Green Hub: Sustainable finance hub Singapore

David Koehne speaks to Allen & Gledhill about Singapore’s efforts to position itself as green finance hub in the region

David Koehne (DK): What climate commitments has the government of Singapore made to date and which interventions is it implementing?

Lee Kee Yeng | Co-Head of ESG & Public Policy Practice | Allen & Gledhill

Allen & Gledhill (AG): The Singaporean government recognises that climate change is an existential challenge for Singapore. There is a need to protect Singapore against the impact of climate change and contribute to global efforts to mitigate carbon emissions.

Singapore’s efforts towards mitigating climate change have seen steady progress over the years. With respect to emissions, Singapore pledged to reduce its emissions intensity by 36 per cent, in line with the Paris Agreement. In 2020, the government further committed to peak emissions goals by 2030 and 2050; while in 2022, it announced its ambition to achieve net zero emissions by or around mid-century. Overall, Singapore aims to halve its 2030 peak greenhouse gas emissions by 2050, with the aim of achieving net-zero emissions “as soon as viable in the second half of the century”.

To achieve this goal, there has been a whole-of-nation and whole-of-government push towards climate change and sustainability, which has intensified in the last two years. Notably, the government launched a whole-of-nation initiative under the Singapore Green Plan 2030, advancing the agenda on sustainable development. New initiatives under the plan include requiring all new car registrations to be cleaner-energy models from 2030, and aiming for at least 20 per cent of schools to be carbon neutral by 2030 “for a start”, with the rest of the schools to follow.

Another focus of Singapore’s climate mitigation efforts is using less carbon-intensive fuel and improving energy efficiency through transformations across society. The government has implemented several initiatives, such as a carbon tax; the Energy Conversation Act, requiring energy-intensive companies to implement mandatory energy management practices; a green building rating system for evaluating a building’s environmental impact and performance; and an initiative by the Land Transport Authority that aims for 100% clean-energy public transport.

Singapore also takes a whole-of-government approach towards mitigating climate change. Apart from various ministries and government agencies introducing policies, across sectors, which work hand-in-hand to mitigate climate change, in 2021, the government launched its GreenGov.SG initiative, under which the public sector itself would strive to attain ambitious sustainability targets in carbon abatement and resource efficiency and be a positive influence and enabler of green efforts.

DK: What is the role of green finance in achieving the government’s domestic climate goals?

Elsa Chen | Regional Co-Head of Competition & Antitrust Practice and  Co-Head of ESG & Public Policy Practice | Allen & Gledhill

AG: The Singapore government sees green finance to be critical in accelerating the greening of the economy, which is imperative for the net zero transition.

The Monetary Authority of Singapore (MAS) launched its Green Finance Action Plan in 2019 on becoming a leading global centre for green finance. The intention is also to develop a green finance ecosystem in Singapore to serve Asia, with four key priorities:

  1. Strengthening the financial sector’s resilience to environmental risks;
  2. Developing green financial solutions and markets for a sustainable economy;
  3. Harnessing technology to enable trusted and efficient sustainable finance flows; and
  4. Building knowledge and capabilities in sustainable finance.

The Singapore government also announced in the Budget 2022 that the public sector will issue up to $35 billion of green bonds by 2030. Related to this, MAS introduced in June 2022 the Singapore Green Bond Framework, which sets out guidelines for public sector green bond issuances that are aligned with internationally recognised market principles and standards. This Framework comes ahead of the issuance of Singapore’s first green bond to fund infrastructure projects that meet the new framework criteria.

MAS also launched the Green and Sustainability Linked Loan Subsidy Scheme, which aims to support corporates of all sizes, based onshore or offshore, to obtain green and sustainable financing. This includes subsidising the cost of engaging independent service providers to validate sustainability-linked loans, among other green finance products. The grant also encourages banks to make green finance products more accessible to small and medium-sized enterprises.

More broadly, Singapore is building a comprehensive ecosystem for green and transition finance to facilitate Asia’s net zero journey, which includes initiatives to build capabilities in environmental risk management in the financial sector through climate stress tests; provide grants to defray the costs of issuing green and sustainability-linked loans and bonds; support industry efforts to build the infrastructure for a liquid and transparent voluntary carbon credit market in Asia; and deploy technology to address data challenges, such as through an ESG registry to maintain provenance of green certifications and an ESG disclosure platform to allow listed companies to upload corporate sustainability data in a structured and efficient manner.

