Firms engaging green-minded millennials have the edge

Singapore

SINGAPORE has the right approach "after it thought long and hard" before deciding to set up its green bond market instead of rushing into it, said the World Bank's Vice-President and Treasurer Arunma Oteh.

Speaking in an exclusive interview with The Business Times, Ms Oteh said it was right for Singapore to first look at the issues - how the green bond market can support the country's broader agenda of being the financial hub in Asia, how it can make sure that the regulatory environment is extremely supportive of this market and that there is coordination among all the stakeholders.

"I commend the Monetary Authority of Singapore's (MAS) initiative in getting all stakeholders' support. This will enable Singapore to leapfrog in green financing," she said.

Second Minister for Finance Lawrence Wong had announced only last month that Singapore is keen to develop a green bond market and that the MAS will be offering a grant to bond issuers to cover expenses from June to kick-start this new asset class.

Bond issuers here who qualify can offset all expenses from getting an external review of green bonds, up to a cap of S$100,000 per issuance, said Mr Wong, who is also Minister for National Development.

This comes as Singapore looks to introduce new benchmarks across different asset classes amid signs that sustainable investing can pay off. Investors are allocating more capital to sustainable businesses, and Singapore's investment giants Temasek Holdings and GIC are also taking sustainability into consideration when evaluating investments.

On Thursday, property company City Developments (CDL) marketed the first green bond offering in Singapore, issued under CDL Properties' S$700 million secured medium-term note programme first set up in 2001.

DBS Bank is the sole bookrunner on this transaction and the green bond's proceeds will go towards repaying a S$100 million loan extended by CDL to the unit, which owns Republic Plaza.

Green finance is a rapidly growing field, spurred on by consensus that more needs to be done to combat climate change.

"In December 2015, global leaders at COP21 in Paris agreed to work together to limit average global warming to two degrees Celsius over pre-industrial temperatures. This is an important milestone," Ms Oteh said, adding that they further agreed to target "no worse than 1.5 degrees".

Green bonds are used to fund projects that have a positive impact on the environment. The market has grown rapidly over the years, sparking interest from many audiences.

"Since 2008 when the World Bank issued the first plain vanilla green bond, the market has grown in both size and diversity of assets. Today, green bonds are issued in the government, agencies, corporate, bank, and asset backed sectors and many more. We are also seeing mainstream investors outside the green market taking on a very active role and insisting that their investments have a greater focus on the issues of sustainability and environment," Ms Oteh added.

The Bank of America Merrill Lynch (BOAML) estimated a need of about US$90 trillion of investments into low-carbon infrastructure through to 2030 to impact global growth expectations. Of this, 60 per cent of such investments will be needed in the emerging markets. China alone will require about US$450 billion in investments.

"We have also observed that a committed sovereign can quickly leverage the green bond market. China, for the example, began its focus on green finance three years ago, and in 2016, green bonds by Chinese entities had already grown to 40 per cent of the world's total that year. France and Poland have also recently issued green bonds, and a number of other sovereigns are considering doing the same," Ms Oteh said.

China has fuelled the growth of the green bond market with the development of green finance featuring strongly in its latest five-year plan and its chief economist of the central bank Ma Jun said last month it will make its standards more consistent with international criteria to help attract more investment.

China needs at least 2 trillion yuan (S$406.07 billion) of green investment annually over the next five years to promote environmental protection and reduce the effects of pollution from its rapid industrial growth over the past three decades.

Ms Oteh said that in Singapore's case, it will be able to leverage its experience with technology to enter and support the green bond market.

"Singapore's grant scheme to offset up to S$100,000 to green bond costs, I believe, will contribute to the development of the Singaporean green bond market, because it will help issuers defray costs such as second opinion, impact reporting and third party verification. That's an incentive that is well founded and should help encourage corporates to issue green bonds," Ms Oteh said.

She said that when it comes to the young, companies that are "thinking of green issues are those that will innovate and connect with the average young person".

"I'm fascinated by millennials. They are more focused on purpose and environmental issues. Companies that will do well are those that will be responsive to these needs. Millennials inspire innovation, and companies that focus on millennials think differently about their businesses, have a competitive edge and are able to prepare their businesses for the future," she said.

"Millennials ask tough questions and are more demanding on the corporate citizen. I find that companies that have young people are more grounded and focused on sustainable issues. I am lucky to have on my team young people," Ms Oteh said.

"Also, many millennials run successful businesses. Mark Zuckerberg is a great example. Only in his 30s, he has been running a company that has transformed society for over 10 years. They are very important influencers, so if you are not focused on their issues or on the things they care or are thinking about, you are not likely to be in business for long," she said.

Citing a verse she came across recently, Ms Oteh summed it all up: "The environment is not what our forefathers have bequeathed us. It's what we have borrowed from our children."