Stopping new angpow notes could save emissions equal to annual power for 430 HDB flats
Janice Lim
THE Monetary Authority of Singapore (MAS) aims to pave a way towards a future where it will no longer issue new notes for festive gifting by encouraging the public to use normal circulation notes and e-payments solutions.
This is one of many measures the central bank laid out in its second sustainability report, released on Thursday (Jul 28), to cut its carbon emissions.
Speaking at a press conference on the same day, MAS’ managing director Ravi Menon said the carbon footprint of the excess new notes issued to meet festive demand each year makes up about 8 per cent of the central bank’s total emissions.
“(This is) comparable to the emissions from powering 430 4-room public housing flats annually,” said Menon.
Amid an overarching theme on how more needs to be done to tackle transition risks, the sustainability report laid out other measures that supposedly help MAS meet its own internal sustainability benchmarks as well as build a financial sector that is climate-resilient.
This includes cutting down the carbon intensity of its equities portfolio by 50 per cent by FY2030, by excluding certain companies in the thermal coal mining and oil sands sectors.
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However, MAS’ sustainability report did not include tying the remuneration of its executives to the performance of its sustainability goals, which is increasingly an aspect of governance that listed companies in Singapore are paying more attention to. This is in line with recommendations by the Task Force on Climate-related Financial Disclosures - the framework MAS’ sustainability report adopted.
When asked whether key performance indicators on sustainability would be tied to the remuneration of MAS’ executives in the future, Menon noted it would not discount implementing such a structure but that it is still early days.
“The other thing is that what are the sustainability outcomes that MAS can be held directly responsible for? Largely because the impact we make is through the financial sector. Our own carbon footprint is not that great, and we’re taking steps to reduce it,” he said.
“I’m not sure we’re going to reward ourselves by meeting our targets by 2030. I think there are larger fish to fry, which is really about getting the financial sector to be the engine of decarbonisation across the Asian economy,” added Menon.
Cutting emissions
As part of managing these transition risks, MAS set its own internal emission targets for FY2025 and FY2030 for its Scope 1, 2 and 3 emissions, as it navigates a longer-term pathway towards achieving net-zero emissions by 2050. Scope 1 emissions are from direct, controlled sources, Scope 2 emissions are from purchased energy consumption, while Scope 3 emissions are indirect emissions, often by suppliers or partners.
Using the level of emissions for FY2018 (ending in March 2019) as the base year, MAS has set a target of reducing these emissions, with the exception of those arising from currency operations, by 17.5 per cent in FY2025, and 30 per cent by FY2030.
Given MAS’ mandate to meet the public’s demand for currency, it recognised it would be harder to make significant reductions in emissions for its outsourced currency operations, and have set lower targets for this particular source of emissions. It aims to reduce it by 10 per cent in FY2025 and 20 per cent in FY2030.
Outsourced currency operations, which are considered Scope 3 emissions and involve the printing, processing and transporting of notes, emit 5,459 tonnes of carbon dioxide equivalent, making up its highest proportion of emissions at 55 per cent. This includes the 8 per cent of emissions from the issuing of excess new notes during festive periods.
“Approximately 100 million pieces of new notes for Lunar New Year and other festive periods are issued annually. These new notes are used once for gifting, and the majority of these notes are returned to MAS shortly after each Lunar New Year,” read the sustainability report.
“While most of these returned notes are recirculated to meet demand (eg they replace unfit notes in circulation), the excess will accumulate and are subsequently destroyed before the end of their useful life as they far exceed the replacement demand. This wastes resources, resulting in unwarranted carbon emissions.”
When asked whether MAS would consider ceasing issuing new notes during festive seasons to meet its emission targets, Menon said it’s something the central bank keeps in its back pocket, though it prefers to nudge the public into changing their behaviours.
“If you notice already, the new notes are becoming a little bit more scarce every year. And there are (news) reports (of) the queues, the frustrations, people queuing for long hours to get the new notes because there are not many of them to go around,” he said.
“So as with all these social behaviours, you know, you can’t move too far ahead... If you just pull the rug out, I think there would be a lot of unhappiness. Yes, we reach our target, but you want to make sure there is public education and social awareness.”
Portfolio adjustments
Beyond reducing its own carbon emissions, MAS, as the manager of Singapore’s Official Foreign Reserves, said it also has to take portfolio actions to manage the financial impact arising from climate change, with a stronger focus on transition risks, as it is more imminent than physical risks.
Transition risks refer to risks arising from regulatory responses to climate changes, while physical risks come about from extreme weather events.
MAS said that climate change policies need to occur well before the most damaging physical effects of global warming can be felt and its climate scenario analysis found that there is greater financial impact on companies and households if the transition to a low-carbon economy occurs faster-than-expected.
To mitigate exposures to transition risks, the central bank will implement a climate overlay programme by next year, which would involve gradually tilting its portfolio towards exposures that are less carbon-intensive and more aligned with low-carbon transition overtime.
It will also exclude from its portfolio equities and corporate bonds of companies which derive more than 10 per cent of their revenues from thermal coal mining and oil sands activities.
While there is no target set on when these exclusions would come into effect, Menon said it would take place gradually, and ideally before 2030.
“We have chosen these 2 activities because we think (there is a) high chance they will become stranded. It’s very carefully chosen. So I think there will be no sacrifice in returns,” he said.
It estimates these portfolio actions implemented over time will help to reduce the Weighted Average Carbon Intensity (WACI) of its equities portfolio by up to 50 per cent by FY2030 compared to the base year of FY2018.
MAS said the energy, materials and utilities sectors are still the biggest contributors to the WACI of its equity portfolios, and the rally in commodity prices arising from geopolitical tensions such as the Russia-Ukraine war have increased its WACI in FY2021.
However, Jacqueline Loh, deputy managing director of corporate development at MAS, said during the press conference that the change in WACI may not be due to underlying changes of the carbon intensity of companies but more a reflection of market valuations.
Depending on market and commodity price volatility, as well as how persistent inflation is, she expects this to continue over the short term. But the WACI should decline over time.
Sustainable financial sector
Going beyond MAS’ own internal benchmarks and to its role as a regulator for the financial sector, MAS said it has been working with international financial organisations on environmental risk management, conducting industrywide stress tests, mandating disclosures and promoting the growth of sustainable finance solutions.
Singapore accounts for close to 50 per cent of cumulative green and sustainability-linked bond and loan issuances among member countries of the Association of South-East Asian Nations (Asean), and MAS said it is keen to expand this.
The issuance volume of sustainable bonds increased from S$1.7 billion in 2017 to S$14.4 billion in 2021, based on MAS’ statistics. Among the 5 types of sustainable bonds, which include, green, social, sustainability, sustainability-linked and transition bonds, green bonds make up the highest proportion of total bond issuance in 2021.
When asked whether this is an optimum spread given that transition bonds make up a small portion even though transition risks have been deemed important by MAS, Menon said the market needs to see a lot more transition bonds, though it can’t really say what would be an optimal mix.
The problem is it is harder to define what are transition activities, as compared to developing a green or sustainability-linked bond, he added.
Leong Sing Chong, deputy managing director of markets and development at MAS, said transition bonds are starting from a low base as companies themselves are just starting their transition journeys.
“Over the years, as more companies firm up their plans, the financing will naturally follow,” he said.
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