US$2b investment boost for Singapore's green finance push

SINGAPORE's quest to become a global green finance hub just got a US$2 billion speed boost with the launch of an investment programme to support the growth of climate-friendly projects.

Known as the Green Investments Programme (GIP), the new initiative by the Monetary Authority of Singapore (MAS) will channel funds to asset managers who are committed to deepening green finance activities and capabilities in Singapore. These managers will in turn invest in public market firms with a strong green focus, said MAS board member and Education Minister Ong Ye Kung at the Singapore FinTech Festival and Singapore Week of Innovation and TeCHnology (SFF x SWITCH) conference on Monday.

Such green finance activities include increased management of green-focused funds, incorporating environmental considerations into their investment process and actively directing capital towards investments with a stronger sustainability profile.

MAS's first investment under the GIP will be a US$100 million placement in the Bank for International Settlements' Green Bond Investment Pool, in support of its global green finance initiatives.

Said Mr Ong: "We can spur investments in renewables technology, in grid infrastructure, in battery storage. We also need investments in green buildings, efficient cooling and industrial systems, to optimise energy consumption. In time, maybe even bring about investments in carbon sequestration." Carbon sequestration is the process of capturing and storing atmospheric carbon dioxide or other forms of carbon to mitigate or defer global warming.

Investments aside, greening Singapore's financial system requires a range of other instruments such as green bonds and loans.

As the global green bond market continues to balloon, MAS has taken active steps to keep up with its peers through the Sustainable Bond Grant Scheme set up two years ago. To date, more than S$6 billion in green bonds have been issued in Singapore.

While green bonds have been gaining ground in the region, Mr Ong acknowledged that green lending is still at a nascent stage, and noted that this is an area with "significant potential" for growth.

"We are beginning to see early shoots in green lending," he said.

In the real estate sector, for example, developers the likes of CapitaLand and City Developments Ltd have secured green loans from banks to build greener buildings, install solar panels and retrofit buildings with energy-efficient equipment.

In order to access lending, firms will need to incur costs to develop sustainability frameworks and engage external reviewers.

MAS will develop grant schemes to help defray these costs to make green and sustainability-linked loans more accessible, said Mr Ong.

"To make finance green in Asia, we need to make green lending not a niche activity, but mainstream," he added.

In the face of climate change, Singapore's financial system must also be resilient enough to weather the imminent risks.

Climate change poses two main threats - physical risks arising from damage to assets and property, and transition risks that stem from policy changes, technological advances or changing consumer preferences, Mr Ong explained.

Old fossil fuel assets can become stranded, in turn devaluing loans and investments. Stranded assets could wipe out up to US$20 trillion across the energy, industry and building sectors globally from now to 2050, said Mr Ong.

To reinforce industry efforts in measuring, mitigating and disclosing risks, MAS will issue environmental risk management guidelines across banking, insurance, and asset management sectors.

"The guidelines will encourage the right-pricing of loans and investments, and thereby promote new opportunities for green investment," said Mr Ong.

MAS will publish a consultation paper in the first quarter of 2020.

The regulator will also roll out a scheme to support external reviewers and rating agencies and encourage them to expand their operations here.

As a leading fintech hub, Singapore will leverage its technology capabilities to accelerate the growth of its green finance ecosystem.

"We will build green finance on top of our technology stack. We will harness the power of fintech to spur green finance, by scaling up reach, innovation and data," said Mr Ong.

"We are already beginning to see interesting fintech solutions for green finance."

As an example, Danish firm Solstroem developed a blockchain system for the generation and transaction of carbon offsets.

The system auto-generates carbon offsets, complete with time stamps and geo tags, using emissions data from smart meters. The records are secure, tamper-proof and transparent, said Mr Ong.

On the big data front, homegrown fintech Asia Risk Transfer Solutions developed a cloud-based risk analytics software for designing and pricing agriculture and natural catastrophe risk insurance products.

"This is just the tip of the iceberg," said Mr Ong, noting that many more ideas and applications will emerge.

"With our experience in financing the region, and capabilities in technology, we can make a unique contribution," he said.

For all our coverage on this year's Singapore FinTech Festival x Singapore Week of Innovation and TeCHnology (SWITCH), go to bt.sg/sffxswitch2019

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