Environmental, Social and Corporate Governance (ESG) generally refers to three key factors in measuring the extent of sustainability and societal impact an investment or action of an enterprise would have. These are intimately linked to the pressing need to invest within prescribed ethical parameters [1].
In the past few months, the Monetary Authority of Singapore (MAS) has undertaken several initiatives to accelerate green finance in Singapore. This article explores the development of green financing in Singapore championed by MAS.
Guidelines on Environmental Risk Management by the Monetary Authority of Singapore
In December 2020, as part of the Singapore's strengthening of commitments to the Singapore Green Plan 2030, MAS published its Guidelines on Environmental Risk Management for banks, asset managers and insurance companies (MAS Guidelines). A key thrust of this initiative is the Green Finance Action Plan to position Singapore as a leading centre for green finance in Asia and globally [2].
The MAS Guidelines aim to enhance the resilience of financial institutions to environmental risks and strengthen the sector's role in supporting the transition to an environmentally sustainable economy in Singapore and in the region. It sets out MAS’ expectations on environmental risk management for all fund management companies and real estate investment trust managers.
The guidelines cover:
Governance and strategy
Research and portfolio construction
Portfolio risk management
Stewardship
Disclosure of environmental risk information
Source: Green Finance Action Plan, Monetary Authority of Singapore
Source: The Straits Times
Green Finance Industry Taskforce
To complement the MAS Guidelines, MAS convened a Green Finance Industry Taskforce (GFIT) to accelerate the development of green finance. This task-force comprises representatives from financial institutions, corporates, nongovernmental organisations, and financial industry associations. GFIT's mission rests on four key initiatives:
Develop a taxonomy;
Improve disclosures;
Foster green finance solutions; and
Enhance environmental risk management practices of financial institutions.
GFIT's initiative to enhance climate-related disclosures and strengthen green capabilities seeks to contribute to global efforts to achieve greater consistency and comparability in climate-related disclosures. Comparable climate-related disclosures are critical for better pricing of climate-related risks, more effective risk-management and market discipline, and effective allocation of capital towards financing green and transition activities. Investors and market participants will be provided with the necessary information to help with climate risk analysis and investment decision-making too. Financial institutions, on the other hand, will be supported to effectively develop green solutions and align their portfolios towards facilitating Asia's transition to a low carbon economy [3].
Key achievements to date by the Green Finance Industry Taskforce
The initiatives developed by GFIT include:
Detailed implementation guide for climate-related disclosures by financial institutions;
A framework to help banks assess eligible green trade finance transactions & working capital;
A white paper on scaling green finance in the real estate, infrastructure, fund management and transition sectors; and
Workshops and e-learning modules to help financial institutions and corporates build capacity in green finance with support from its industry association partners.
1. Financial Institutions Climate-Related Disclosure Document
GFIT produced a Financial Institutions Climate-related Disclosure Document (FCDD) to share practical implementation guidance and good practices on environmental risk management for asset managers through illustrations on best practice disclosures.
The FCDD adopts the recommendations of the Task Force on Climate-related Financial Disclosures as the guiding framework for disclosure. While many of these recommendations could also apply equally to other environmental, social and governance disclosures, the focus of the FCDD is on climate.
The purpose of the FCDD is to highlight leading environmental disclosures practices to serve as a practical reference as financial institutions step up their efforts in the area of environmental disclosures. This FCDD will guide financial institutions in furnishing climate-related disclosures to key stakeholders.
The FCDD is divided into different sections such as banking, insurance and asset management sectors, taking into account the different approaches that the individual sectors could take. Each sector is presented with a set of recommendations in line with the TCFD framework. This is divided into four pillars (governance, strategy, risk management and metrics and targets) and 11 supporting recommended disclosures that are elaborated on through case studies. For each recommendation under the TCFD framework, three levels of reporting maturity are identified where possible to propose pathways for reporting excellence.
2. Framework for Green Trade Finance & Working Capital
The framework for green trade finance and working capital provides a principles-based approach for banks to assess eligible green trade finance transactions, and specific guidance on recommended industry certifications for trade finance activities to qualify as green. Guided by this framework, some banks have piloted green trade finance transactions for renewable energy, recycling, agriculture and farming activities, to support businesses in greening their supply chains.
3. Green Finance Industry Taskforce Whitepaper
GFIT has also published a white paper on Fostering Green Finance Solutions, which seeks to address ways to develop and accelerate sustainable financing. 5 key sectors with the greatest near-term potential to catalyse change for greening the economy in Singapore and the region were identified:
Green trade finance and working capital;
Transition finance;
Real estate;
Infrastructure; and
Fund management.
This white paper is the reflection of multiple representatives from the various sub-groups. Key solutions include a green securities platform to scale sustainable infrastructure investments in the region, and recommendations for the use of transition bonds and loans in the shipping, oil and gas, and automotive sectors in bid to support more sustainable practices [4].
Moving forward, GFIT recommends that the MAS consider the following immediate next steps:
Strategic commitment to climate target (net zero or an equivalent);
Product development targeting lower carbon equivalent or to incentivise reponsible transitional behaviours; and
Green fund certification and disclosure.
4. Green Finance Industry Taskforce Workshops & E-learning Modules
GFIT will launch a series of workshops and e-learning modules catered to financial institutions and corporates, with the aim of strengthening the capabilities of banks, insurers and asset managers in environmental risk management. The goal of such is to enhance their environment-related disclosures, deepen knowledge of green finance instruments and enable financial institutions and corporates to customise green financing solutions for sectors amidst transition.
More information about GFIT's e-learning modules can be found here.
Other Developments
MAS announced that in its next phase of work, GFIT will partner industry associations, financial institutions and businesses to develop and implement the recommended proposals.
Useful References
Green Finance Industry Taskforce: Identifying a Green Taxonomy and Relevant Standards for Singapore and ASEAN (link)
Handbook on Implementing Environmental Risk Management for Asset Managers, Banks and Insurers (link)
Financial Institutions Climate-Related Disclosure Document (link)
Green Finance Industry Taskforce: White Paper - Fostering Green Finance Solutions (link)
Consultation Paper on Proposed Guidelines on Environmental Risk Management for Banks, Monetary Authority of Singapore
GFIT Capacity Building Series (link)
Main references:
[1]: Green Finance Industry Taskforce launches guide for climate-related disclosures and framework for Green Trade Finance, Allen & Gledhill
[2]: Singapore's Green Finance Action Plan, Monetary Authority of Singapore
[3]: Handbook on Implementing Environmental Risk Management for Asset Managers, Banks and Insurers, Green Finance Industry Taskforce
[4]: Green Finance Industry Taskforce: White Paper - Fostering Green Finance Solutions, Green Finance Industry Taskforce
Contact the Royal Danish Embassy in Singapore for more information about business opportunities and how Denmark seeks to inspire green transition in Southeast Asia:
Mark Edward Perry
Sector Expert at Royal Danish Embassy Singapore
Phone: +65 9088 5567
Email: markpe@um.dk
Join Green Denmark in Southeast Asia
Ole Boisselier-Malmgren
Head of Trade at Royal Danish Embassy Singapore
Phone: +65 9170 9354
Email: oleboi@um.dk