Green Finance in Singapore: Introduction

​Sustainable finance have been gaining huge prominence in recent years, with countries such as Luxemborg, France, Japan and PRC setting up financial infrastructures such as sovereign green bonds, platforms for green bond listing and  Climate Bonds Initiatives.
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Although sustainable financing has gained significant momentum in 2020, Singapore still lagged behind as it lacks a credible green finance market, with numerous reports on “green washing” against environmentally beneficial investments. However, Singapore wants to be a hub for green financing, following its already established role as a financial hub in Asia and Southeast Asia and the recently announced Green Plan in 2021 by the recently formed ministry of sustainability and the environment.

​The Monetary Authority of Singapore (MAS), the central bank, has initiated several initiatives toward green financing with the implementation of the Green Bond Grant Scheme in 2017 and signing the memorandum of understanding between the MAS and IFC, a member of the World Bank Group, to boost the green bond market in Asia. It has also become a founding member of the Central Banks and Supervisors Network for Greening the Financial System.
 
But what is sustainable finance? Although there is no precise and commonly accepted definition of green finance by many publications, most sources agreed that green finance is a broad term that constitute financial investments with the following characteristics

1. Financial investments flowing into sustainable development projects and initiatives, environmental products, and policies that encourage the development of a more sustainable economy.
2. Climate finance that have a wider range of other environmental objectives, (e.g. industrial pollution control, water sanitation, or biodiversity protection. Mitigation)
3. Adaptation finance that is specifically related to climate change related activities: mitigation financial flows refer to investments in projects and programs that contribute to reducing or avoiding greenhouse gas emissions (GHGs) whereas adaptation financial flows refer to investments that contribute to reducing the vulnerability of goods and persons to the effects of climate change."
4. Operational and opportunity costs of green investments not included under the definition of green investment. Most obviously, it would include costs such as project preparation and land acquisition costs, both of which are not just significant but can pose distinct financing challenges.
5. Pricewaterhouse Coopers Consultants (PWC) (2013): financial products and services, under the consideration of environmental factors throughout the lending decision making, ex-post monitoring and risk management processes, provided to promote environmentally responsible investments and stimulate low-carbon technologies, projects, industries and businesses."
6. The practice of integrating environmental, social and governance (ESG) criteria into financial services to bring about sustainable development outcomes, including mitigating and adapting to the adverse effects of climate change.
7. All forms of investment or lending that take into account environmental impact and enhance environmental sustainability. A key element of GF is sustainable investment and banking, where investment and lending decisions are taken on the basis of environmental screening and risk assessment to meet environmental sustainability standards

 
But regardless of its numerous definitions, Green Finance has become increasingly important as it promotes and supports the flow of financial instruments and related services towards the development and implementation of sustainable business models, investments, trade, economic, environmental and social projects and policies.
 
As the financial sector plays a key role through its intermediary functions and risk management in advancing sustainable economic development while directing investment to the real economy, the intertwinement of these climate change risks and economic prosperity has reached crucial stage.
 
Based on the lessons learned from the global financial crisis in 2006-2009, the availing of the global warming and and the current covid pandemic which is caused by an ecological and zoological disaster, the need for more sustainable business practices and Green Finance Initiatives have been amplified as major ESG funds were able to outperform broad indices like the S&P 500 during the early weeks of the COVID-19 crisis
 
In order for organisations to address the 2030 Sustainable Development Goals (SDG’s) Agenda, there is an emphasis to shift strategic focus from shareholders’ value creation (economic) to the generation of stakeholders’ value (economic, environmental and social).
 
Hence Green Finance represents the future of the financial sector through innovative financial mechanisms and by supporting the investments in projects with positive and sustainable externalities. As the world needs to sharply reduce greenhouse gas emissions if we are to limit global warming to well below 2, and preferably 1.5 degree Celsius above pre-industrial levels as committed under the Paris Agreement, countries are slowly moving towards a green economy and recovery as the climate and ecological risks have validated the consistent and potential high performance of sustainable funds and its importance, with more than $30 trillion of assets globally are being managed in ESG investments, up 34% from 2016. Global funds linked to ESG principles has also doubled in 2020 compared to just a year before.
 
However there is numerous challenges in this sector ranging from lack of development for the proper rubrics of evaluating environmentally friendly investments, and several definitions of green investments are emerging. Hence we will be exploring the challenges and opportunities associating with green financing and how it will change sustainability and financing as a whole.

Author

​Michael Yiin