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OUTLOOK 2020

Singapore charts path on green finance

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Last November, MAS announced a US$2 billion green investments programme to drive growth in sustainable finance.

Singapore

WITH more global capital shifting towards sustainable efforts, central banks around the world, including the Monetary Authority of Singapore (MAS), have been nudged to jumpstart the green transition.

Last November, Singapore's central bank announced a US$2 billion green investments programme (GIP) to drive growth in sustainable finance. Under the scheme, MAS will channel funds to asset managers who are committed to deepening green finance activities in Singapore. These managers will in turn invest in public market firms with a strong green focus.

A first for Singapore, the GIP is "likely just the beginning" in bolstering the market for nascent green investments, said Jamus Lim, associate professor of economics at Essec Business School.

MAS's latest initiative is in line with a global trend of pension funds deploying capital into green projects.

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In September last year, Danish pension funds pledged to invest more than US$50 billion in energy infrastructure, energy efficient construction, and green stocks and bonds.

Closer to home, Japan's largest public investor - with over US$1.6 trillion of assets under management - is looking to solicit green-bond indices from private sector index firms.

Stephen Grundlingh, managing director and head of institutional (ex US) at Franklin Templeton, told The Business Times (BT): "If you were to speak to the big pension funds in the US, as an asset manager, you wouldn't even get in the door if you do not deeply ingrain ESG (environmental, social and governance) factors in your investment process."

The GIP comes amid an ongoing debate raised by the Central Banks and Supervisors Network for Greening the Financial System (NGFS) this year. In a report released in April 2019, the governing board called on central banks to "lead by example in their own operations" - that is, to include sustainability factors in their portfolio management with a primary focus on climate-friendly investments. MAS is a founding member of NGFS, along with other international partners.

"My impression is that MAS is trying to get ahead of this emerging trend," said Prof Lim, who anticipates that the GIP will help mobilise private capital for green investments.

As Asean's US$160 billion gap in green finance supply continues to widen, Singapore's needs will grow too big to be borne by the public sector alone.

A 2017 report by DBS Bank and the United Nations (UN) noted that future private green financing will increase from 25 to 60 per cent, while public financing will fall to around 40 per cent. It is estimated that Asean will need US$200 billion in green investments annually till 2030.

"We should not underestimate the important signalling role that official public financing can play in catalysing more private-sector investments," Prof Lim told BT.

As an example, China has been at the forefront of green finance in Asia, thanks to a combination of regulatory frameworks and incentives to attract private money into the green space.

Chinese asset managers have also jumped on the sustainability bandwagon, with seven firms joining the UN-supported Principles for Responsible Investment network in 2018.

Guo Xiaofei, Natixis director of green and sustainable finance in Asia-Pacific, cited the Chinese central bank's top-down approach as a key reason for China's speedy advancements in green finance. This is unlike in the West, where green initiatives typically start from the market side.

"You need the regulator to put green finance on top of the agenda for all market players," said Ms Guo.

As it stands, Singapore's green finance scene is still in the early stages with no established market for corporates or financial institutions.

While green bonds have been gaining some ground, MAS data shows that just S$6 billion worth of green bonds have been issued to date - a small bite of Singapore's S$420 billion corporate debt market.

A report by the Singapore Institute of International Affairs found that many investors continue to hold a "wait-and-see" attitude about green financing instruments, while others are sceptical about greenwashing, questioning whether claims of sustainability practices can be accurately verified.

Subash Pillai, head of investment solutions (Asia-Pacific) at Franklin Templeton, said the lack of urgency could in part be because Singapore is not prone to "big environmental disasters".

"If you are closer to some of the extreme weather events that are happening because of climate change, such as the bushfires in Australia, perhaps that will really drive the need to do something," Mr Pillai told BT.

It remains so that the lack of data standardisation and transparency is the key hindrance to green finance in the region, where sustainability is still a relatively new buzzword.

According to a recent study by Franklin Templeton, 22 per cent of institutional investors in Asia-Pacific ranked data limitations as the top barrier to ESG policy adoption, compared with 17 per cent globally.

The study found that data providers offer less ESG data for Asia-Pacific investors compared with their Western counterparts, with many struggling to find vendors with a complete suite of ESG information for prospective investments.

"When it comes to credit ratings, there are clearly only three credit rating agencies that we use globally. But for ESG, the industry is not converged at a standard," noted Mr Pillai.

Globally, there are more than 125 sustainability data providers who use varying methodologies.

"We need a language that is commonly used and easy to understand. It will be a key catalyst for a greater adoption of sustainable practices and investments," said Franklin Templeton's Mr Grundlingh.

To beef up sustainability reporting in Singapore, the Singapore Exchange plans to provide more guidance on ESG data disclosure over the next six months to make such data more meaningful for investors.

The current regulatory framework allows Singapore-listed companies to choose material matters to report on which makes data less comparable for investors.

State investment firm Temasek Holdings is also ramping up its data-collection efforts to support its portfolio companies in their sustainability endeavours.

"We are moving beyond collecting financial data... to see how we can also collect data on the environment, on the social impact (the companies) are making, and data on governance model," said Mark Lim, Temasek managing director for digital technology, at a panel discussion in November.

"Without data, you wouldn't know how to measure (progress). If you can't measure, you can't improve," he added.

In November last year, Education Minister Ong Ye Kung shared Singapore's goal to become a global green finance hub at the Singapore FinTech Festival x the Singapore Week of Innovation and TeCHnology (SFF x SWITCH) conference.

The GIP was outlined as a major step to jumpstart the demand for green investments, among other initiatives.

As a leading fintech hub, Singapore will leverage its tech capabilities to accelerate the pace of green financing.

Mr Ong said: "We will harness the power of fintech to spur green finance, by scaling up reach, innovation, and data. We are already beginning to see interesting fintech solutions for green finance. With our experience in financing the region, and capabilities in technology, we can make a unique contribution."

Natixis' Ms Guo is confident that Singapore is on the right track. On the green-bond front, Singapore is already the second-largest source of green bonds in Asean with 35 per cent of total issuance.

"Apart from the regulator, the big banks and corporates in Singapore are also starting to look into (green finance). Still in the early stage, yes, but it will be a key market," she added.

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