An Orderly Transition to a Green Economy

The threat of climate change will only intensify over time without a concerted effort to curb greenhouse gas (GHG) emissions. The global response to climate change needs to pick up urgent pace, even as countries recover from the COVID-19 pandemic. More than ever, we need the will to engineer the systemic transformation required for an orderly low-carbon transition and avoid the most severe consequences of climate change. There is opportunity for Asia to turn its vulnerabilities to climate risks into a tailwind for sustainable development, job creation and economic growth. As a key Asian financial centre, Singapore can play an important role to mobilise capital for green financing and to facilitate Asia’s transition to a green economy. At MAS, we seek to embed sustainability considerations across our key roles as central bank and integrated financial regulator, as promoter of the financial sector, as an investor managing Singapore’s Official Foreign Reserves, and as a responsible corporate citizen.

A resilient global economy requires an orderly transition to low-carbon intensity

Threat of Climate Change

2020 will be remembered for the devastating humanitarian and economic impact from COVID-19. However, the past year also reminded us that we are confronting the grave threat of climate change.

Five of the warmest years on record have occurred in the past six years. 2020 narrowly tied with 2016 as  the hottest year on record despite the La Nina climate phenomenon in the second half of the year, which typically results in a global cooling.

Extreme weather events are becoming more frequent and intense, alongside rising socioeconomic costs. 2020 also saw a near record breaking number of catastrophic natural disastersAon (2021). Weather Climate and Catastrophe Insight 2020 Annual Report ranging from an unusually active hurricane season in the Atlantic, devastating wildfires in Australia,  Super Typhoon Goni in the Philippines and seasonal monsoon flooding in China.

Beyond extreme weather events, scientists have warned that unabated climate change leads to changes in climatic conditions, like higher outdoor temperatures, rising sea levels and ocean acidification. These will have detrimental effects on liveability and livelihoods, creating long-term drag on land, labour and industrial productivity, and economic growth. Climate change also exacerbates biodiversity loss, which can significantly reduce food, water and energy security.

Global Response to Climate Change

Mitigating climate change requires an urgent and ambitious response by global actors to ensure that an orderly transition to a sustainable low-carbon global economy takes place. 

The landmark 2015 Paris Agreement, supported by more than 190 countries, showed the international community's resolve to address this global commons challenge.

Despite the pandemic, 2020 witnessed numerous climate change commitments by governments, corporations and financial institutions. These include major carbon neutral commitments from China, the EU, Japan, South Korea and Canada, and the US rejoining the Paris Agreement.

A growing number of corporations are implementing net-zero commitments to demonstrate their preparedness to operate in a low-carbon future economy and contribute solutions to the economic transformation required. Similarly, investors are integrating climate risk assessment into investment processes and committing to decarbonise their asset portfolios.

The stage is set to translate long-term ambitions into tangible policies and action.

An Orderly Transition Leads to Better Outcomes

An orderly transition is borne from informed choices made by governments, businesses and societies.

Climate scientists on the UN Intergovernmental Panel on Climate Change (IPCC) unequivocally states that the world has to reach net zero carbon emissions by mid-century in order to limit global temperature rise to below 2°C, and preferably 1.5°C , in line with the goals of the Paris Agreement. An orderly transition will require a significant transformation of the industrialised global economy and careful management of societal response to climate policies.

A failed transition could mean lower global economic output of more than 10% by 2050Swiss Re Institute (2021). The Economics of Climate Change: No Action Not an Option., with higher impact on countries that are more vulnerable to changes in climatic conditions. As impact of physical risks start to escalate, heightened risk recognition could make long duration borrowing unavailable, affect insurability of high-risk assets, and reduce terminal asset values, leading to further economic disruption. As climate hazards intensify, climate adaptation costs would also rise dramatically to protect lives and properties, exerting an increasing burden on finite fiscal resources.

At the other extreme, a delayed transition could bring about sudden policy, technological and consumption shifts towards rapid decarbonisation of the global economy that would create severe financial and economic disruptions. The disruption is greater the longer the transition is delayed as there is a need to cut emissions more aggressively to limit temperature rise. The shorter runway for the transformation of the energy and multiple adjacent systems lead to high levels of stranded assets, business failures, and structural employment as a significant part of the workforce may not able to successfully transit to new jobs in a low carbon economy. Energy and commodity prices could spike due to an interim shortage of renewable energy which would impact lower income households harder.

The world needs to prepare for the greatest economic transformation since the industrial revolution. To achieve the pace and extent of decarbonisation globally would require reinforcing policy, corporate and individual actions:

Green Economic Growth from Climate Action

A strong commitment to climate action is necessary for sustainable and inclusive economic growth that benefits societies and builds resilience. 

Further, climate action can unlock a swath of economic growth and job creation opportunities, especially as the world emerges from the damaging socio-economic impacts of the COVID-19 pandemic.