Integrated Sustainability ReportAppendices

TCFD Recommendations

CLI started to align its climate-related disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in the four key areas of governance, strategy, risk management and metric and targets since 2017 and further declared its support for TCFD and its recommendations in 2019. CLI and its REITs, including CLCT are striving to continuously enhance the reporting against the TCFD recommendations.

Governance

The Board of the Manager of CLCT (the Board) considers sustainability issues as part of its strategic formulation, determines the material ESG factors and oversees the management and monitoring of the material ESG factors.

The Board sets the REIT’s risk appetite, which determines the nature and extent of material risks that CLCT is willing to take to achieve their strategic and business objectives. As part of the material risk issues being highlighted, climate change has been identified as important. The Board is kept up to date on climate change risks as part of its Enterprise Risk Management (ERM) Framework.

The Board is actively involved in discussions on climate-related initiatives. Taking the lead from CLI, the Board is updated on relevant performance metrics, e.g. progress on the reduction targets and green certification. Any environmental incidents, which may include climate-related damages or disruptions, are also reported to the Board. As Environmental, Health and Safety (EHS) factors are considered as part of the asset investment evaluation process and strategy, they are presented to the Board where relevant.

At REIT level, CLCT works closely with CLI China’s EHS Committee. This EHS committee drives initiatives related to climate-related risks and opportunities, as well as the broader environmental issues. In alignment with CLI, the CLCT CEO is responsible for CLCT’s climate change-related targets. A key objective of CLCT’s senior management is to transit to a low-carbon business and build a resilient and resource efficient portfolio. Members of CLCT’s senior management and relevant stakeholders will undergo annual training to further build capacity with respect to climate-related risk and opportunity management. The frequency and content of these capacity building trainings will be regularly reviewed to incorporate emerging issues relating to environmental risk management.

CLI groupwide sustainability management comes under the purview of a CLI Board Committee, the Strategy and Sustainability Committee (SSC). The CLI Strategy and Sustainability Committee, chaired by Lead Independent Director, is responsible for overseeing sustainability strategies and goals including providing guidance to management and monitoring progress against achieving the goals of any sustainability initiatives in 2023. It is supported by the Group Sustainability Office and various work teams to drive continued progress and improvement in the areas of ESG. The work teams comprise representatives from CLI business units and corporate functions. The SSC, as well as the Group CEO and the Senior Leadership Council have oversight and are responsible for climate-related issues. They had also approved the CLI 2030 Sustainability Master Plan (SMP). The CLI Board is updated at least once a year, at ad hoc Board meetings covering relevant climate-related topics including the CLI 2030 SMP and discussions on the green capital expenditure plan required to meet the SMP targets (which already includes decarbonisation targets). Performance against SMP targets and Balanced Scorecard targets, including decarbonisation targets, is tracked and reported to CLI Management and Board at least annually. This governance is cascaded from the Group level to CLCT level through the operations of CLCT’s EHS Committee. CLCT conducts Sustainability Working Committee (SWC) meetings on a monthly basis and Sustainability Management Committee (SMC) meetings on a semi-annual basis. The Manager of CLCT reports to the Board on a semi-annual basis as well.

When it comes to building expertise and capacity on climate-related issues for the Board and senior management, on CLI level, the Board is continuously upskilling with respect to sustainability and climate-related issues. All Board members have undergone the SGX recognised sustainability training, and all new and existing CLI Board members are regularly briefed on sustainability management at CLI, climate-related matters, including choice of climate scenarios and the decarbonisation journey, as well as the CLI 2030 SMP.

With respect to the decarbonisation initiatives and targets, at CLI and CLCT levels, there are various mechanisms applied to gaining feedback on these initiatives from our various stakeholders. These include but are not limited to: annual general meetings, half yearly financial results announcements, media releases and interviews, annual reports and sustainability reports, the company website, regular analyst and investor meetings (such as the 2023 sustainability non deal roadshow), participation in relevant focus groups/panel discussions, including regulator and responses to sustainability surveys.

Strategy

As a CLI-sponsored REIT, CLCT’s identified ESG issues are aligned and adapted from CLI’s list. The selected ESG issues have been deemed to be material and applicable to CLCT’s business and operations and will be guided by CLI and CLCT’s regular review, assessment and feedback process in relation to ESG topics moving forward.

