"The Asian Green Bonds Opportunity" – Opening Address by Mr Ng Yao Loong, Assistant Managing Director, Monetary Authority of Singapore, at the IFC Green Bonds Asia: Opportunities for Financial Institutions Conference on 7 June 2018
Mr. Monish Mahurkar, Vice President, Corporate Strategy and Resources, International Financial Corporation,
Ms. Agnes Koh, Executive Vice President, Chief Risk Officer, Singapore Exchange,
Distinguished guests, ladies and gentlemen, a very good morning.
1 Thank you for inviting me to deliver the opening address at IFC’s Green Bond event.
2 Today’s conference theme, which focuses on the role of financial institutions, is a timely and topical one. Financial institutions have a key role in intermediating capital flows. When sustainability considerations are included in how financial institutions lend, underwrite and invest, they will have a major influence on how financial capital is allocated to the economic activities with environmental benefits.
3 Globally, it is estimated that US$90 trillion of investments in climate solutions over the next 15 years1 is needed. It is the same story here in Asia. China requires an estimated US$450-600 billion of investment annually to achieve its green policy goals under its 13th Five-Year Plan2. Closer to home, it is estimated that ASEAN will need US$200 billion in green investment annually from 2016 to 2030, a 400% increase from today’s annual supply of green finance3.
Importance of Green Finance
4 Globally, policymakers are taking actions to catalyse sustainable finance, to meet climate change targets. At last year’s One Planet Summit, world leaders, along with public and private finance stakeholders, committed to scale up the fight against global warming and accelerate the transition towards sustainable economic development. Singapore has designated 2018 as our Year of Climate Action. As the ASEAN chair this year, Singapore has also included sustainable finance as part of the ASEAN 2018 finance agenda.
5 As policymakers, we want sustainable economic growth, and hence the commitment to green finance. However, each region or country also needs to take into account its development stage and economic needs. It is therefore important to understand and recognise the transition process that is required, and work with the various stakeholders to achieve buy-in to the environmental and climate change agenda. Key to this process will be the partnerships with regional development institutions and multilateral organisations like the IFC, World Bank, ADB and AIIB.
6 Today’s event focuses on green bonds, a relatively more developed asset class in green finance. The green bond market started a decade ago but issuances only grew strongly in the last five years with a compounded annual growth rate of 94%, reaching US$156 billion of issuances last year. The green bond market is expected to continue its strong growth trajectory this year, with estimates ranging from US$175-210 billion of issuances.
7 Green bonds are gaining traction in Asia. There is no doubt about it. The region now contributes about a quarter of global green bond issuances annually. We have seen Asian countries such as China, India, Indonesia, Malaysia, and of course Singapore introducing green bond standards and incentives to spur the growth of this market. China has been especially successful in developing its green bond market, growing to become the second largest green bond issuer in two years, issuing around US$30 billion of green bonds last year4.
8 Singapore has also taken steps to nurture the growth of the green bond market. We introduced the Green Bond Grant scheme last year to encourage the issuance of green bonds. It is still early days, and we have seen some success.
City Developments Limited, one of Singapore’s largest developers, issued the first green bond in April 2017. This was shortly followed by one of our local banks, DBS, issuing a US$500 million green bond in July 2017.
9 What is more important is how the actions of these pioneers have given confidence to others - including foreign issuers - that there is indeed an institutional demand for such an asset class in Singapore. In October last year, the Indian Renewable Energy Development Agency issued an INR 19.5 billion green masala bond and listed it on SGX. In November 2017, Manulife Financial Corp issued and listed a S$500 million green bond on SGX. Most recently in April 2018, Star Energy Geothermal issued and listed a US$580 million amortising green project bond on SGX; and this is the first corporate green bond issuance from Indonesia.
10 Notwithstanding the progress, there is still significant potential for private capital to play a significantly larger role to meet ASEAN’s green investment needs. Assuming the share of private financing in ASEAN increases from the current 25% level to more than 50% of total green financing needs, this would mean that the supply of private green finance has to scale up by over 10 times from today’s level5. Capital markets solutions like green bonds will be needed.
