The Monetary Authority of Singapore (MAS) will be placing US$2 billion ($2.69 billion) of its funds with asset managers who are committed to deepening green finance activities out of Singapore, announced Ravi Menon, MAS’s managing director, who delivered a keynote address at the IMAS-Bloomberg Investment Conference on March 9.
The programme was announced just over a year ago, according to Menon, though MAS has just identified a “select group” of asset managers with a “strong green focus”.
The asset managers have a “good track record of sustainability investing, robust stewardship policies and a strong understanding of how to deliver a portfolio that has a deep environmental footprint while still delivering good returns,” says Menon.
“The selected asset managers will designate Singapore as their sustainability hub in the Asia Pacific… [where] their Singapore offices will lead Asia-focused sustainability research and spearhead ESG engagements in the region,” he adds.
Going green the way forward
In the same speech, Menon stressed that going green is the way forward for capital, due to three factors: “growing recognition of climate change as a global priority; advances in approaches to sustainable investing; and changing investor preferences.”
Climate change is a “risk that is too important for investors to ignore”, which implies a major transformation of economies and societies, in turn affecting how we work and how we live, he says.
“Given the scale of the transformation, asset values will change quite fundamentally,” he adds. “Technological changes leading to a sharp decline in the cost of renewables or policy interventions such as a sharp hike in carbon taxes, will have diverse effects on asset values… The value of global financial assets at risk from climate change has been estimated at $2.5 trillion by the London School of Economics and $4.2 trillion by The Economist. Investors cannot ignore these potential changes in asset values.”
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In addition, Menon also points out that “approaches to sustainable investing have developed significantly in recent years”.
“There is growing evidence that investments incorporating strong ESG considerations can reduce exposure to systemic risks and improve resilience to market shocks. Some recent research has found a strong correlation between market performance and ESG ratings, for both equity and fixed income portfolios,” he says.
Finally, as wealth is handed over to the next generation, Menon highlights that about 35% of Asia’s wealth will be with millennials in the next five to seven years, where they are twice as likely to invest in companies targeting social or environmental goals due to their concerns about the impact of their wealth on society and the environment.
Singapore to play ‘purposeful role’ in green effort
In his speech, Menon says Singapore will “play a purposeful role” in the green effort through two ways: "as the platform for developing green financing solutions customised for Asia”, as well as being the “channel through which global capital is directed at meeting Asia’s transition needs”.
In order to do so, the city-state will need to ramp up efforts in three ways, namely: broadening the range of green financing solutions and markets, improving the consistency and transparency of ESG reporting and disclosure, and building knowledge and capabilities in sustainable finance.
Beyond its efforts, including introducing a grant scheme to help corporates defray the costs of issuing green, social, sustainability and sustainability-linked bonds in 2017, Menon announced that “the Singapore government will start issuing green bonds to finance major sustainability projects, including green public infrastructure”.
“This should help to deepen market liquidity for green bonds, and attract green issuers, capital, and investors to Singapore”, he says.