Since 2016, climate change and emissions reduction are some of the key ESG material issues identified as relevant and critical for CLCT and CLI. Climate change risk has been identified as a key risk as part of the ERM Framework and includes both physical and transition risks. Physical risks are a result of climate change and can be acute or chronic in climate patterns, such as rising sea levels, violent storms, long intense heat waves, flash floods and freshwater depletion. Transition risks result from a transition to a lower-carbon economy, which could entail potentially more stringent regulations and increased expectations from customers and stakeholders.

In line with CLI, the REIT’s strategy to identify and address climate-related risks and opportunities spans all areas of its real estate life cycle, from the earliest stage of the investment process to design procurement, construction, operations and redevelopment or divestment.

• All new investments into operational assets and development projects undergo the EHS Impact Assessment (EHSIA) during due diligence to identify any environmental (including climate change) risks and opportunities related to the asset/project site and its surroundings. The assessment covers performance metrics such as energy efficiency, as well as transition and physical risks and opportunities considerations. Significant findings from the assessment would be incorporated in the investment paper submitted to CLCT’s Board for approval.
• Through the implementation of the CLI Sustainable Building Guidelines (SBG), the aim is to identify and address the risks and opportunities of climate change right from the design stage. The local context of each project will be studied in detail, and appropriate measures will be taken into consideration with regards to adaptation of climate change. SBG also sets guidelines for buildings to be more energy efficient, e.g. setting green rating targets, specifying minimum equipment efficiency, and requiring the use of onsite renewable energy whenever possible.
• At the operational asset level, the CLI Environmental, Health and Safety Management System (EHSMS), which is audited by a third-party accredited certification body to ISO 14001 standard, serves to monitor transition risks relating to climate regulations via EHS legal registers updates and regular stakeholder engagements. Operational issues pertaining to climate change, energy and water are also identified and managed through the EHSMS to strengthen the climate resilience of the Trust’s portfolio.
• The CLI 2030 Sustainability Master Plan further outlines the targets and pathways for transition to a low-carbon business that is aligned with climate science. Energy use and carbon reduction targets, as well as green certification targets are set for its operational assets. Initiatives are put in place to improve the environmental performance, resilience and durability of its assets through system upgrades, system optimization, effective maintenance and changes to user behaviour. The continued achievement of high green building ratings as well as energy and water efficiency measures put in place to achieve the reduction targets would help to mitigate the impact of changing weather conditions.
• CLI’s decarbonisation planned activities are also integrated throughout all stages of a project via CLI’s SBGs, from feasibility, design, procurement, construction, operations to redevelopment. CLI supports low-carbon investments and factors climate-related costs and opportunities into its evaluation of new investments or capital expenditure (CAPEX) through the incorporation of CLI internal carbon price implemented since 2021.
• As part of CLCT’s value chain engagement and low carbon initiatives, CLCT strives to obtain LEED certifications for the assets in its portfolio. As of end 2023, 36% of CLCT’s portfolio is LEED Gold certified (by gross floor area and excluding carpark space). CLCT also implemented green leasing for CLCT properties that are managed by CLI.

As part of the 2030 SMP implementation, CLCT generally considers short-term to medium-term time frames to be until 2030, and long-term beyond 2030 in relation to the identification of climate-related risks and opportunities.

CLI and its REITs, including CLCT, commenced its climate scenario analysis in 2022 for its global portfolio to understand how the identified climate-related risks and opportunities could impact future operations. This analysis considers scenarios based on the latest global and scientific developments, and the scenarios from 1.5°C to 3 °C scenarios for current to long-term time frames, to draw conclusions on the financially material physical and transition risks and validate its current strategy. CLI and the REITs will then review their mitigation and adaptation plans, and identify opportunities, in alignment with CLI’s 2030 SMP. The SMP was designed to build resilience throughout its operations and futureproof CLI’s real estate portfolio to guard against climate change risks and to avoid premature obsolescence and adopt available opportunities.

Scenario analysis on future climate-related risks and opportunities

The climate scenario analysis for CLI’s global portfolio (including CLCT) considered the parameters listed below:

The following heatmap on physical risk reflects the quantitative approach based on assessment performed by a third-party platform. The heatmap on transition risks includes the quantitative approach based on assessment performed by a third-party platform, augmented by additional qualitative research undertaken by an external consultant.

