Code of conduct for ESG ratings and data providers, grant schemes for transition bonds and loans, and ISSB-aligned disclosures included in action plan.
The Monetary Authority of Singapore (MAS) has launched a net zero transition financing plan as part of the city-state’s climate and sustainability agenda. The Finance for Net Zero (FiNZ) Action Plan sets out finance mobilisation strategies to catalyse Asia’s net zero transition and decarbonisation activities in Singapore and the region, expanding the scope of MAS’ Green Finance Action Plan launched in 2019 to include transition finance.
The FiNZ Action Plan aims to achieve four strategic outcomes relating to data, definitions and disclosure, the climate resilience of the financial sector, the adoption of credible transition plans, and the promotion of green and transition solutions and market.
Clarity and reliability
On data, definitions and disclosure it looks to make climate and sustainability data from companies more reliable and more comparable, to guard against greenwashing and enable market participants to better assess their exposure to ESG risks and opportunities.
MAS is collaborating with the industry to develop a code of conduct that will require ESG ratings and data product providers to disclose how transition risks are factored into their products. A public consultation will be conducted on the code in the second half of this year.
In addition, the regulator will work to strengthen the credibility and interoperability of taxonomies across jurisdictions, including Singapore’s own taxonomy, to provide greater clarity to financial institutions (FIs) to drive cross-border green and transition financing flows.
MAS will also work with the Singapore Exchange and other government agencies to set out a roadmap for key FIs and listed companies to make International Sustainability Standards Board (ISSB)-aligned disclosures on a risk-proportionate basis, while also partnering with relevant bodies to build up companies’ capabilities in sustainability reporting.
The plan is looking to develop a climate resilient financial sector through the fostering of sound environmental risk management practices in the financial sector and a deepening of climate scenario analysis and stress testing to identify climate-related financial risks.
MAS will engage FIs to build sound climate and environmental risk management practices, strengthen industry adoption of the Environmental Risk Management Guidelines, building on emerging and good industry practices globally.
It will also step-up engagements with FIs to deepen capabilities in climate scenario analysis, to improve its understanding of the implications of climate change for FIs and Singapore’s financial system.
MAS will additionally review how FIs are responding to the risks posed by climate change and planning for the transition to a low-carbon future, and ensure that they put in place sound governance and risk management measures to address these risks.
The regulators will be looking to increasingly incorporate climate risk and evolving international best practices into its supervisory approach.
Credibility and transparency
The FiNZ Action Plan will look to boost credible transition plans through supporting the adoption of net zero goals by Singapore FIs and ensuring they back these up with robust science-based transition plans.
MAS is engaging international experts including the International Energy Agency (IEA) to support the development of regional sectoral decarbonisation pathways that suit Asia’s circumstances and needs.
FIs can reference these pathways when they set emissions reduction targets, and when they engage with their clients and set expectations for businesses to embed decarbonisation into their strategies, MAS said.
This work will include learning from international bodies such as Glasgow Financial Alliance for Net Zero and the Organisation for Economic Co-operation and Development, and from early-adopter FIs that have already started planning their transition.
The action plan will support green and transition solutions and markets by promoting innovative and credible green and transition financing solutions and markets to support decarbonisation efforts and climate risk mitigation.
MAS will expand the scope of its sustainable bond and loan grant schemes to include transition bonds and loans, focusing on supporting “brown” companies to transition to become green – but with safeguards in place to mitigate the risk of “transition-washing”, align with internationally recognised taxonomy and transition finance principles, and ensure disclosure of entity-level transition plans.
To promote transparency in the sustainable debt market, MAS will incentivise the early adoption of entity-level sustainability disclosures by issuers or borrowers. It has also set aside SGD 15 million over the next five years (until end-2028) for the enhanced grant schemes. More details will be released shortly, MAS said.
MAS will also extend the Insurance-Linked Securities (ILS) Grant Scheme until the end of 2025 to support the continued growth of catastrophe bonds and additional climate risk financing instruments such as ‘sidecars’ and collateralised reinsurance arrangements. The scheme has already supported the issuance of 23 catastrophe bonds in Singapore.
In addition, MAS says it will scale blended finance, in partnership with the private sector and philanthropic foundations, to mobilise financing for the decarbonisation of carbon-intensive sectors, such as managed phase-outs of coal-fired power plants.
The regulator will also support the development of carbon services and carbon credits markets in Singapore, to channel financing towards carbon abatement and removal projects in Asia.
To achieve these objectives, MAS will be looking to grow and scale green fintech solutions and continue investing to develop the skills and capabilities of Singapore’s workforce.
Lawrence Wong, Singapore’s Deputy Prime Minister, Minister for Finance, and MAS Deputy Chair, said the “most important ingredient” for Singapore to become a successful hub for green and transition finance is “people and talent“.
MAS will with Singapore’s academic institutes to develop its talent pipeline, while also working with Institute of Banking and Finance to reskill and upskill existing financial services practitioners.