Singapore's 2021 in Green Finance: A Year in Review

2021 represented another major step forward for green finance in Singapore. Following the announcement of Singapore’s Green Finance Action Plan in 2019, developments in green finance in 2021 have helped to articulate key details of Singapore's broader vision to become a regional green finance hub in Asia. What were these developments? How much have they moved the needle in Singapore's broader climate change strategy? We summarise the key policy developments, initiatives and speeches made in 2021 in this annual review.

Major Policies

The Singapore Green Plan

The Singapore Green Plan, announced by the government in February 2021, is an overarching vision for Singapore's climate strategy. Terming it a "whole-of-nation" effort, it brings together five ministries - the Ministry of Sustainability and Environment, Ministry of Finance, Ministry of Trade and Industry, Ministry of Transport and Ministry of Education. While the Singapore Green Plan was nothing new in the form of ambitious new targets (for example, no new goals were set to achieve net zero greenhouse gas emissions by 2050), it did bring together the entire gamut of Singapore's environmental policies under a singular rubric. Notably, this includes the Green Finance Action Plan. An optimistic view would be that the Green Plan can be the reference point by which more ambitious policies can take shape. Equally, however, a pessimistic view would suggest that without setting stronger overarching targets, the Singapore Green Plan may end up as little more than a slogan with little potential to move the needle on tackling climate change.

SGX Aligns with 1.5°C emissions reduction pathway, Issues New Reporting Guidelines

Singapore's stock market, the Singapore Exchange (SGX), made a few key announcements on sustainability in 2021. In July, it announced that it would align itself with a 1.5 degree Celsius emissions reduction pathway. This would come in the form of a 42% reduction in its 2020/21 Scope 2 emissions by 2030/31. However, no Scope 3 emissions targets were announced. In August 2021, the Singapore Exchange Regulation (SGX Regco) held a public consultation on its proposed plans to strengthen its sustainability reporting regime and enhance board diversity of its issuers. The consultation papers include a proposed set of core ESG metrics. This new consultation, which comes after it first introduced mandatory sustainability reporting in 2017, aims in particular to align issuers' disclosures with the recommendations of the TCFD. See GSI's submission here and SGX's response paper here.

COP26

The 2021 United Nations Climate Change Conference (better known as COP26) which took place in November 2021 cast a spotlight on green finance. Even though the final Glasgow Climate Pact had weakened language on shifting away from coal, and little to no progress was made on finance towards developing nations and on loss and damage from climate change, there was nonetheless a significant focus on green finance. Singapore played a significant role as co-facilitator for negotiations over Article 6, which concerns the development of global carbon markets. Long considered one of the more difficult articles in the Paris Agreement to implement due to issues such as double-counting, the eventual agreement over the rulebook for Article 6 has opened the door for the emissions reductions in carbon credits to be used as part of Nationally Determined Contributions (NDCs). Some compromises and ambiguities remain, in particular a concession to allow lower-quality credits from the older pre-2020 Clean Development Mechanism to be used. Nonetheless, this may lead countries like Singapore to enhance its own NDCs before long. At the end of the conference, Minister Grace Fu told reporters, “We will go back and look at what we need to do, look at our responsibilities and review our position. We will review the NDC seriously."

Major Initiatives

The Green Finance Industry Task Force (GFIT) and the Green Taxonomy

In January 2021, the Monetary Authority of Singapore (MAS) convened GFIT, a grouping which comprises financial institutions, corporates, non-governmental organisations, and financial industry associations (see our landscape map). The objective of GFIT is to help advance Singapore's green finance landscape, with a focus on four areas: developing a taxonomy, improving corporate disclosures, developing green finance solutions and enhancing environmental risk management practices. GFIT issued a handbook which serves as a guide for implementing best practices under the MAS Environmental Risk Management (ERM) Guidelines (established in 2020) which takes reference from several existing global frameworks, including the Taskforce for Climate related Financial Disclosures (TCFD), UN-supported Principles for Responsible Investment (UN PRI), and Principles for Responsible Banking and Principles for Sustainable Insurance (PSI).