The quantitative analysis represents analysis with respect to the asset values of CLI’s assets worldwide and their respective exposure to climate related risk change. It is important to note that the risk level is based on the change of the risk in future scenarios – it is assumed that there is currently a certain level of risk exposure for each of the climate-related risks and the risk level reflects the magnitude of change. The colour-coded heatmap was derived based on thresholds of financial exposure, which have been grouped into the five major categories presented in the legend. The risk levels are relative to baseline exposure. These are the specific exposures for CLCT’s portfolio.

From the risk assessment performed by a third-party platform, CLI further explored additional transition risks and opportunities in a qualitative manner as a start. Some of these risks are also seen as ‘indirect’ climate-related risks to CLI and its operations so evaluating them and keeping them in view is of importance to CLI’s climate transition journey. The perceived risk level is based on the market trends, current developments and CLI’s experience and expertise in the real estate market. The perceived risk level is seen through three scenarios – a 3°C scenario which is assumed to be a ‘business-as-usual’ scenario where there is not sufficient action taken by economies and businesses to transition to a lower carbon economy and a 1.5°C and 2°C scenarios, where there are differing levels of potential action taken to tackle some of the risks of transitioning to a lower carbon economy. On the opportunity side, these were only reviewed as potential actions which CLI and CLCT can reference to inform our strategy and they have not been evaluated using the risk level heatmapping criteria or reviewed by scenario (these opportunities would be relevant in all scenarios). The following risks and opportunities are explored on a global portfolio level. The legend for risk levels for the following risks and opportunities is built upon the same financial exposure thresholds as the risk assessment performed by a third-party platform, but based on both qualitative as well and quantitative criteria that correspond to each risk level. CLI will continue to monitor these short term and medium term risks.

As an ongoing process, CLI and CLCT will review and update, if appropriate, the processes associated with risk management in order to account for the material environmental and climate-related risks identified.

Risk Management

CLCT conducts an annual Trust-wide Risk and Control Self-Assessment (RCSA) exercise that requires supporting business units and corporate functions to identify, assess and document material risk which includes ESG relevant risks, along with their key controls and mitigating measures. Material risks and their associated controls are consolidated and reviewed at the REIT level before they are presented to the REIT’s Audit and Risk Committee and the REIT’s Board. This exercise is based on CLI’s annual Group-wide RCSA exercise, review of the Risk Appetite Statement and Key Risk Indicator on Climate Change and Environmental Risk. Such climate-related risks and opportunities are identified and mitigated through CLI’s ERM framework, and its externally certified ISO 14001 Environmental Management System (EMS).

CLCT’s risk management process to address its key risks and uncertainties, including climate change, is discussed further in Annual Report, Risk Management section on page 106.

Climate-related risks and opportunities are identified and mitigated through CLI’s ERM Framework. The Trust prioritises material ESG issues based on the likelihood and potential impact of the issues affecting business continuity and development. Notably, CLCT is cognizant of the risk posed by existing and emerging regulatory requirements with relation to climate change as it is outlined in CapitaLand’s ERM Framework as a transitional climate change risk. Some of these risks include:

• Regulatory or compliance risk, prompted by certain regulations in the countries of operation. These include but are not limited to the Environmental Risk Management Guidelines introduced by the Monetary Authority of Singapore (MAS) in 2020 requiring financial institutions and asset managers to place greater emphasis on both physical and transition environmental risks; and the Singapore Exchange mandate introduced in December 2021 that all issuers must provide climate reporting that is aligned to the recommendations of the TCFD in their sustainability reports from the financial year commencing 2024 for the materials and buildings industry. For now, this requirement is on a ‘comply or explain’ basis for CLI and CLCT. In 2023, ACRA and SGX also launched public consultation on the recommendations by the Sustainability Reporting Advisory Committee (SRAC). The recommendations aim to further advance climate reporting in Singapore. These recommendations resulted in the mandatory climate reporting details for listed and large non-listed companies being confirmed by the ACRA and the SGX Reg Co on 28 February 2024. These include:
  • From FY 2025, all listed issuers will be required to report and file annual climate-related disclosures (CRD), using requirements aligned with the International Sustainability Standards Board (ISSB) standards.
  • From FY 2027, large non-listed companies (defined as those with annual revenue of at least S$1 billion and total assets of at least S$500 million) will be required to do the same.
  • Scope 3 climate-related disclosures will become mandatory for listed issuers in FY2026 and no earlier than FY 2029 for large non-listed companies.
  • External limited assurance on Scope 1 and 2 GHG emissions will become mandatory for listed issuers in FY 2027 and FY 2029 for large non-listed companies.
• Market risks, including shifts in carbon and electricity prices, or customer expectations. These developments are prompted by various country-specific or global platforms, including COP28 in November and December 2023, where the key takeaway was that progress on climate action was too slow across all areas such as reduction of greenhouse gas emissions and strengthening resilience to changing climate. The main decision was to accelerate action across all areas by 2030, including to speed up the transition away from fossil fuels to renewables such as wind and solar power in their next round of climate commitments. It was recognised that urgent action is needed to combat global warming, and this can only be done through global action from governments and businesses.
• Physical risks are observed through the regular monitoring of incidents across the portfolio, for example cases of floods. In 2020, CLI had conducted a global portfolio baseline study to better understand its portfolio’s physical climate risk in relation to floods. This included insights into whether properties were located in low lying plains, encountered flooding in previous years, had equipment located in the basement, and had exposure to other flood risks. Globally, most of CLI’s properties already have flood control features/measures in place, such as flood barriers, sensors, water level pumps and flood emergency response plans.