DK: What sorts of accountability and reporting mechanisms has the government introduced for green products? Are they effective?

Adrian Ang | Partner in the Financial Services Department and co-head of both the firm’s FinTech Practice and  ESG & Public Policy Practice I Allen & Gledhill

AG: On accountability, the Green Finance Industry Taskforce (GFIT) issued a detailed implementation guide for climate-related disclosures by financial institutions, which sets out best practices. The guide focuses on board/management oversight, policies and procedures crucial to managing environmental risk in a systematic and consistent manner, risk identification and assessment criteria, and monitoring. It also considers different approaches for individual sectors.

MAS also published the environmental risk management guidelines in 2020 for banks, insurers and asset management companies to promote the transition to an environmentally sustainable economy. It additionally published information papers in 2022 on a thematic review conducted by MAS in 2021 on selected banks, insurers and asset managers, and highlights emerging and good practices, identifying areas where further work is needed. MAS recognised that institutions are at varying stages of putting in place the relevant risk management processes, and stressed that they must push ahead to set tangible targets to address environmental risk with urgency and ambition.

The banking industry in Singapore has also undertaken its own initiatives to enhance the implementation of responsible financing across the banking sector in Singapore. The Association of Banks in Singapore published guidelines for green financing in the country. They require companies to strictly comply with ESG disclosures when they finance, and provide the principles of financing for issuing green bonds.

DK: How has Singapore developed as a regional green finance hub?

Sophie Lim | Co-Head of ESG & Public Policy Practice | Allen & Gledhill

AG: As a regional finance hub, Singapore has sought to leverage its existing professional services infrastructure to develop further opportunities in green finance. According to MAS, there will be approximately US$200 billion in green investment opportunities in ASEAN by 2030. Over recent years, the government has actively cemented the position of Singapore as a regional green finance hub, developing capabilities in environmental risk management and assessment, strengthening sustainability disclosure practices among both listed and unlisted companies, promoting the issuance of green bonds, and creating a carbon exchange.

MAS introduced the Sustainability Bond Grant Scheme in 2017, which has now been expanded to include social and sustainability-linked bonds. Reflecting Singapore’s status as a hub for foreign financial institutions in developing green finance capabilities, there have been green, social and sustainability bonds issued in Singapore by foreign issuers.

DK: And are there any interesting examples where the jurisdiction has managed to make a tangible impact regionally?

AG: Yes, both in connection with thought leadership and in carbon services and trading.

A well-functioning market for carbon credits is important to support carbonisation efforts. Today, more than 70 carbon services and trading firms use Singapore as a base to serve the region and engage in carbon market activities. The Singapore government is working to develop Singapore as an international carbon trading and services hub with Singapore-based global carbon exchanges such as Climate Impact X and AirCarbon Exchange, and to develop the larger ecosystem by anchoring key activities such as project development, financing and certification in Singapore.

In terms of thought leadership, various public and private players in Singapore are active in conducting research on the development of green finance in Singapore and the region, which positions Singapore as a leader in the region on green finance efforts. The Collaborative Initiative for Green Finance in Singapore has published reports to establish baseline standards for green finance in Singapore, outlining opportunities for green finance, and proposing various recommendations.

DK: What does the future hold for green finance in Singapore? Are there any obstacles, and what would you like to see the government doing that it isn’t currently?

AG: Singapore is an established financial hub in Asia and has tremendous potential to become a hub for green financing in Asia. It has the infrastructure, commitment and thought leadership to do so. This is particularly so with the strong government commitment behind green financing, which is one of the pillars of the Green Plan 2030.

Potential challenges which apply to green financing globally would also be expected in Singapore, such as: transparency of the quality of projects or financial instruments for green investments; burden of reporting in the green bond market; and lack of access for SMEs to the process of issuing green bonds.

However, the Singapore government is already taking steps to address these challenges. In terms of transparency and reducing the reporting burden, and to combat greenwashing, the government is developing analytical tools and providing expertise in identification and assessment of green projects’ risks.


Author

David Koehne

David Koehne is a researcher at The Legal 500