Transitional Risk: Customer Expectations

Although local customers are largely not yet demanding sustainability performance from their logistics partners, large international clients have already started expressing their expectations about the sustainability efforts of their logistics SME partners.

In a survey of multinational companies, some of which have supply chains in Singapore, 78 percent stated that they will remove suppliers that endanger their carbon transition plan by 2025. For Singapore-based suppliers, that could amount to a loss of USD 146.6 billion in revenues. Logistics sector players consulted are foreseeing a greater emphasis placed on sustainability in customer tenders in the coming year. This emphasis on sustainability set by MNCs will eventually trickle down to smaller logistics SMEs that indirectly serve them.

Transitional Risk: Government Policies

As Singapore works towards its national climate target of achieving Net Zero emissions by 2050, it has put forth various strategies and measures that will affect the logistics sector:

Carbon Tax

The carbon tax will be raised to SGD 25/tCO2e in 2024 and 2025, and SGD 45/tCO2e in 2026 and 2027, with a view to reaching SGD 50-80/tCO2e by 2030.

Implications: Although the carbon tax is currently only levied on facilities that emit at least 25,000 tCO2e, you will continue to experience higher electricity costs as the power generation companies that are affected by carbon tax might pass down the additional costs to their customers.

Vision of 100% Cleaner Vehicles by 2040

A. Commercial Vehicle Emissions Scheme (CVES)

  • Applies to all new and used imported Light Commercial Vehicles with maximum laden weight not exceeding 3,500 kg effective from 1 April 2023 to 31 March 2025
  • Commercial vehicles are categorised into three bands resulting in a SGD 15,000 surcharge for the most pollutive vehicles to a SGD 15,000 incentive for the least pollutive vehicles

Implications: There would be cost savings for the purchase of commercial vehicles that have the lowest emissions across the identified pollutant categories.

B. Enhanced Early Turnover Scheme (ETS)

  • Applies to Light Commercial Vehicles and Heavy Commercial Vehicles, with ETS for Light Commercial Vehicles ending on 31 March 2025
  • Replacement vehicles without tailpipe emissions will receive the highest incentives

Implications: The ETS incentive complements the CVES to bridge the upfront cost of electric Light Commercial Vehicles in CVES Band A.

Sustainability Reporting Regulations

A. SGX Listing Rule 711A – Every issuer has to prepare an annual sustainability report on a ‘comply-or-explain’ basis, covering the below components:

  • Material ESG Factors
  • Climate-related disclosures consistent with recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD). By 2024, issuers in the transportation sector cannot exclude this.
  • Policies practices and performance in relation to material ESG factors identified
  • Targets in relation to each material ESG factor identified
  • Sustainability reporting framework
  • Board statement

Implications: If your company is listed, or is under a parent company that is listed, you have to track your sustainability data and prepare a sustainability report, or face penalties by SGX.

B. Sustainability Reporting Advisory Committee (SRAC) Recommendations

Implications: The Sustainability Reporting Advisory (SRAC) was set up by ACRA and SGXRegCo, to advise on the sustainability reporting roadmap for Singapore companies.

After finalisation of the SRAC recommendations in 2024, large non-listed companies might also be subject to climate reporting, which could be cascaded down to smaller non-listed companies in 2030 and beyond. Reporting of Scope 3 for listed issuers would mean that Logistic SMEs need to report their Scope 1 and 2 data to their customers.

C. EU’s Corporate Sustainability Reporting Directive – From 2025, Singapore parent companies with EU subsidiaries that fulfils two of the listed criteria have to produce a sustainability report:

  • Net turnover of EUR 40 million or more
  • Balance sheet of EUR 20 million or more
  • Minimum of 250 employees

From 2028, there is an additional requirement for non-EU companies to report if the following criteria are met:

  • At least one EU subsidiary that is in scope (i.e. Listed on an EU regulated market or “large”) or at least one EU branch that generates more than EUR 40 million revenue in the preceding year
  • Consolidated net turnover generated in the EU exceeds EUR 150 million for each of the last two consecutive fiscal years

Implications: If you have a European subsidiary and fulfil the requirements under the Corporate Sustainability Reporting Directive, you will be required to produce a Sustainability Report.

Physical Risk: Government Policies

Climate change might pose physical risks to your business in Singapore due to higher temperatures and increased incidences of flash floods, which will lead to disruptions in operations and higher operating costs.

It is projected that Singapore may see increases in daily mean temperatures of 1.4°C to 4.6°C in the latter half of the century (2070-2099), as well as more intense and frequent heavy rainfall events . Record rainfalls were experienced in three months of 2021, leading to flash floods in various areas in Singapore. These may lead to delivery vehicles being delayed or re-routed, which can affect customer fulfilment and service levels. Flooding may also result in damage to delivery vehicles or customer products.

Higher temperatures will require increased air-conditioning use to cool warehouses to temperatures suitable for temperature-sensitive goods such as electronics or perishables. With the recent rise in electricity prices, higher energy consumption due to additional air-conditioning use would exacerbate costs in an already inflationary environment.