The Monetary Authority of Singapore has chosen asset managers to receive $2 billion of its funds under its green finance programme, said the head of the regulator and central bank on Tuesday (March 9).

“Through a highly competitive process, we have now identified a select group of asset managers with a strong green focus,” said Ravi Menon, addressing the annual Imas-Bloomberg conference in the city-state, without giving the number or names of the firms in question.

Ravi Menon, MAS: picking 
managers with green focus

“They have a good track record of sustainability investing, robust stewardship policies and a strong understanding of how to deliver a portfolio that has a deep environmental footprint while still delivering good returns,” he added.

The firms in question also have a presence in Singapore. Menon said that they would designate the city-state as their sustainability hub in Asia Pacific and that their offices there would “lead Asia-focused sustainability research and spearhead ESG engagements in the region”.

Many also have plans to design training programmes in sustainable finance to help build relevant skills among the broader investor community, he added.

Menon also spoke more broadly of the critical importance and major challenges of allocating capital to achieve a net-zero carbon economy. He stressed that there remained a big financing gap in respect to building the "green economy of the future".

“Not enough global wealth is being channelled towards sustainable development at the scale and speed necessary to achieve the goals of the Paris Agreement,” he said. “The gap is particularly large in Asia – which is where the outcome of the battle against climate change will be determined.”

That is a sentiment held by institutional investors such as Denmark’s AkademikerPension. It is among a growing number of asset owners focused on investing with a view to helping Asia transition away from its heavy reliance on coal-based power towards a cleaner form of energy generation.

EXPANDING ESG FLOWS

Certainly, there has been a sharp increase in capital flowing into environmental, social and governance-related investment strategies, as Menon pointed out, citing several pieces of research and data.

At least $30 trillion of assets globally are held in ESG investments, up 34% from 2016, according to figures from the Global Sustainable Investment Alliance in 2019. Global investors plan to double ESG assets further over the next five years, found BlackRock’s, 2020 Global Sustainable Investing Survey.

Such trends make sense in light of how such strategies have developed in recent years and the benefits they now offer, Menon suggested.

“There is growing evidence that investments incorporating strong ESG considerations can reduce exposure to systemic risks and improve resilience to market shocks,” he said. 

Menon also noted that recent research had shown a strong correlation between market performance and ESG ratings, for both equity and fixed income portfolios, and that during the early weeks of the Covid-19 crisis, there was some evidence that major ESG funds outperformed broad indices such as the S&P 500.

Moreover, he added, the value of global financial assets at risk from climate change has been estimated at $2.5 trillion by the London School of Economics and at $4.2 trillion by The Economist.

MAS, which had S$508.8 billion ($378.4 billion) in foreign reserves as of end-February, is now putting its money where its mouth is by handing out the new mandates under the green finance programme. The initiative had been launched in November 2019, but three months later the world was hit by the coronavirus pandemic.

Moreover, Menon said the regulator was also seeking to improve the consistency and transparency of ESG reporting and disclosures – a key area where further development is needed and where so-called "greenwashing" is rife.

It is doing so through four strategies:

  • providing guidance for asset managers to assess, monitor, mitigate and disclose environmental risks;
  • developing a taxonomy for classifying activities that can be considered green or in transition towards green;
  • urging active stewardship by investors to promote sustainability in their investee companies; and
  • working with other central banks and regulators to shape internationally consistent ESG reporting and disclosure. 
Menon also outlined initiatives that Singapore had in place or was working on to support issuers of green bonds and loans and to establish more green financing instruments. 
 
As he sought to stake the city-state's claim to being a pre-eminent green finance hub, Menon urged the conference delegates "as owners and stewards of capital... to direct investments to actitivies that promote sustainable development".