An EHSIA is carried out during the feasibility study of CLI and CLCT’s investment in all new operational assets as part of its due diligence. The assessment includes transition and physical risk and opportunity considerations, as well as the application of an internal carbon price. This assessment would guide CLCT to consider EHS risks and opportunities upfront and identify mitigation measures earlier. The significant findings of the EHSIA and their cost implications are incorporated in the investment paper submitted to CLI and CLCT’s Board for approval, to provide a more holistic perspective of the investment and ensure necessary CAPEX has been set aside for the investment to meet CLI 2030 SMP targets. Through CLI’s ERM Framework and the EHSIA, certain physical risks are prioritised e.g. floods are highlighted in the due diligence reports and plans to integrate climate change resilience and adaptation considerations into the design, development and management of its properties. To further strengthen climate resilience to flood risk, CLCT, through CLI regularly engages its operation teams to ensure flood emergency response plans are implemented across its portfolio.

Metrics & Targets

At the Group level, CLI has tracked and reduced the carbon emissions of its managed and owned operational properties, including those of CLCT, via its cloud-based Environmental Tracking System. All related metrics have been regularly disclosed in CLI’s annual Global Sustainability Report. Since 2010, CapitaLand has been disclosing Scope 1, 2 and 3 GHG emissions of its global portfolio and the data has been externally assured.

Furthermore, in 2022, the Group had their carbon emissions reduction targets approved by the Science Based Targets initiative (SBTi) for a 1.5°C scenario. This target is in line with the goals of the Paris Agreement to keep global temperature rise to 1.5°C in this century. CLI has also committed to Net Zero by 2050 for its Scope 1 and 2 emissions, which includes CLCT’s assets. Please refer to CLI Global Sustainability Report 2023 for more information.

The Scope 1 and 2 emissions for FY 2023, including the carbon intensity has been presented on pages 24, 29 and 32.

To calculate its carbon emissions, CLCT takes guidance from the operational control approach as defined by the GHG Protocol Corporate Standard, in line with the Group. A focus area at CLI Group level is tracking and disclosure of material Scope 3 categories in the next few years, especially supply chain emissions. Furthermore, CLI is also reviewing a carbon offsets strategy at Group level. The planned use of offsets would be aligned to the current SBTi requirements, i.e. offsets will only be used in the last-mile for emissions reductions beyond CLI’s science-based reduction targets and decarbonisation strategies (i.e. residual emissions) to reach net zero; and will be sourced from high quality reputable carbon credit projects that undergo the necessary verification and certification processes, aligned to international standards. In this regard, CLI is aiming to ensure the credibility and integrity of the offsets that it plans to procure.

Aligned with CLI, CLCT has set sustainability and climate-related performance metrics and targets that are linked to the remuneration policies for members of senior management, such as the Balance Scorecard (BSC) framework for FY 2023 which had included both quantitative and qualitative targets relating to climate change. At CLCT level, green certification and energy efficiency (EEI) targets are also incorporated in the BSC framework. CLI has implemented a shadow internal carbon price since 2021 to quantify climate-related risks and opportunities for its new investments.

CLI will continue to explore new metrics to measure climate-related risks and opportunities which CLCT will assess and adopt where relevant for its portfolio.