11 Let me touch on a couple of areas where I think more can be done to support green bond issuances.
Green bond standards and credibility
12 As green bond standards continue to evolve and mature, it will be important to have consistency and clarity in standards to avoid market fragmentation. Investors need clarity on and confidence in the standards that green bond issuers are adopting.
13 There are encouraging signs of convergence towards consistent green definitions and standards. The European Commission’s High-Level Expert Group on Sustainable Finance is working towards establishing common European green bond standards. Many international organisations are also working together to re-assess existing standards. For example, China’s Green Finance Committee and the European Investment Bank are working together to identify the differences between the two standards with a view towards harmonisation.
14 Singapore is a strong proponent for the adoption of international standards. Our Green Bond Grant scheme leverages existing international green bond standards rather than introducing another standard of our own. When the ASEAN Capital Markets Forum came together to develop the ASEAN Green Bond Standards, it was a deliberate choice to align the ASEAN Green Bond Standards with ICMA’s Green Bond Principles. Doing so provides a single ASEAN standard to promote the development of a regional green bond market while mitigating the risk of diverging from the standards international issuers and investors are accustomed to. Progress is encouraging with 3 ASEAN green bonds issuances, amounting to more than US$300 million.
15 Beyond achieving convergence or harmonisation, it is also important to protect the integrity and credibility of standards. In other words, green bonds must truly live up to their green reputation. Granted that green bonds are relatively new products and guided by voluntary standards, as standards mature, transparency and accountability will become key issues. For market discipline to work, we need to encourage a higher level of post-issuance information disclosure and greater investor engagement. Green bond issuers should disclose relevant information including project evaluation and selection, management of proceeds and environmental impact of the projects periodically throughout the lifetime of the bonds. The ASEAN Green Bond Standards seek to achieve this by requiring such information to be made easily accessible and readily available to investors.
Establishing expertise and capability
16 Private sector participants, whether they are investors, underwriters or issuers, will need to build up the expertise and capabilities in order for the green finance market to grow. Private investors including asset managers have the capital to invest but need to have a better understanding of the financial implications of environmental variables in their investments. On the other hand, banks, capital markets intermediaries, corporates and other key stakeholders need the right level of knowledge to identify and evaluate eligible financing projects and structure them into sustainable financial products such as green bonds.
17 It is therefore heartening to see that the IFC has partnered with asset management company, Amundi, to launch the world’s largest green bond fund dedicated to emerging markets. This is a US$2 billion initiative aimed at unlocking private financing for green projects. Known as the Amundi Planet – Emerging Green One Fund, it will invest in green bond issuances by financial institutions in this region.
18 The fund leverages IFC’s and Amundi’s technical expertise and know-how on green bonds. Amundi – as the asset manager - has strong capabilities in emerging market debt investment and sustainable finance, and is therefore able to identify, evaluate and track the performance of green bonds on behalf of its fund investors. Beyond investment, IFC intends to work closely with regional financial institutions to strengthen their capacity to structure and issue their green bonds by providing training and sharing best practices.
19 I am pleased to say that MAS and IFC have agreed to work together and leverage each other’s strengths to encourage green bond issuances by financial institutions in Asia. We have formalised this collaboration by way of a MOU signed earlier today. The MOU covers two fronts: (i) enhancing awareness and knowledge on green finance issues through capacity building programmes; and (ii) promoting the use of internationally recognised green bond standards and frameworks. MAS and IFC will also provide funding support through various grants and financial training schemes.
20 While we cannot expect a transformation overnight, the journey towards sustainable development and green finance is picking up pace. All stakeholders within the financial system need to be aligned and collectively advance the agenda for green finance. MAS is committed to this journey and we look forward to working with all stakeholders to achieve sustainable growth for future generations.
21 On this note, I wish you all a very fruitful conference ahead. Thank you.1 The Sustainable Infrastructure Imperative, New Climate Economy, 2016.
2 Green Financing Piloting Part of China’s Commitment to Paris Agreement, Xinhua, 2017.
3 Green Finance Opportunities in ASEAN, DBS and UNEP, 2017.
4 SEB Research, 2017.
5 Green Finance Opportunities in ASEAN, DBS and UNEP, 2017.