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Next steps to finance a green economy

greenfinance-bg

19 Nov Next steps to finance a green economy

By Simon Tay and Lau Xin Yi
For The Business Times

Opportunities to grow the financial sector as well as to respond to climate concerns are being boosted. Recent announcements made by the Monetary Authority of Singapore (MAS) at the Singapore FinTech Festival can help create green finance that is especially tailored to fund projects that drive towards sustainability. They signal Singapore’s aim to be a leading regional centre in this growing niche.

Under the Green Investments Programme (GIP), the MAS will channel US$2 billion to public market investment strategies that show a strong green focus. As part of the GIP, the MAS will also earmark US$100 million to the Green Bond Fund by the Bank for International Settlements – dubbed the central bank for the world’s central banks.

These figures are sizeable but not large in comparison to overall investment sums – the market just for local currency bonds in the first half of 2019 was some S$420 billion. But this new green mandate can be critical to jumpstart the demand for green investments. As noted in a 2017 report on green finance led by the Singapore Institute of International Affairs, government moves to earmark funds for green and sustainable investments are a necessary step.

Greening Singapore’s project pipeline

As the demand for green investment grows, the next step is to grow the supply of eligible projects. Singapore has a strong record in environmental management and sustainability, and the government has suggested that future infrastructure will tap the markets for funding, rather than depending solely on the government budget.

There is considerable potential to green Singapore’s project pipeline. Briefly, these are three examples from the real estate, energy and transport sectors.

The first and most immediate opportunity is in Singapore’s push to have more green buildings. The aim is for 80 per cent of buildings to be certified as green under the Building and Construction Authority (BCA) Green Mark scheme by 2030. Given that only some 30 per cent are currently, this will need work and considerable investment. Developers should increasingly tap green finance to pay the upfront costs, so they can reap returns in savings from energy and other inputs.

A similar opportunity comes from Singapore’s new target to generate 4 per cent of energy from solar power. Installing solar panels will require upfront funding and, if this can be achieved through green funds at special rates, the sector can be even more attractive and should move faster.

Third and more long term, consider the plans highlighted in the Urban Redevelopment Authority’s Draft Master Plan 2019, including the development of a consolidated mega port at Tuas and further expansion of Changi as an aviation hub. Transportation is often a concern for climate advocates but design and technology can improve a project’s efficiency and reduce its carbon emissions. These mega projects can be greened to improve their productivity as well as their sustainability, and then to tap green funds.

Such steps can lower Singapore’s climate emissions. Moreover, if these projects can turn the market for green funding, they can tap lower costs while providing size and depth to the fledgling green finance market. They can also serve as reference projects, demonstrating Singapore’s ability to assist with regional development of infrastructure and green finance.

Green financing for the region

Regional infrastructure aims are escalating. Estimates are that green investment needs in infrastructure stand at US$1.8 trillion from 2016 to 2030 in Asean alone.

There will be considerable challenges to move this forward fast enough and make green finance a viable and preferred way of support and funding. But there can be many opportunities as the green finance sector grows and matures to support these plans.

One important step that must be taken is to improve our definition of what constitutes “green”. Unless benchmarks and processes are better understood, some projects may set world class and innovative standards while others will try to use green as a mere window dressing.

To move forward, greater transparency will be needed from both corporates and other entities that are putting forward the projects as well as from financial institutions. Industry associations can assist by establishing robust standards and certifications in the different sectors, like the BCA Green Mark for buildings. Financial service providers like exchanges and rating agencies must also assist in reporting and assessing environmental, social and governance disclosures.

Singapore, as a green and liveable city and a financial hub, is well poised to help the infrastructure development of our region move forward in ways that are sustainable. This can be allied to standards of environmental protection, social advancement and bankability so that there is more trust that projects funded through green financing in Singapore are viable and beneficial in the long run, and therefore less risky.

Improving the match between green finance and the pipeline of sustainable activities would not only support Singapore’s move towards a green economy, but also position the country to be an engine of growth for the region. This can then realise the hope outlined by Prime Minister Lee Hsien Loong at the 2019 National Day Rally, when he spoke about climate change. That hope is that Singapore will not only address our own climate emissions and vulnerabilities but that “we can contribute to solutions”.

This commentary was first published in The Business Times on 19 November 2019.

About the author
Associate Professor Simon Tay is chairman and Lau Xin Yi is senior policy research analyst (Sustainability) from the Singapore Institute of International Affairs.