The 3 keys that financial institutions need for a green future
THE appetite for sustainable financing has accelerated in recent years, driven by global initiatives to tackle climate change and promote sustainable development. Institutional and retail investors alike are increasingly putting money into responsible financing structures, such as green bonds and sustainability loans.
Corporates associated with sustainable finance products often reap reputational benefits too, and this has galvanised many companies to get on the environment, social, and governance (ESG) bandwagon, with or without regulatory incentive. This shift has not gone unnoticed, with increased scrutiny from investors and other stakeholders, and a demand for robust discussions around ‘greenwashing’ and its implications.
Financial institutions such as banks, insurance companies, and asset managers play an instrumental role in helping businesses transition towards net-zero emissions, and are well-positioned to mitigate the risk of greenwashing. Many are already actively raising awareness, bridging disclosure gaps, and conducting undertakings in connection with ESG targets.
As industry players continue advancing the green finance agenda and serving such needs in the region, it will help to keep in mind 3 keys – processes, technology, and people – that will shape the collective approach towards a sustainable future.
Streamlining processes
The implementation of standardised frameworks and guidelines is an important step to help ensure that environmental and sustainability claims are clear, accurate, and supported by objective evidence. Global regulators have been pushing for this, including in Singapore.
The Green Finance Industry Taskforce (GFIT) was convened by the Monetary Authority of Singapore (MAS) as an industry-led initiative to accelerate the development of green finance locally. One key initiative is developing a taxonomy for Singapore-based financial institutions, with particular relevance to those active across Asean.
To date, GFIT has launched 2 taxonomy consultation papers and issued a detailed guide for climate-related disclosures. Yet while GFIT can streamline taxonomy and disclosure efforts, and strengthen public-private partnerships to develop practical solutions, it is not a legal regime. We might eventually see some form of regulated or semi-regulated regime being implemented to spur Singapore’s development as a green finance hub.
It would be good for financial institutions to keep an eye on these developments; they can expect to see greater global alignment on regulatory matters, which would be key for certain cross-border aspects.
Technology as an enabler
The use of technology and data by financial institutions will similarly play a crucial role in building a more transparent, trusted, and efficient ESG ecosystem.
Firms are already exploring how technologies such as blockchain and artificial intelligence can aggregate massive pools of data, simplify conversion and comparability across different reporting frameworks, and enhance disclosure requirements. Yet while these technologies drive efficiencies and accelerate the green transition, they also expose businesses to greater digital risk and accountability.
As businesses face increased stakeholder and board-level scrutiny, coupled with compliance and regulatory challenges, the need to protect their digital capital is greater than ever.
Financial institutions need to strengthen their capabilities to tackle these issues and foster trust in their systems and processes. This means bolstering collaboration efforts with other players such as tech companies, regulators, and legal players, to set strategies, policies, and frameworks.
Bridging the green talent gap
Skills and expertise are another important factor in the sustainable financing equation. Given how the surge for sustainable financing only happened in the past decade, sustainability-linked degrees remain rare in the job market and there is a global dearth of professionals who are ESG-qualified. It can be difficult to find such talent readily available, as any ESG-qualified professional needs to wear 2 hats – to be both an environmental scientist and a banker, insurer, or asset manager. There is no such off-the-shelf person, and anyone taking up the sustainability mantle will be much more of one than the other.
While on-the-job learning and training are sometimes lauded as the solutions for building skills and competency, awareness does not necessarily equate to expertise. We need to be more intentional about building up a workforce of ESG-qualified professionals who can effectively perform their roles in sustainable finance.
Earlier this year, the Institute of Banking and Finance (IBF) and MAS set out 12 technical skills and competencies needed in sustainable finance, covering areas such as sustainability reporting and risk management. This provides a framework for financial institutions to upskill their professionals and serves as a reference for training providers. Financial institutions can look into IBF-accredited training programmes for external training, and host internal skills-sharing sessions.
The journey towards a truly sustainable future is long, but not unachievable. As financial institutions continue to drive this change and ensure the integrity of sustainable financing, this will hopefully propel more businesses to embark on their sustainability journey.
Upholding and maintaining the credibility of ESG policies and strategies will remain especially crucial to Singapore as it strives to build a green financial hub and advance its national agenda on sustainable development.
The writer is a banking and finance lawyer and head of Singapore at global law firm Norton Rose Fulbright.
