Singapore’s government has pledged $74.15 billion over the subsequent century to guard town from rising temperatures and flooding.
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Singapore, a small city-state with an import-dependent economy, is especially vulnerable to rising sea levels, heat waves and other adversarial effects of climate change.
That is why the federal government has pledged 100 billion Singapore dollars ($74.15 billion) over the subsequent century to assist the country survive and minimize the damage attributable to greenhouse gas emissions. That is an adaptive approach that differs from mitigation measures equivalent to carbon pricing and renewables.
Nevertheless, experts warn that public funds alone is not going to be enough for Singapore’s infrastructure and economy to adapt to the hotter temperatures. Private sources of capital from banks, insurers and financial markets are also needed, along with mixed finance projects involving public-private partnerships.
The issue isn’t unique to Singapore.
Internationally, climate change adaptation funding has traditionally lagged behind mitigation investments that concentrate on slowing or halting the expansion of fossil fuel emissions.
In keeping with Xinying Tok, head of Southeast Asia on the Carbon Trust consultancy, that is primarily because of the widespread belief that adaptation and resilience projects do not likely generate revenue.
A lack of information about adaptation and resilience results in mispricing of varied financial solutions, whether in investments, loans or insurance, she continued.
Singapore’s Climate Challenges
In 2019, Singapore’s Prime Minister Lee Hsien Loong said that climate change is a matter of “life and death” for the city-state.
Sea levels are projected to rise by 1 meter by 2100, but there’s a risk that it could rise by as much as 4 or 5 meters above current levels, depending on storms, subsidence and other aspects, in accordance with the authorities.
This type of growth could “potentially flood a 3rd of Singapore,” Grace Fu Minister of Sustainable Development and Environmenthe said.
Climate adaptation projects include constructing resilient water systems to administer scarcity during droughts and constructing barriers equivalent to sea partitions to guard against rising sea levels, explained Emirhan Ilhan, assistant professor on the National University of Singapore Business School and research partner at Sustainable and Green Finance Institute.
Because such projects improve existing infrastructure, they are sometimes publicly funded, but “cooperation with the private sector can also be needed because no government can fully cover the prices of those projects,” he said.
“While the necessity to handle adaptation has been widely communicated top-down within the city-state, the role of the private sector and the market in adaptation has not yet been clearly defined,” said researchers from Singapore Green Finance Center (SGFC) report in February.
An initiative of London’s Imperial College and Singapore Management University, SGFC was launched in 2020 to advance climate finance solutions.
Mobilization of personal capital
1. Catastrophe Bonds
Catastrophe bonds – designed to boost money for insurance firms within the event of a natural disaster – are a much-touted mechanism for climate adaptation.
The Monetary Authority of Singapore, the country’s financial regulator and de facto central bank, supports the sector through its Insurance Linked Securities Subsidy Scheme, which helps finance the upfront cost of issuing these debt instruments.
This system produced 23 catastrophe bonds at the tip of 2022 and was prolonged until the tip of 2025.
2. Green bonds
An alternative choice is green bonds, but to date the space is dominated by public sector activity and is especially focused on mitigating climate change through energy efficiency, clean transport and sustainable water management.
The green corporate bond market, which lags behind government issuance, can also be leaning heavily towards climate change mitigation measures. In 2020, Vena Energy became the primary Singapore-based company to issue US dollar green bonds with a five-year, $325 million green bond to refinance existing corporate loans for green projects.
Reducing the danger related to adaptive capabilities
World Resources Institute
When the trade-off between risk and return isn’t seen as sufficient for personal investors, Singapore must create appropriate incentives through subsidies or reducing burdens equivalent to taxes or regulation, Ilhan said.
“The excellent news is that Singapore is superb at creating predictable and enforceable regulations – so there’s cause for optimism,” he said.
“Mixed Finance”
Mixed financingor public-private partnerships shall be crucial for infrastructure projects equivalent to climate-resilient airports, coastal protection plans and the event of local food production.
IN report published last month, the World Resources Institute (WRI) found that guarantees, co-financing or other risk mitigation measures from public entities and development finance institutions can assist attract private capital.
One other option to increase blended finance is to introduce more risk-tolerant capital structures, the report says, citing Lightsmith Climate Resilience for example of a personal equity fund that invests in solutions to combat the results of climate change.
“The fund uses donor capital to create a risk-absorbing junior layer that carries a better loss potential and helps reduce the extent of risk for downstream investors,” which enables Lightsmith to draw roughly $3.30 in direct business investment for each $1 publicly contributed financial institutions, explains the WRI report.
Going further, Tok of the Carbon Trust recommends higher market coordination.
Because the valuation of physical risk is difficult, market players in Singapore may benefit from “common modeling support that enables the potential costs of a variety of economic activities to be compared with the prices of adaptation”, she concluded.