By Lee Wei Yang | 5 Sep 2023
In 2023, we commemorated Earth Overshoot Day on 2 August. This means that it took us slightly more than 7 months to consume what the planet can renew in a year. Just like a credit card, the additional consumption will eventually have to be paid for, with interest.
Our carbon footprint is a good representation of our consumption patterns. Despite the global efforts to curb emissions, global emissions from fossil fuels hit an all-time high in 2021, after a dip in 2020 due to the COVID-19 pandemic.
I graduated from the Sloan Fellows programme at MIT in 2022. I wanted to make an impact to shape the global climate trajectory to build a hospitable world and a bright future for my daughter. Yet, Singapore’s total CO2 emissions was only 0.1% of the global emissions. How could I move the needle?
I realised a big part of the answer was finance. They say money makes the world go round. Can money cool it down too?
After all, financing decisions influence research and development choices, capital expenditures, and business strategy. We couldn’t have developed COVID vaccines without large amounts of public and private financing. Similarly, venture capital, then infrastructure funding, has brought solar energy to the point where it is now cheaper than conventional fossil fuel power.
Singapore’s location, and our vibrant finance industry, puts us in the middle of Asia’s net zero transition. This is critical – the world will not get to net zero if Asia does not. We can make an impact far greater than the sum of our efforts. I will highlight three examples from what I have learnt working at the Monetary Authority of Singapore.
First, transition planning using practical yet ambitious standards to define green and transition activities.
To channel more capital into decarbonisation activities, we first need to define what these activities are. These definitions are known as a sustainable finance taxonomy.
In 2021, MAS convened a Green Finance Industry Taskforce which started developing the Singapore-Asia taxonomy. The taxonomy was intended to cover financing in Asia and includes eight priority industry sectors that account for about 90% of greenhouse gas emissions in Southeast Asia.
The innovative ‘traffic light’ system not just identifies sustainable (green) activities like renewable energy, but also transition (amber) activities, which lead to significant reductions in emissions in carbon-intensive sectors, such as buildings, industry, and transport. This allows financing to flow into decarbonisation activities, instead of just decarbonised activities. This marked a paradigm shift, and jurisdictions such as the EU have since indicated plans to cover transitional activities as well.
The importance of transition and transition financing cannot be overstated. The green industry and its activities account for less than 8% of the global economy. To make an impact, we need to transition the 92% of the economy that powers how we live and work. This is especially pertinent in the Asia-Pacific region, where 85% of primary energy consumption comes from fossil fuels, yet around 150 million people still lack access to electricity.
An orderly transition requires careful planning, and MAS has been encouraging our financial institutions to do so through science-based and credible transition plans. A good transition plan is time-bound, clear and specific in its implementation, and adheres to ambitious targets that follow relevant pathways to decarbonisation.
The three Singapore banks – DBS, UOB and OCBC – have all committed to net-zero targets by 2050, with interim 2030 targets and transition plans to achieve this. Singapore collaborates with fellow regulators through the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The country also hosts the Asia-Pacific Network of the Glasgow Financial Alliance for Net-Zero (GFANZ) – a global coalition of more than 550 leading financial institutions committed to accelerating the decarbonisation of the economy – to encourage greater adoption of transition planning in the region and beyond.
Second, adopting global disclosure standards and harnessing data and green fintech to support this.
Most of us would be familiar with the term “greenwashing”. These are claims to overstate environmental contributions. There is an emerging counterstrategy known as “green hushing”. Green hushing is the deliberate under-reporting of green targets and actions to avoid exposure to greenwashing accusations, which limits accountability and sharing of best practices. A culture of green hushing is arguably even more detrimental than greenwashing.
Credible and comparable ESG data is key to addressing both behaviours. This data will form the basis for financial institutions to assess companies and projects for green and transitional investments. The best way to get this data is for as many companies as possible to disclose their own environmental data, such as their carbon emissions. But there are two challenges: the data reporting must be consistent to allow comparability across companies, and there are compliance costs which make many companies hesitant to report.
The recent release of the International Sustainability Standards Board’s (ISSB) new standards for general sustainability requirements and climate-related disclosures is groundbreaking. They provide a universal baseline for green reporting, allowing for easier comparison across different companies and different jurisdictions. MAS and the Singapore Exchange (SGX) are working on a roadmap for listed companies and key financial institutions to disclose in accordance with the ISSB standards. Ultimately, the goal is to promote the wider adoption of these standards in the not-so-distant future, including among non-listed companies.