The most significant development by GFIT was its public consultation for a green taxonomy. A green taxonomy is a classification framework which categorises financial products and services as sustainable, with the aims of directing financial flows towards them and reducing greenwashing. The consultation paper was issued in February and open to responses until April. See GSI's response here. The consultation paperidentified the need to provide a framework for capital market participants and data providers that is consistent or comparable with other common taxonomies (e.g. the EU Taxonomy), while being adapted to the local context. GFIT's proposed framework consists of a "traffic light" system, with green, yellow and red signifying sustainable activities, transition activities, and unsustainable activities respectively. Two potential shortcomings can be raised in respect of the proposed framework. Firstly, the lack of regulatory force that binds the financial market to this framework. Secondly, the potential easing of standards, including potentially the inclusion of natural gas and other fossil fuels, under the green or yellow classifications. As at the end of 2021, GFIT has yet to issue a response to the consultation. In the meantime, there have been several developments in taxonomies elsewhere, including in particular the EU Taxonomy and the ASEAN Taxonomy.

In sum, GFIT is an industry-led initiative which seeks to complement regulations such as MAS's ERM Guidelines, but which itself falls short of regulation. The extent to which this initiative will make any substantive impact on the green finance landscape in Singapore therefore remains to be seen.

Climate Impact X

Climate Impact X (or CIX), an exchange and marketplace for carbon credits, was launched in 2021. This launch signalled Singapore's biggest push to establish itself in global carbon markets. It is a joint venture by several key players in the Singapore green finance landscape - SGX, MAS, state investment company Temasek Holdings, DBS Bank and Standard Chartered. Its main claim is to offer "high quality" carbon credits. The meaning of "high quality" has yet to be properly elaborated on but will likely seek to leverage Singapore's traditional strengths, in particular the use of technologies such as machine learning, blockchain and satellite monitoring to ensure transparency and integrity, as well as access to a potentially large number of offset projects around Southeast Asia. CIX’s pilot auction, held in October 2021, cleared at a rather modest price of US$8 per tonne of CO2. Carbon offsets remain a highly contentious policy instrument for reducing emissions. Whether CIX can offer a viable solution therefore remains up in the air.

Government Initiatives

2021 also saw steps by the Singapore government to develop its own framework for green instruments.

In September, the Ministry of Finance set up a Green Bonds Programme Office, which will work with statutory boards on green bond programme development.

In August, the National Environmental Agency (NEA) became the first statutory board to issue green bonds, establishing a $3 billion multi-currency medium-term note programme which raised $1.65 billion.

In June, MAS issued its inaugural Sustainability Report, where it announced that it would deploy US$1.8 billion out of its approximately US$400 billion Official Foreign Reserves under its Green Investment Programme. These funds will be placed with five asset managers to “manage new equity and fixed income mandates focused on climate change and the environment”. This, according to MAS Managing Director Ravi Menon, would "help to enhance the climate resilience of the official foreign reserves, attract sustainability-focused asset managers to Singapore and catalyse funding towards environmentally sustainable projects in Asia and beyond".



Major Speeches

Ravi Menon, "The Future of Capital is Green"

A 9 March speech by Ravi Menon at the IMAS-Bloomberg Investment Conference. In this speech, he highlights the mainstreaming of sustainability in finance. This is driven by three factors: increasing climate risks, the rise of ESG, and the intergenerational transfer of wealth to more climate-conscious youths.

Ravi Menon, "Being the change we want to see - a sustainable future"

A 9 June speech by Ravi Menon at the launch of the inaugural MAS Sustainability Report. Here, he gives an overview of MAS's actions to incorporate environmental sustainability. These include its efforts to manage environmental risks, its participation in local and international collaborations on green finance, its greening of its own portfolios, and reducing its own operational footprint.

Lawrence Wong keynote at the Sustainable Investing and Financing Conference

A 30 September speech by newly appointed Minister for Finance Lawrence Wong. His speech covers four main areas in green finance in Singapore. Improving the landscape around environmental data, disclosures and taxonomies, developing Singapore's market for carbon credits, expanding green finance instruments by government bodies, and building up capacity.

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