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This article was originally posted on the Oxford Business Law Blog on 14 July 2021.

By Ernest Lim

Recently, the Singapore Legal Opinion on Climate Change was launched; so was a White Paper that elaborates on the Opinion. I will first provide an overview of the Opinion and then I will discuss what Singapore’s largest controlling shareholder of state-owned enterprises (SOEs)—Temasek Holdings (Private) Limited—has done to address climate related risks. Singapore is a concentrated ownership jurisdiction unlike the UK and US. The majority of listed companies in Singapore are SOEs and family-owned companies. Given the importance of SOEs, it is crucial to understand the role of the controller-state.

The Opinion demonstrates that in view of the well-established physical, transition and liability risks associated with climate change, and in light of the measures taken by the Singapore government and regulators to address these risks, directors of companies are and should be required under Singapore law to take into account climate-related risks in their decision-making process, failing which they will be liable for breaching their duties to the company. The Opinion also shows that failing to disclose climate-related risks may amount to a breach of the Singapore Exchange’s continuous disclosure requirements and the rules on sustainable reporting guide. 

Among the measures taken by the Singapore government are the following:

In 2017, the Monetary Authority of Singapore (MAS) together with seven central banks and financial industry supervisors established the Network of Central Banks and Supervisors for Greening the Financial System in order to fulfil the goals set by the Paris Agreement and to address climate-related risks.

In 2020, the MAS issued environmental risk management guidelines across the banking, insurance, and asset management sectors. These include expectations that directors and senior management of these financial institutions should maintain oversight of their environmental risk management. Under the guidelines, directors should: (a) approve an environmental risk management framework and policies to assess and manage environmental risk exposures; (b) ensure that material environmental risk is addressed; (c) set clear roles and responsibilities of board and senior management, including personnel who are responsible for oversight of the financial institutions’ environmental risk; and (d) ensure adequate management expertise and resources for managing environmental risk.

Singapore also has other legislation to address climate related risks such as Carbon Pricing Act, the Energy Conservation Act, the Transboundary Haze Pollution Act, and the Resource Sustainability Act.

Two points in the Opinion deserve to be highlighted:

First, under the Singapore Companies Act (Cap 50), directors must always act honestly and use reasonable diligence in the discharge of the duties of their office. Acting honestly means the duty to act in good faith in the company’s best interests. There is an objective and subjective component to that test. Subjectively, it means whether the director considers the action to be in the company’s interests. Objectively, it means whether an honest and intelligent person in the director’s position believe the transaction was for the company’s benefit. 

The duty to exercise reasonable diligence is interpreted objectively: whether the director has exercised the same degree of care and diligence as a reasonable director found in his or her position. This standard is not fixed but context specific, depending on the type of company, the industry to which it belongs, and the specific expertise and knowledge of the director.

A failure to take into account climate-related risks insofar as these risks have a material and adverse impact on the financial performance of the company will render the director in breach of both common law and statutory duties. The consequences are that the director may be fined or jailed or disqualified under the Companies Act.

The second point is this. The Singapore Exchange Listing Rules require companies to disclose developments that affect materially the present or potential rights or interests of the issuer's shareholders. Climate change is one such development. A breach of the listing rule which is not intentional or reckless can result in a fine on the company. But if the breach is false or misleading in any material way and is likely to induce a person to buy the securities or if the market price of the securities is altered, the director can be fined or jailed if he or she has consented or connived at the company’s commission of the offence.

Next, Temasek, Singapore’s controlling shareholder of the SOEs, has taken the following steps to address climate-related risks:

  1. for itself, Temasek has already achieved carbon neutrality in 2020;
  2. for its portfolio companies which include but are not limited to the SOEs, Temasek has pledged to deliver net zero carbon emissions by 2050;
  3. regarding governance, Temasek’s board has oversight of its financial and systemic risks arising from climate change which can impact the value of its portfolio over the long term;
  4. regarding strategy, one notable feature is that Temasek has incorporated climate scenario analysis, together with other macroeconomic or geopolitical events, within the Temasek Geometric Expected Return Model, which uses a scenario-based approach to simulate its 20-year long term expected returns;
  5. regarding metrics and targets, with respect to emissions relating to Temasek’s portfolio companies, Temasek is working with an internationally recognised consultant to review the total attributable carbon emissions, using weighted average carbon intensity as the metric. But no specific targets are set.

To conclude, in concentrated ownership jurisdictions where controlling shareholders are the norm, which is the situation in many countries around the world, the state as the controller and regulator plays a critical role in achieving net zero carbon emissions in its portfolio companies, and it is important to continually hold the state accountable for its action and inaction. As to how the state and SOEs can and should promote sustainability in concentrated ownership jurisdictions in Asia, scholars and policymakers may find my book Sustainability and Corporate Mechanisms in Asia helpful.


Ernest Lim is Professor at the Faculty of Law, National University of Singapore.

This post is based on contributions to and the discussion at the 5th Annual Oxford Business Law Blog conference on ‘Business Law and the Transition to a Net Zero Carbon Economy’ which took place online on 25 to 27 May 2021. This post is forthcoming in Andreas Engert, Luca Enriques, Georg Ringe, Umakanth Varottil and Thom Wetzer (eds), Business Law and the Transition to a Net Zero Carbon Economy (CH Beck - Hart Publishing 2021) (forthcoming).


Event: Business Law and the Transition to a Net Zero Carbon Economy (25 - 27 May 2021)

Videos of the presentations are available on the ECGI website and YouTube channel.

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