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Banks and investors should make companies\u2019 environmental performance consequential for financing decisions<\/p>\n
WHEN smoke from forest and land fires in Indonesia<\/a> reaches Singapore, the consequences are immediately apparent. People check pollution readings, outdoor activities are disrupted and the search for those responsible intensifies.<\/p>\n But scrutiny often fades with the haze. Financial institutions supporting land-intensive businesses should not let their attention wane with it.<\/p>\n This is a question of financial discipline, not just environmental goodwill. In Asia, banks, asset managers and institutional investors provide capital to businesses that depend on forests, land and water.<\/p>\n Poor management of these resources can expose companies<\/a> to operating disruptions, regulatory action, higher costs and reputational damage. Evaluating such risks requires more than collecting sustainability reports.<\/p>\n Consider forests. In recent research conducted with fellow National University of Singapore researchers and published in the Proceedings of the National Academy of Sciences<\/em>, we found that widely used ESG ratings do not consistently reflect measured corporate deforestation exposure.<\/p>\n Instead, the ESG scores responded more strongly to deforestation-related media coverage than actual forest loss.<\/p>\n Five decades of milestones and moments that shaped Singapore\u2019s success story – told through our headlines.<\/p>\n Explore BT50<\/span>\u00bb<\/span><\/p>\n<\/div>\n<\/div>\n <\/div>\n<\/div>\n Ratings may be useful, but financial institutions should not mistake a reassuring score for evidence of limited forest loss in a company\u2019s assets or supply chains.<\/p>\n Geospatial data, such as satellite-derived forest loss maps, should be incorporated into ESG analyses, but a satellite hot spot map should not be treated as proof<\/a> that a particular company started a fire.<\/p>\n Satellite evidence must be paired with land-tenure information, operating practices and verified supplier relationships.<\/p>\n Banks and investors should demand such evidence when environmental exposure is material, rather than wait for an incident to become a public controversy.<\/p>\n Now consider a less-visible environmental pressure: cooling Asia\u2019s expanding computing infrastructure. The high resource demands led Singapore to restrict new data-centre capacity<\/a> for several years from 2019, before restarting growth under tighter criteria<\/a>.<\/p>\n Meanwhile, neighbouring Johor in Malaysia<\/a> and Batam in Indonesia have attracted substantial investment, with water-supply concerns prompting closer scrutiny of water-cooled developments.<\/p>\n The economic promise of artificial intelligence and cloud services is substantial. So is the need to establish whether local infrastructure<\/a> can support this growth.<\/p>\n A headline water-efficiency ratio tells only part of the story.<\/p>\n Financial institutions need to understand where water comes from, how much is withdrawn and consumed, what is discharged and whether local supplies can accommodate additional demand.<\/p>\n Corporate-wide water totals are no substitute for site-level analysis, particularly where water scarcity and competing users create material risks.<\/p>\n \u201c<\/span>Asia needs financial institutions willing to support viable growth while refusing to treat forests and water supplies as invisible inputs.\u201d<\/span><\/p>\n<\/blockquote><\/div>\n A useful way to organise environmental accountability is to distinguish three stakeholder groups and their relationships to natural resources.<\/p>\n These categories identify economic relationships that warrant monitoring, rather than imply that every party caused the same environmental damage.<\/p>\n The third relationship deserves greater attention. Banks routinely scrutinise borrowers\u2019 financial accounts, while institutional investors devote considerable resources to assessing companies\u2019 earnings, strategies and growth prospects.<\/p>\n Why should they accept much weaker evidence about material environmental exposures that could undermine those same investments?<\/p>\n For agribusiness companies, financiers should seek credible information about land-use changes, fire-prevention practices and high-risk suppliers.<\/p>\n Data-centre operators should examine cooling technologies, water-source reliability, withdrawal and consumption estimates, and contingency plans for shortages.<\/p>\n Independent verification is particularly valuable when financial projections depend on uncertain environmental assumptions.<\/p>\n Crucially, environmental monitoring must continue after capital has been committed.<\/p>\n Banks can incorporate material environmental indicators, reporting requirements and improvement milestones into financing agreements and periodic credit reviews.<\/p>\n Institutional investors can use active shareholder engagement, portfolio reviews and subsequent investment decisions to demand measurable progress.<\/p>\n These mechanisms differ, but the principle is the same: Environmental information must have consequences.<\/p>\n Repeated failures to provide credible information or address material risks should influence lending terms, investment decisions and continued financial support.<\/p>\n This does not mean that capital should be withdrawn indiscriminately from environmentally sensitive industries.<\/p>\n Financing may be essential for companies investing in better land management, water-efficient technologies and environmental resilience.<\/p>\n But engagement should be accompanied by independently verifiable progress, rather than an endless sequence of revised commitments.<\/p>\n Singapore has already taken steps in this direction.<\/p>\n The Monetary Authority of Singapore (MAS) issued environmental risk-management guidelines for financial institutions<\/a>, and the Association of Banks in Singapore introduced a standardised Environmental Risk Questionnaire in 2022 to facilitate engagement with corporate clients.<\/p>\nCredible information needed<\/h2>\n
The Business Times turns 50<\/h3>\n
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Independently verifiable progress crucial<\/h2>\n