Singtel’s Aussie green assist

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??This week: Singtel is now ahead of schedule in its decarbonisation progress, and it is almost all thanks to its Australian subsidiary, Optus. The Singapore telco group has also brought its target date to achieve net zero emissions forward by five years, to 2045.

Industry convention classifies greenhouse gas emissions under three “scopes”. Scope 1 emissions are directly generated by the company; Scope 2 emissions come from energy that the company consumes; and Scope 3 emissions are indirectly caused by the company in its value chain, such as transportation and investments.

Most of Singtel’s emissions are of the Scope 3 type, but it’s the Scope 1 and 2 numbers that are most directly relevant to the company’s finances. That’s because Singtel has at least S$2 billion of sustainability-linked debt and debt facilities. These pieces of debt – a US$100 million digital sustainability-linked bond, a S$500 million sustainability-linked revolving facility and Optus’ A$1.4 billion sustainability-linked revolver – are tied to Singtel’s progress on reducing Scope 1 and 2 emissions.

Sustainability-linked structures adjust the interest that a borrower pays according to the borrower’s ability to meet sustainability targets. Whether Singtel stays on track towards its environmental targets therefore directly affects its interest expense.

The good news for Singtel is that it lowered its combined Scope 1 and 2 emissions by 11.3 per cent to 438,957 tonnes of carbon dioxide equivalent (tCO2e) in the year ended March 2023. In absolute terms, the roughly 56,000 tonnes of emissions reduced in fiscal 2023 is the most amount of reduction in each of the past three years.

Singtel’s 2025 target – which is also the key KPI for its sustainability-linked bond – is a 25 per cent reduction from 2015 levels for Scope 1 and 2 emissions. The latest numbers mean that Singtel has reduced emissions by about 20.4 per cent from 2015 levels, which puts it ahead of schedule for hitting the 2025 target. If Singtel can keep this up, it will avoid paying higher interest rates on its sustainability-linked debt.

Singtel couldn’t have done it without Optus. Optus accounted for about 78 per cent of Singtel’s total Scope 1 and 2 emissions, but represented 90 per cent of absolute emissions reduced in those scopes between FY22 and FY23. The Australian unit achieved that feat by using renewable energy certificates or large-scale generation certificates, and by reducing its total energy consumption.

Amid this progress, Singtel has decided to bring forward its net-zero target date: to 2045 from 2050. It is also in the midst of refreshing its various emissions targets following a planned review; those targets are being assessed by the Science Based Targets initiative (SBTi), and will be released if approved.

That change is unlikely to affect Singtel’s existing sustainability-linked debt. Singtel said its 2025 target will remain, and it will not have to update the performance targets for its existing sustainability-linked debt.

The fact that Singtel’s accelerated targets might only affect new sustainability-linked financing in the coming years buys the company some breathing room before it has money on the line for higher goals. But to stay ahead of its ambitions and to eventually reach net zero, Singtel’s non-Australian businesses will have to step up.

?? Top ESG reads:

1. Singapore’s sustainable finance taxonomy might break from its defining traffic light system to accommodate the inclusion of early coal phase-out as an acceptable activity.
2. Real estate developer Guocoland has obtained a S$974 million green facility to refinance flagship building Guoco Tower.
3. Data that listed companies upload onto Singapore Exchange’s ESG data repository ESGenome might soon be globally available through a new deal .
4. The International Sustainability Standards Board’s accounting rules on sustainability and climate disclosures are finally here, but it’s just the beginning of a long journey.
5. The flaming hot market for used cooking oil is disrupting the market for smaller collection agents, who struggle against bigger competitors muscling onto their traditional turfs.

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