The Taiwan Banker

Singapore has a knack for positioning itself at the forefront of the financial industry’s evolution in Asia. Over the past decade, the city-state has become the region’s most important wealth management market after Hong Kong as well as Southeast Asia’s fintech hub and a regtech innovation center. Singapore is now moving to take a regional leadership role in green finance. The Monetary Authority of Singapore (MAS), Singapore’s central bank, sees finance as able to play a leading role in the fight against climate change, which poses a rising threat to the country. Data compiled by Singapore’s weather service show that since 1960 it has been warming twice as fast as the global average, with the past decade the hottest on record. Bloomberg reckons that Singapore’s daily temperatures could reach highs of 35°C to 37°C by 2100 if emissions are not curbed. The Straits Times noted in May that Singapore has already broken several weather records in 2021. February was the driest since 2014 while April had the highest daily rainfall since 1980, causing flash floods in some parts of the island. With the climate situation worsening, Singapore’s government unveiled the Singapore Green Plan 2030 in February, a blueprint for a more sustainable future. The policy aims to build a green economy and envisions Singapore becoming Asia’s preeminent green finance hub. Those are ambitious but achievable objectives: Singapore is proactive and forward-looking when it comes to eco-investing. In June, the MAS released a standalone sustainability report covering environmental risk and sustainability efforts across all its functions and operations. The MAS is the first central bank in Asia and just the second globally after the Bank of England to publish such a report. "Finance is key to unlocking a sustainable future," MAS managing director Ravi Menon said in June. "It can support the transition to a less carbon-intensive economy and channel capital to green technologies and infrastructure." The MAS estimates that Southeast Asia will eventually need annual green investment of US$200 billion. Given Singapore’s importance as a financial center in Southeast Asia, the city-state can likely lead these green financing efforts. Green bonds, loans and investments Within Singapore’s sustainable finance initiatives, both green bonds and loans play a key role. They are debt instruments that exclusively finance projects with a positive environmental impact; for instance, renewable energy, energy efficiency, climate change adaptation and green building projects that meet specific standards or certifications. As Southeast Asia’s largest green finance market, Singapore accounts for about half of all green bond and loan issuance. Since 2017, more than S$11 billion in green bonds and S$22.5 billion in green loans have been issued in the city-state, according to data compiled by Singapore’s government. Singapore has recently launched several programs focused on green bonds and lending. in January it rolled out the Green and Sustainability-Linked Loan Grant Scheme (GSLS), the first program of its kind globally, which aims to help borrowers obtain green loans and encourages banks to develop frameworks for such loans. GSLS follows the Sustainable Bond Grant Scheme (SBGS), which supports the issuance of green bonds in the city-state. In its 2021 government budget, Singapore said it planned to issue S$19 billion in green bonds to fund public sector infrastructure projects. One of the projects is Tuas Nexus, Singapore’s first integrated water and solid waste treatment facility in Tuas (a planning area located in the west of the country), scheduled for completion in 2025. Meanwhile, in June the MAS said it would allocate US$1.8 billion for eco-friendly investment opportunities. These funds will be placed with five asset managers under its Green Investments Program (GIP) to manage new equity and fixed income mandates focused on climate change and the environment. The five asset managers (which were not named) will set up their regional sustainability hubs in Singapore and launch new funds focused on environmental, social and corporate governance (ESG). "The GIP will help to enhance the climate resilience of the official foreign reserves, attract sustainability-focused asset managers to Singapore and catalyze funding towards environmentally sustainable projects in Asia and beyond,” MAS managing director Ravi Menon said in June. Private sector participation For its part, the private sector sees significant potential in green finance. Victor Wong, head of UOB’s Asset Management sustainability office, told The Straits Times in May, “Large asset owners in Asia, including pension funds and insurance companies, have made their own commitments to prioritizing sustainability, and some have also made net-zero commitments.” At the same time, investor interest in ESG is rising. Investors are becoming more aware and attentive to their investments’ impact. With that in mind, and given Singapore’s strengths as a fintech hub, there is strong potential to marry digital and green finance. For instance, Singapore-based digital wealth adviser Endowus in March launched multi-asset ESG investing portfolios, which the company says is a first for retail investing in Asia. Endowus says that its ESG products “need not sacrifice returns to contribute to a better world.” According to the company’s website, the historical returns for the Endowus ESG portfolio 100% Equity outperformed the MSCI All Country Index over the past three years with an annualized return of 17.1% compared to MSCI’s 10.5%. In April, Singapore-based fintechs Bluecell and STACS announced that they would work together to commercialize an industry-wide blockchain-powered infrastructure to support green loans. To further encourage fintechs to develop eco-friendly products, the MAS – together with consultancy Oliver Wyman – made the focus of this year’s Global Fintech Hackcelerator “Harnessing Technology to Power Green Finance.” Fintechs are invited to offer innovative solutions for problem statements pertaining to green finance in areas of mobilizing capital, monitoring commitment and measuring impact. Finalists will pitch their solutions at the Demo Day held at the Singapore Fintech Festival from November 8-12. Up to three winners will be selected, with each receiving S$50,000 in prize money. Implications for Taiwan Given Singapore’s methodical and precise approach to building itself up as a green finance hub, the city-state’s experience could be instructive for Taiwan as the latter works to implement its own Green Finance Action Plan 2.0, announced by the Financial Supervisory Commission (FSC) in November 2020. While this plan is an important step in the right direction for Taiwan, it does not allocate any specific funding to green finance, whether bonds, loans, investments or otherwise. Nor does it identify the potential for digital financial technology to advance green finance objectives. Rather, it appears that the FSC expects incumbent financial institutions to lead Taiwan’s green finance evolution. They certainly should play a role, but given their traditional mindset, working together with forward-looking technology firms might yield better results. It would also benefit Taiwan to approach green finance with a similar urgency as Singapore. Like the city-state, Taiwan is facing a growing climate crisis. 2020 was Taiwan’s hottest year on record, with an average temperature of 24.62°C. That broke the record of 24.55°C set in 2019. Meanwhile, 2021 has brought the worst drought in more than 56 years, aggravated by the lack of typhoons last year. Such extreme weather could become commonplace without more aggressive efforts to fight climate change. With its abundant capital, Taiwan’s financial sector is in a good position to help put the country on the path to a more sustainable future. The industry and government should keep in mind that time is of the essence though.