Dr. Ludger Schuknecht, G20 Deputy and Chief Economist, German Federal Ministry of Finance
Distinguished guests, ladies and gentlemen
1 I am very happy to join you this morning at this G20 Green Finance Conference. To our overseas guests, I'd like to wish you a very warm welcome to Singapore. And I'd like to also express my thanks to Ludger and his team for the excellent leadership that they have provided, all the hard work that they have done during this year of Germany's G20 presidency.
2 Singapore is not a member of the G20, but we have been regularly invited as a guest, and we are happy to do our part to contribute to the G20 process. We are particularly happy to be able to host this event, which as Ludger mentioned just now, is the last event of Germany's G20 presidency.
3 This conference is very timely and relevant, in light of what's happening around the world.
a) There are significant advances in the global green finance and sustainable financing agenda.
b) Even as we gather together this morning, the 23rd edition of the UN climate change conference1 in Germany is taking place.
c) The UNEP and the World Bank (WB) have just issued a joint report called the 'Roadmap for a Sustainable Financial System'.
d) The Roadmap proposes a cohesive framework for financial sector stakeholders, both public and private, to accelerate transformation toward a sustainable financial system. I'm sure you'll hear more about this during the panel discussions later.
4 Globally, the needs of green finance investments are significant. It's estimated at US$90 trillion over the next 15 years for global investment in climate solutions under the Paris Agreement.2
a) Regionally, within Asia, we see strong impetus in sustainable and green finance in some of the key Asian economies like China and India.
b) China alone requires an estimated USD 1 trillion of investment to achieve green policy goals under its 13th Five-Year Plan.3
5 So there're positive trends moving forward, but I believe we all recognise that the journey towards mainstreaming of sustainability practices will not be an easy one. And there's still quite a bit of work ahead of us.
a) There are still market and institutional barriers that hinder the wider adoption of sustainability practices. They include inadequate internalisation of environmental externalities, insufficient sustainability reporting and disclosure, and capacity challenges, just to name a few.
b) But as I've said, there are encouraging signs.
c) In particular, there is growing recognition that good sustainability practices are also good for business. It's not just good to have; it's not something you do as CSR, but it's something that is integral and good for business.
i. For example, in a 2015 study by the Carbon Disclosure Project, 72% of the respondents indicated that climate change could pose risks that significantly impact their operations, and that inadequate climate risk management and unsustainable business practices can compromise their long-term financial goals.4
ii. And there's been an increasing body of research which shows that sustainability efforts can help enhance business performance through improved stakeholder engagement, through increased ability to manage environmental, social and governance (ESG) related business risks, and through greater innovation to meet sustainability needs.5
iii. All of this explains this increasing growth momentum in global green finance.
6 In short, the outlook for green finance is positive, and there are significant opportunities ahead of us.
a) The key now is to move from awareness, from understanding the opportunities, to practice and putting things in place;
b) To keep up the momentum that we have seen in recent years.
c) In this respect, we see scope for Singapore's financial sector to play a useful role in catalysing sustainable and green finance in the region.
Where we are
7 Being green is not something new for Singapore. We have been green even before it was fashionable to be green.
a) We made a strategic choice in Singapore to be a Garden City when we became independent in 1965;
b) And so that's reflected throughout our urban development. We preserved and protected our natural areas. We built parks and gardens. We cleaned up our rivers and waterways. Singapore is a very small island that is just above 700 square km in size.
c) But despite rapid urbanisation and the built-up environment that you see around you, if you were to take a satellite picture of Singapore, more than 40% of our island is covered by greenery. So we are one of the highest, if not the highest, in the world in terms of green cover.
d) And this garden city that we've developed was, as I've said, a strategic choice we made more than 50 years ago. It's reflected all around us.
e) It's also reflected in our policies - in the way we price water and energy fully as scarce resources in order to incentivise people to use these resources prudently, and in our recent policy announcement in this year's Budget to introduce a carbon tax which will be put in place from 2019 onwards.
8 Within the financial sector, we have also been taking steps to promote a strong sustainability focus.
9 First, we pushed for the adoption of industry best practices.
a) In 2015, The Association of Banks in Singapore introduced guidelines for Responsible Financing.
i. Banks in Singapore are expected to assess their clients' ESG risks as part of credit evaluation processes.
b) In a recent report on Sustainable Banking in ASEAN, the World Wildlife Fund recognised our local banks for their efforts in integrating sustainability concepts in core business strategies and including responsible financing in their public disclosures.
c) We've also made progress in other parts of the financial sector (e.g. in the asset management, capital market, and insurance space).
i. For example, there is growing support for global and local standards such as the UN Principles for Sustainable Insurance, the UN Principles for Responsible Investment and our own Singapore Stewardship Principles for Responsible Investors;
ii. The Singapore Exchange (SGX) has introduced a comply or explain regime for sustainability reporting, where listed companies will be required to disclose and explain their sustainability practices with effect from next year;
iii. And in insurance, key players are factoring ESG into investment and underwriting processes and supporting climate risk resilience solutions from Singapore.
d) These are positive developments, and the Monetary Authority of Singapore (MAS) will continue to work closely with the respective industry associations to promote broader and more effective adoption of sustainability standards.
