buildings.