Digital technology can ease the process of green reporting and lower costs. Project Greenprint by MAS and industry partners will facilitate the flow of green data between the financial sector and the real economy, and create a robust and reliable bank of data. At the same time, green fintech projects such as banco, STACS and MetaVerse Green Exchange are being nurtured to develop new solutions in carbon tracking, green bond performance, and more.
Third, leveraging our financial hub role to mobilise financing for the net-zero transition, including through blended finance.
The world is still not investing enough for us to get to net zero by 2050. McKinsey estimates that to hit this target, investments in green and transition capital and technologies need to rise from today’s average of US$5.7 trillion to US$9.2 trillion annually. Filling this gap requires a concerted and collaborative effort among the public, private and people sectors. This is where blended finance comes in.
Blended finance synergises public and private capital to mobilise finance for transition projects that are marginally bankable. In the climate space, the idea is for public capital and guarantees to lower risks, thus enhancing bankability for transition projects and attracting private capital flows. While blended finance as a concept is not new, scaling it has been a challenge given the bespoke nature of many projects and the lack of concessionary capital. Globally, annual flows of blended finance have averaged less than US$10 billion since 2015.
Singapore will continue to do our part to mobilise financing through transition and blended finance. For example, Clifford Capital, whose borrowings are guaranteed by the Singapore government, provides debt financing to crowd in equity participation and additional financing for infrastructure projects. One of Clifford Capital’s sister companies, Bayfront Infrastructure Management, has also mobilised capital for project and infrastructure finance through the issuance of infrastructure asset-backed securities. To date, more than US$230 million has been catalysed for sustainable infrastructure.
We believe that it is also important to build up a pipeline of investible transition projects in the region. MAS and our partners – including UBS Optimus Foundation, Olayan, and the Australia Department for Foreign Affairs and Trade – have injected seed capital into an Asia Climate Solutions Design Grant hosted by Convergence Blended Finance. The scheme will provide early-stage funding for proof-of-concept and feasibility studies on innovative and scalable blended finance solutions to fund sustainability projects, which will allow the region to mobilise capital into high-impact decarbonisation projects.
How well and how quickly we mobilise green and transition finance will determine the future of our planet
Finance has evolved over many centuries – some say from as early as 3000BC in the Babylonian empire – through wars, new systems of governance, industrial revolutions, and through pandemics and natural disasters. There is cause for optimism that finance will evolve once again to play a pivotal role in addressing the climate crisis.
Growing interest from banks, companies and governments in green finance opportunities is accelerating the growth of investment instruments to drive decarbonisation. Green and transition finance has become mainstream less than a decade after the Paris Agreement was concluded. This will bring new opportunities in the growing green economy, with roles such as chief financial and sustainability officer (CFSO) becoming more commonplace. Companies now need business strategists to map out their green transitions, venture capital firms are shifting towards sustainable investments, and financial institutions are transforming their portfolios to hit net-zero targets. These provide opportunities, even as challenges abound.
Today, we are “borrowing” from future generations as we consume the resources produced by 1.7 Earths each year. SpaceX was formed with the hope that one day mankind can settle on Mars. But perhaps with a little unity and ingenuity, we can continue to sustain life on Earth.
About the Monetary Authority of Singapore
The Monetary Authority of Singapore (MAS) is Singapore’s central bank and integrated financial regulator. As a central bank, MAS promotes sustained, non-inflationary economic growth through the conduct of monetary policy and close macroeconomic surveillance and analysis. It manages Singapore’s exchange rate, official foreign reserves and liquidity in the banking sector. As an integrated financial supervisor, MAS fosters a sound financial services sector through its prudential oversight of all financial institutions in Singapore. It is also responsible for well-functioning financial markets, sound conduct and investor education. MAS also works with the financial industry to promote Singapore as a dynamic international financial center. It facilitates the development of infrastructures, adoption of technology and upgrading of skills in the financial industry.
MAS has overseas representative offices in New York, London, Beijing and Shanghai. The MAS New York representative office loves to keep in touch with overseas Singaporean finance professionals. Connect with the MAS New York representatives Tan Chin Wee and Ang Sin Lek.
About Lee Wei Yang
Lee Wei Yang is Director of the Sustainability Office at the Monetary Authority of Singapore (MAS). He completed the Sloan Fellow MBA from MIT in 2022. Prior to that, he was with the Ministry of Sustainability and the Environment, Singapore.
Connect with him here.
