MAS to deploy US$1.8 billion under green investment programme; aims for climate-resilient portfolio

SINGAPORE: The Monetary Authority of Singapore (MAS) said on Wednesday (Jun 9) that it will invest US$1.8 billion (around S$2.4 billion) into climate-related investment opportunities. 

These funds will be placed with five asset managers under its Green Investments Programme (GIP) to “manage new equity and fixed income mandates focused on climate change and the environment”, announced MAS managing director Ravi Menon at the launch of the central bank’s first sustainability report.

"The GIP will help to enhance the climate resilience of the official foreign reserves, attract sustainability-focused asset managers to Singapore and catalyse funding towards environmentally sustainable projects in Asia and beyond," he added.

The appointed asset managers, which were not named, will establish their regional sustainability hubs in Singapore where they will launch new thematic funds focused on environmental, social and corporate governance (ESG).

They will also build capabilities in green finance through in-house and external training programmes, as well as generate deeper research on ESG and green financial technology efforts.

READ: MAS sets up US$2 billion programme to support green investment strategies

The GIP – set up in November 2019 - is one of the many initiatives mentioned in the sustainability report, which sets out MAS’ strategy on climate change and environmental sustainability across all its roles and functions.

MAS is the first central bank in Asia, and the second in the world after the Bank of England, to publish a standalone sustainability report. 

“Climate change poses a significant threat to the financial sector,” said Mr Menon, while adding that the sector also plays a critical role in the fight against climate change.

“Finance is key to unlocking a sustainable future. It can support the transition to a less carbon-intensive economy by channeling capital to green technologies and infrastructure,” he said at the press conference.

IMPROVING RESILIENCE OF RESERVES PORTFOLIO

One strategy by the MAS, which manages Singapore’s official foreign reserves, is to integrate climate risks and opportunities into its investment framework.

“We aim to reduce risks to the portfolio across different climate scenarios, seize investment opportunities from the transition to a lower-carbon future and support the transition of portfolio companies,” Mr Menon said.

READ: Issuing of banknotes, ATM withdrawals and cheque clearance fell amid rise in e-payments

MAS has partnered sovereign wealth fund GIC and engaged industry consultants to conduct climate scenario analysis on its portfolio over a 20-year horizon.

With a focus on three main scenarios, it found that climate change can impact its portfolio negatively, although this is mitigated by the “well-diversified nature” of the portfolio which is largely allocated in fixed income instruments.

Bonds and cash are less impacted by climate change, compared with equities, the MAS report said.

“In building a climate-resilient reserves portfolio, we need to develop a spectrum of actions to improve the resilience of our portfolio to climate risks while creating positive influence on the overall sustainability of companies in the real economy,” it said.

These actions “will grow and evolve” alongside improvements in data and technology, as well as a greater understanding of the various risks, the central bank added.

For now, it must integrate ESG into its investment process. This, for instance, requires the external managers who invests its funds to consider the environmental management practices of a company and the impact of its operations on the natural surroundings.

It is also implementing a “climate risk mitigation overlay” via benchmark customisation for its equities portfolio, and considering excluding companies whose revenues are “most at risk” and least able to make a transition to a low-carbon economy from its portfolio.

In addition, it will allocate more funds to climate-related opportunities and support the greening of the economy through initiatives such as the GIP.

MAS also said that for accountability, it will report its progress in strengthening the climate resilience of its portfolio every year. 

It is also developing analytics that will help it to continuously assess the level of climate risk exposures in its portfolio.

“As a first step, we are disclosing the weighted average carbon intensity (WACI) of our equities portfolio, relative to market benchmarks,” Mr Menon said. 

This metric is derived from the carbon intensity of revenues of each of the companies in the MAS portfolio, weighted by the relative size of the investments in those companies. 

He noted that the central bank’s equities portfolio has a lower carbon intensity compared with the market benchmarks.

As of end-March 2021, the WACI for the emerging markets equity portfolio was 30 per cent lower than its benchmark, while that of the MAS’ developed markets equities portfolio was 3 per cent lower than the benchmark. 

“We will continue to monitor MAS’ portfolio WACI overtime and seek to better understand the impact of our portfolio actions on WACI levels,” said Mr Menon.

INDUSTRY AND ORGANISATIONAL GOALS

Among other efforts, the MAS will continue to strengthen the financial sector’s resilience to environmental risk.

So far, it has issued guidelines on how financial institutions should manage such risks, as well as worked with companies to enhance environmental risk management practices and climate-related disclosures.

MAS will conduct a review of the progress among financial institutions in implementing these guidelines later this year, with a view to publishing an information paper to share best practices and areas for improvements, said Mr Menon.

By the end of next year, the financial regulator also aims to incorporate a broader range of climate risks in thematic stress test scenarios for the industry. The central bank said it is consulting selected financial institutions this year to better understand their analytical capabilities and data requirements.

In addition, the MAS and the Singapore Exchange (SGX) will set out roadmaps for mandatory climate-related financial disclosures by financial institutions and listed entities in Singapore.

These will take a phased approach, said Mr Menon. A “more ambitious timeline” can be considered for listed entities that are larger or more exposed to climate risks, while larger financial institutions can similarly be prioritised. 

Details will be worked out in consultation with the financial industry in the coming months.

SGX has been subjecting listed entities to annual sustainability reporting on a comply-or-explain basis since 2016. The bourse operator will soon consult the industry on making climate-related reporting in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), a framework broadly accepted internationally.

SGX will be the first exchange in the ASEAN region to do so but comes behind other Asian peers such as Hong Kong and Japan, according to a MAS spokesperson.

On ensuring a vibrant green finance ecosystem, the MAS will continue to support the growth of green finance and green financial technology capabilities, as well as develop related expertise.

Lastly, the MAS will look to reduce its own carbon and environmental footprint. 

The report showed its carbon emissions nearly halved in the 2020/21 financial year, but this was “an aberration” due to business air travel restrictions during the COVID-19 pandemic.

Moving forward, it will continue to track its usage of electricity, water and paper, while optimising energy and water efficiency at its premises. 

MAS also said it will keep taking actions to reduce the environmental impact of its currency operations where it is able to.