7 February 2022 Peiying Chua Heikes  - Yong En Koh Financial Regulation

Advancing Green Finance in Singapore

February 2022

Mr Tan Keng Heng, Executive Director, Monetary Authority of Singapore, highlighted in his speech at the Investment Management Association of Singapore’s 8th Regulatory Forum, progress made by the asset management industry in advancing green finance and managing environmental risk:

  • Asset managers are increasingly stepping up to meet their clients’ needs for ‘green’ investment and channel capital towards sustainable businesses. Several managers have, for instance, set up or announced to set up sustainability hubs in Singapore to accelerate their green finance agenda in the Asia-Pacific region. More have made public commitments towards building a greener economy, such as signing the UN Principles for Responsible Investing, with some setting measurable milestones to verify their progress towards meeting those commitments. Many more have also participated in collaborative platforms such as the Climate Action 100+ and the Institutional Investors Group on Climate Change, to spur investees towards reducing their environmental footprint in the real economy.
  • Asset managers are making inroads in building up their sustainable investing capabilities and environmental risk management practices. As the industry gears up for the implementation of MAS’ Guidelines on Environmental Risk Management (ERM) in June this year, the MAS has engaged and found asset managers making tangible progress in their ERM practices, which include for instance: (i) Developing internal risk assessment methodology to quantitatively rate the environmental risks posed by investee companies; (ii) Incorporating environmental risk management-related key performance indicators in the remuneration structures of senior management; and (iii) Conducting scenario analysis to enhance portfolio resilience to environmental risks, and applying the results to prioritise the engagement of investee companies. Many asset managers have also shared that they are making sustainability-related disclosures, ranging from standalone corporate sustainability reports to bilateral client reporting. This will benefit investors by enhancing market discipline and addressing climate-related risks and opportunities.

MAS cautioned that greenwashing poses a real and present danger to the industry’s sustainability efforts. Investor trust and market credibility must be earned through concrete actions by asset managers – namely by backing up their green credentials with meaningful changes to investment strategies and risk management practices, and meeting or demonstrating progress in honouring their sustainability commitments to investors.

MAS shared that it is fully committed to working with the industry to combat greenwashing, at both the fund and firm level: 

  • At the fund level, MAS intends to introduce ESG-specific requirements on fund naming, prospectus disclosures and periodic reporting disclosures. This will set out supervisory expectations for retail ESG funds and help mitigate the risk of greenwashing in fund offer documents. MAS is currently consulting the industry on its proposals.
  • At the firm level, MAS expects asset managers to “walk the talk” and ensure that their sustainability commitments reflect actual capabilities and practices on the ground. Managers of ESG funds in particular should consider implementing mechanisms to monitor compliance with stated ESG investment objectives, including exposure limits for the funds sold.

MAS will share more good practices in greater detail with the release of their ERM Information Paper in the coming months to help asset managers deepen their ERM capabilities. These include having clear quantitative targets to shape and steer the manager’s strategy and business plan, and having a more consistent application of investee ESG risk assessments across the entire investment portfolio, and greater client engagement in the portfolio risk management process.

To promote greater accountability and meet investor needs, MAS also intends to mandate asset managers to make climate-related financial disclosures. MAS will balance the benefits of such disclosures and the associated compliance costs by considering applying the mandatory disclosure requirements to the larger discretionary asset managers. Importantly, MAS will help managers to meet globally accepted disclosure standards by aligning their requirements with those that are being developed by, for example, the International Sustainability Standards Board. The public consultation will be published in the upcoming period.