The Monetary Authority of Singapore (MAS) is allocating $1.8 billion of its Official Foreign Reserves (OFR) to five fund managers to invest into climate-related investment opportunities. . 

MAS managing director Ravi Menon said the fund allocation is part of MAS's recognition of the renewed sense of urgency and commitment to the climate agenda now the US has rejoined the Paris Climate Agreement.

“The world is probably on the cusp of the greatest economic and societal transformation since the Industrial Revolution," he said on Wednesday (June 9) at the launch of the Authority’s first Sustainability Report. 
Ravi Menon, MAS
 
The central bank and regulator is naming five, as yet unnamed, asset managers as part of the MAS Green Investment Programme (GIP), to manage new equity and fixed income mandates focused on climate change. AsianInvestor understands the managers, who are globally focused, are mainly European asset management firms.

It is understood the five fund houses will establish their Asia Pacific sustainability hubs in Singapore and launch new ESG thematic funds for the region.

MAS is incorporating climate change and environmental sustainability across all its functions. As a regulator, it already expects that banks, insurers and asset managers will make climate-related disclosures from June 2022. This is in accordance with international reporting frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD).

Menon said finance is the key to unlocking a sustainable future, supporting the transition to a less carbon-intensive economy and channelling capital to green technologies and infrastructure. As part of this effort, the MAS will give grants to companies to help them defray the costs of issuing sustainable bonds and green and sustainability-linked loans that are in line with international standards.

A CLIMATE-RESILIENT PORTFOLIO

He said the MAS has analysed the potential impact of climate change on the OFR over a 20-year horizon. He noted that the exercise anticipates an impact on returns. 

“The exercise informed us that climate change will dampen expected returns especially for equities," said Menon. “For scenarios assuming faster decarbonisation, companies and assets will be exposed to higher transition risks such as the stranding of fossil fuel-related assets.

"For scenarios assuming slow progress on climate action, there will be greater physical risks due to climate hazards and changes in climatic conditions."

New government policies to manage climate transition will have the greatest and most immediate impact on company earnings and their distributions to investors, he added. 

The MAS intends to build what Menon referred to as a “climate-resilient reserves portfolio focused on equities”. It intends to reduce exposure to carbon-intensive sectors, such as energy, materials and utilities, but won’t withdraw from them completely.

“MAS will keep their investments in companies within these sectors that are likely to make a successful transition,” Menon said.

The new external fund managers will be encouraged to use voting, engagement, and escalation to be more active stewards of the companies they invest in, particularly on climate-related matters.

The central bank is developing analytics to allow it to assess continuously the climate risk exposures of the OFR. As a first step, it will disclose the weighted average carbon intensity (WACI) of the equities portfolio, relative to market benchmarks. This is derived from the carbon intensity of revenues of each of the companies in the portfolio, weighted by the relative size of the investments in those companies.

CARBON CUTS

According to Menon, the MAS equities portfolio already has a lower carbon intensity than its market benchmarks. At the end of March 2021, the WACI for its emerging markets equities portfolio was 30% lower than its benchmark, while under the same metric the equities portfolio was 3% lower than its benchmark.

Local players, including DBS Bank, SGX, Temasek and Standard Chartered, have announced their own plans to try to capitalise on the intense interest in this area, with the launch of Climate Impact X, an international marketplace for high-quality carbon offsets generated from nature-based solutions in Southeast Asia.

As part of its Green Plan, Singapore aiming for its carbon emissions to peak in around 2030 and achieve net zero as soon as is viable after 2050.