Sustainability endeavours require capital, and Singapore’s financial sector is well-positioned to drive this change. This is the view of Desmond Kuek, divisional vice-chairman at UBS Global Wealth Management and head of the sustainable finance committee in the UBS Global Office of Sustainability and Impact.
Asia’s sustainable bond market, which includes green, social and sustainability issuances, has grown significantly over the past five years. Year-to-date, the issuance of US$31 billion ($41.9 billion) is already higher than the amounts raised for the full years in 2018, 2019 and 2020.
The sector is showing no signs of stopping. “We expect growing investor demand and government support to drive issuance and [this] could lead to a doubling of total Asian sustainable bonds outstanding within the next three years,” says Kuek in an interview with The Edge Singapore.
Formerly Singapore’s top general, Kuek — who joined the Swiss wealth manager in February 2019 — was among the moderators at UBS’s APAC Sustainable Finance Conference 2021 in July. The event brought together 35 world-renowned speakers, such as Columbia University don Jeffrey Sachs; leading sustainability expert Sean Kidney, CEO of Climate Bonds Initiative; and Loh Boon Chye, CEO of the Singapore Exchange (SGX).
Kuek: We expect Singapore to remain a dominant player amid rapid market growth, supported by an active policy push
They covered key trends in the sustainability space, including topics such as working towards net zero emissions in Asia and how private investors can position for and benefit from this green transition.
Just by the numbers alone, investors’ interest is growing. Worldwide, green bonds worth a total of US$106.86 billion were issued in the first quarter of 2021, the strongest quarter on record, according to the UK non-profit Climate Bonds Initiative.
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Looking ahead, analysts expect global green bond issuance in 2021 to exceed the US$312.70 billion issued in 2020, the strongest year on record.
Half of the international environmental, social and governance (ESG) bonds in Asia are listed on the SGX today. The favourable regulatory framework will help ensure Singapore continues to corner a big share of this investment activity. “We expect Singapore to remain a dominant player amid rapid market growth, supported by an active policy push from the Monetary Authority of Singapore [MAS] to build out Singapore as an international sustainable finance hub,” says Kuek.
MAS’s Sustainable Bond Grant Scheme (SBGS), for example, was expanded last November to include sustainability-linked bonds. First launched in 2017, the enhanced SBGS covers the post-issuance costs of engaging independent service providers to obtain external reviews or reports for bonds under the scheme. It remains open until May 31, 2023.
In a similar vein, MAS’s Green and Sustainability-Linked Loan Grant Scheme (GSLS) came into effect on Jan 1 this year. The first of its kind in the world, MAS defrays costs incurred by banks and corporates when engaging independent service providers to validate the sustainability credentials of loans. The GSLS is valid till Dec 31, 2023.
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UBS is known for its wealth management business, but it is equally active in asset management and investment banking too. To this end, UBS bankers helped sew up 22 deals in Asia Pacific alone.
Out of these 22 mandates, one was for the first-ever public sustainability-linked bond (SLB), issued by New World Development, a leading Hong Kong listed developer, in January this year.
As part of the 10-year, US$200 million SLB of New World Development, “green strings” are attached. Namely, New World Development has pledged to buy carbon offsets worth 0.25% per year if it does not meet its target of 100% renewable energy on designated rental properties by 2026.
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Notably, this was the first public SLB issuance out of Asia ex-Japan across all sectors. “While Asian SLBs have been dominated by real estate companies, we are hopeful that as the structure gains recognition in the region, we will see a broadening in sector representation,” says Kuek.
Founded in 1970, New World Development is today led by 42-year-old Adrian Cheng, grandson of the founder. In a way, New World Development’s pledge reflects how seriously the newer generation is taking the ESG agenda — underpinning how ESG-related activities will be the norm sooner rather than later.
Indeed, as Kuek has observed, the next generation of investors are not merely cognisant of this, but have expressed greater interest in “doing well and doing good” — the mantra of sustainable investing.
A virtuous cycle
Meanwhile, with its detailed carbon reduction targets, the Singapore Green Plan 2030 is likely to bolster sustainable bond issuance as it reaffirms Singapore’s intention to take ESG practices seriously, says Kuek.
Not only is Singapore encouraging issuers to embrace sustainable bonds, the government is also walking the talk, announcing in this year’s Budget that it plans to issue green bonds worth some $19 billion to fund public sector green projects. This includes Tuas Nexus, Singapore’s first integrated water and solid waste treatment facility, which is set to open in 2025.
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“Sustainable finance is the fastest-growing movement within international finance, boosted by a rapidly snowballing virtuous cycle of structurally rising investor demand, maturing products and the development of innovative investment tools and systems,” says Kuek.
The tide is slowly, but surely, turning. According to one UBS study, 52% of Singaporean investors will have sustainable investments in their portfolios by 2023, up from just 35% in 2018.
Strategically, Singapore has also been developing sustainable finance for a variety of reasons, he adds. Scarce resources and the threat of climate and demographic changes are pushing Singapore to invest heavily in sustainable finance, says Kuek, who, after his army career, was the permanent secretary at the former Ministry of Environment and Water Resources from 2010–2012.
Being green and sustainable can also bring about the potential to create new jobs and boost Singapore’s economy, he adds. UBS is making sure the way it operates is sustainable as well. To this end, UBS has developed a detailed road map for achieving net zero greenhouse gas emissions across all its operations by 2050.
Now, besides aiming for net-zero on its own, UBS can play a much bigger role in ESG by helping to nudge the flow of money. Last year, UBS became the first financial institution to make sustainable investments its preferred solution to private clients investing globally. As a result, core sustainable investments surged 62% y-o-y to US$793 billion in 2020, making up nearly 20% of all client-invested assets.
In 2018, UBS launched its 100% sustainable investing cross-asset discretionary mandate. This has been “very well-received” in Asia Pacific, says Kuek, with the portfolio crossing a major milestone when it reached US$3.5 billion in assets under management (AUM) by 1Q2021, more than triple the US$1 billion figure at the beginning of 2020.
Investors were rewarded for their decision. “After holding up better than overall markets during the sell-off in March last year, it returned more than 31% (in the balanced strategy) in the 12 months thereafter,” says Kuek.
“We believe that sustainable investing improves long-term risk-adjusted returns. Companies that manage ESG risks better also tend to be at the forefront of innovation and transformation in their sectors,” he says. “This means that they are best-positioned to capture future growth, and are more likely to fare better in the long term, on top of being more resilient against market shocks.”
Photos: UBS