10 MAS has also taken steps to kick-start Singapore's green bond market, including through the introduction of a Green Bond Grant scheme, which we introduced in March this year.
a) The scheme has already generated much interest among green bond issuers.
i. One of the major Singapore developers, City Developments Limited, issued the first green bond in April this year, shortly after the introduction of the grant scheme. And this was followed by one of our local banks DBS in July.
ii. In October, the SGX welcomed the listing of a 19.5 billion rupee Green Masala Bond issue from Indian Renewable Energy Development Agency (IREDA). This marks a significant milestone for the company as it embarks on its next phase of renewable and sustainable energy-led expansion.
b) For all of these companies, both Singapore and regional, the green bond issuances offered a useful opportunity to access an additional class of international green investors.
c) The strong investor interest in these issues is also a testament to the growth of green bonds as an asset class.
d) So these are things that we have been doing for the past two years in finance. I think we have made a good start in Singapore. The question now is, how do we sustain the momentum going forward?
How do we sustain the momentum?
11 In our next phase, we intend to focus on three areas.
12 First, we will push for deeper ESG integration within our financial institutions.
a) MAS has included the banks' sustainability practices in its supervisory assessments, with a focus on how well banks integrate sustainability considerations into their core business and risk management processes.
b) MAS is also engaging the senior management and boards of our local banks to promote effective adoption of industry standards and enhancement of ESG disclosures. These include the completion of ESG assessments for all their corporate clients and the enhancement of ESG disclosures through benchmarking with peers and industry best practice.
c) Within the insurance sector, industry players in Singapore will be expected to take into consideration emerging risks such as environmental risk in their Own Risk and Solvency Assessments. To better assess the impact of climate change on significant insurers, MAS will include climate-related scenarios in future industry-wide stress testing exercises. Insurance players will also be encouraged to adopt the recommendations of the Task Force on Climate-related Financial Disclosures to provide more transparency relating to climate-related risk.
13 Second, we aim to expand the breadth and depth of green finance products, and foster the growth of a green asset class in the region.
a) Last week, ASEAN securities regulators launched the ASEAN Green Bond Standards in Kuala Lumpur. The ASEAN Green Bond Standards take reference from ICMA's Green Bond Principles which are recognised internationally, and adoption of these Standards throughout ASEAN will serve to promote high-quality green bond issuances from Southeast Asia and contribute to the development of a regional green bond market.
b) To support this adoption, MAS will recognise the ASEAN Green Bond Standards as a qualifying standard under the Green Bond Grant Scheme.
c) The application of international green bond standards is important in order to attract international issuers, including supranational organisations to tap on our markets.
d) In this regard, I am happy to share that the World Bank intends to issue a green bond out of Singapore.
i. The proposed issuance is part of the WB's efforts to raise awareness of climate risk and mobilise the private capital flows needed to address climate change challenges. The funds will be used for climate investments in developing countries.
ii. We hope that this WB green bond issuance will pave the way for other international issuers to follow suit, and enable us to build a deep and liquid green bond market in the region.
e) In addition to green bonds, the development of other investment products such as social impact bonds or thematic ESG funds will offer a wider choice for investors to invest in products that are aligned with their values and investment philosophy.
f) MAS will work with the industry to continue expanding the range of ESG-related products to meet growing investor interest6.
14 Third, we will deepen research and development in ESG products in Singapore. Stakeholders need to be better equipped to assess the risks and opportunities stemming from ESG products so that they can make informed decisions and act on them appropriately.
15 In this regard, MAS is keen to explore partnerships with financial institutions and other stakeholders to anchor more ESG specialist teams here, and enhance the availability of ESG research and analytics in Singapore, not just serving us, but serving the region.
16 With climate and environmental risks coming into greater focus, Singapore's insurance industry can play a key role in the quantification and modelling of such climate and environmental risks, particularly for the Southeast Asian region. Some of this work is already being done.
a) The research and analytics work done by catastrophe modelling units of insurance brokers and risk modelling firms in Singapore, NTU's Institute of Catastrophic Risk Management (ICRM) and Earth Observatory of Singapore, as well as NUS' Centre for Hazards Research, can underpin the development of innovative disaster risk financing solutions for the region.
b) For example, ICRM is leading a project to establish a Natural Catastrophe Data Analytics Exchange, which aims to create a comprehensive and interactive economic loss database for natural catastrophes. Its initial focus will be flood and earthquake risk in Taipei, Jakarta, Manila and Bangkok.
17 Finally, we would like to put in place programmes that will broaden the base of talent to support the growth of green and sustainable finance in the coming years.
a) Our industry associations have been organising capacity building workshops aimed at equipping professionals with the skillsets needed to master this discipline well, and we encourage more of this to happen.
b) Starting next year, the Singapore Management University (SMU) will also initiate a certification programme for sustainable finance and investing targeted at asset management and investment professionals. The programme will address the risks and opportunities arising from ESG issues and practitioners will learn how they can integrate ESG factors into investment decisions. GIC, Temasek and MAS are supportive of SMU's education initiatives.
c) I hope to see more of such courses that will groom a broad base of talent, not just for Singapore but also for the region. These professionals can become the necessary change agents within their organisations, embedding ESG considerations into all aspects of the business.
18 I think we all recognise that global finance is a key pillar of the modern economy today.
a) In the global financial crisis of 2008, we saw the negative and harmful side of finance. And this has certainly hurt the reputation of many financial institutions and eroded trust in finance.
b) But finance can also be a powerful force for good. It can be a force that helps to serve the long-term needs of an inclusive and environmentally sustainable economy.
c) There is no quick fix way of achieving this. We will not see a green transformation of the financial sector overnight. To be successful in this endeavour, there needs to be alignment of purpose amongst key stakeholders within the financial system, the real economy, and policy makers. This will take time to achieve, but we are making deliberate steps towards this goal.
d) Singapore is committed to being part of this international endeavour. We look forward to working with all stakeholders to advance the agenda for green finance � to better serve the needs of our society, and to achieve sustainable growth for future generations.
19 On that note, I wish you all a very fruitful conference ahead. Thank you very much.
Source: Monetary Authority of Singapore