From the carbon cost of using artificial intelligence (AI) tools to corporate decision-making at a local REIT manager, the four panellists of The Edge Singapore’s Sustainability Investment Forum 2024 covered a broad range of topics on Sept 17, and readily answered questions from the audience.
The corporate context is “very different” from AI for personal or retail use, says Arun Biswas, Asia-Pacific leader for strategic sales and sustainability consulting at International Business Machines, or IBM. “In the corporate world, we don’t need AI that can write poetry in the form of Shakespeare. We need AI that can write [about] business, so it needs to be much more specific. It needs to be much more rigorous, [and must meet] all of our standards. It needs to be trustworthy.”
Biswas had earlier presented on the industry applications of AI in areas such as steelmaking in India. In that example, Biswas says a company improved production yield by 15% while cutting emissions, thanks to the use of nine AI models and one “unified optimisation engine”.
That said, corporate leaders must “deploy technical governance and operational governance” when deciding to adopt AI in business, he adds.
“When it comes to technical governance, it’s the choice of the AI models. AI models in the corporate world need not be very large and multi-purpose; it may be single-purpose… But these models then need to be trained on data, because, as we all know, the models inherit the characteristics of the data… These models need to be trained on your data in the enterprise to be more effective in your context,” says Biswas.
Popular generative AI models, such as Gemini and ChatGPT, have been accused of consuming high amounts of energy in order to run. According to the International Energy Agency (IEA), a single Google search consumes 0.3 watt-hours (Wh) of electricity, while a ChatGPT request requires 2.9Wh.
Biswas acknowledges that leaders “need to be mindful about the carbon footprint of these models”. “We can advise [corporates to use] smaller models, which are lower [in] energy [use] and carbon footprint and train them in a different manner.”
In response to a follow-up question submitted by the audience, Biswas notes that the IT sector “is responsible for less than 2%” of global carbon emissions. “So on a scale of things, it is not the biggest problem.”
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He adds: “Having said that, we do have to be mindful because the carbon footprint of these large models, like ChatGPT and all, is increasing at a very, very rapid pace.”
According to Biswas, IBM is “heavily investing” in researching and “looking at smaller models that consume less energy”, as well as more energy-efficient methods of training these models.
“In summary, yes, [the] carbon footprint can be managed, and it is an area that we need to be mindful of, but it is not the biggest issue,” he says. “The benefits of AI far outweigh the carbon footprint.”
Transition finance
The panel also briefly touched on the topic of transition financing, where emissions-intensive projects are funded but with a caveat that they must transition to cleaner, less-pollutive activities within a certain timeframe.
The most significant development in this space has been the launch of the Singapore-Asia Taxonomy for Sustainable Finance in December 2023. The Monetary Authority of Singapore (MAS) has set out detailed thresholds and criteria for defining green and transition activities that contribute to climate change mitigation across eight focus sectors.
The Singapore-Asia Taxonomy adopts a “traffic light” classification system — “green” to denote activities that are aligned today with a 1.5°C outcome; and “amber” to denote activities that will move to “green” over a defined period of time, or facilitate significant emissions reductions in the short term.
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There are “a lot of products out there”, but it ultimately comes down to whether the financing cost is lower, says Dave Sivaprasad, managing director and partner at Boston Consulting Group (BCG).
There was a “rush” by banks to increase their green financing figures “early on”, adds Sivaprasad, who is also BCG’s Southeast Asia lead for climate and sustainability. “They were largely competing on price and margin… but that can only go so far.”
The market has now reached a stage where the only way to scale transition financing is to “accelerate on policy measures”, which “change the incentives” in the market, says Sivaprasad.
He believes governments and regulators should start by implementing carbon pricing. “It’s well-understood, it’s been applied [and] it’s operational in many markets. Starting with that is a good place to begin; it evens the playing field on capital deployment for any business. The good news is that almost every country in Southeast Asia has either implemented, signalled or is evaluating some form of carbon pricing.”
Carbon pricing takes into account the emissions involved in a certain activity. Proponents argue that this creates a level playing field by attaching a price to hidden externalities, such as pollutive supply chains.
Singapore’s carbon tax was raised to $25 per tonne of carbon dioxide equivalent (tCO2e) in 2024. It will be raised to $45/tCO2e in 2026 and 2027, with a view of reaching $50–80/ tCO2e by 2030.
Ranking priorities
Reducing carbon emissions and working out the teething pains of transition finance are just two issues in a broad range of sustainability matters today.
“There’s an argument to say that, no, you can’t cover every single risk out there to the same degree, but some of them are more of a priority than others,” says Mike Wills, head of EOS business development and client management at Federated Hermes. EOS is a stewardship service provider.
For example, climate change and biodiversity loss are “very high priority” issues that have “huge ramifications for the food system”, he adds. “I remember seeing a statistic at a conference last year where they said if every human on the planet consumed as much as a British individual — myself being British — we would need four planet Earths in order to meet that need. That just blows my mind.”
Allocating resources to these priorities may shift focus away from other environmental, social and governance (ESG) risks “like board independence, executive remuneration, bribery and corruption”, says Wills. “[These] things are meaningful [and] will have a financial impact on the business, but [are] perhaps less existential for our species. So, it’s ultimately down to the investor to choose what they value the most and how they try to affect change on those [issues].”
Decisions, decisions
Bringing it all together in the boardroom is Kelvin Chow, CEO of the manager of Lendlease Global Commercial REIT JYEU (LREIT). LREIT became the first Singapore REIT to achieve net-zero carbon emissions in 2022, three years ahead of schedule.
Profitability and sustainability are actually aligned, says Chow, who was also on the panel of The Edge Singapore’s REITs Investment Forum 2024 in August.
As the S-REIT with the highest amount of sustainable financing, Chow says his team is focused on improving returns to shareholders via more attractively priced green loans. “That, in itself, actually helped us to save quite a substantial amount.
“We will not look at sustainability as a burden, but something that we carry forward to make ourselves more future-proof,” he adds. “When we talk about future-proofing ourselves, while we enhance the returns, we also enhance the valuation of the asset properties that we are holding.”
Chow cites the concept of “climate-adjusted GDP”, which he heard at a recent conference. Similarly, the concept could be applied to corporates to illustrate eroding returns in the future owing to climate change, such as through stranded assets, higher energy costs or loss in market share. “It hasn’t [been] factored into your P&L [profit and loss statement]. If that were to happen, it would be very serious for the numbers,” he adds.
Chow has a word of advice for business leaders: “It’s better for you to take bold action to address these climate issues than taking it at a later stage, when things are beyond what you can fix.”
Photos: Samuel Isaac Chua/The Edge Singapore
