"Nurturing the Growth of Green, Social and Sustainability Bonds" - Opening Remarks by Mr Benny Chey, Assistant Managing Director, Monetary Authority of Singapore at Innovate4Climate, on 4 June 2019
Fellow plenary speakers,
Mr. Vivek Pathak, Regional Director, East Asia and Pacific, IFC
Mr. Stephen Williams, Head of Global Banking – SEA, HSBC Bank
Distinguished guests, ladies and gentlemen, a very good morning.
1. The estimated financing needs to support the “greening” of Asian economies are substantial. China has estimated that it would require USD450-600 billion of investment annually to achieve its green policy goals under the 13th Five-Year Plan
2. These huge green financing needs cannot be borne alone by the public sector or bank lending. There is a pressing need, and an opportunity, to diversify sources of green financing, and to unlock and crowd in private capital. Capital market solutions like green bonds have the potential to play a more central role in financing green investments as the depth and liquidity in this market grows.
3. Global green bond issuance volume reached USD168 billion in 2018, a fourfold increase from USD42 billion in 2015. We are also seeing strong traction in the region. About USD48 billion, or more than a quarter of global green bonds issued last year was from the Asia-Pacific, of which USD31 billion was issued by Chinese issuers
4. China has made significant strides in developing green standards and taxonomy as well as incentives to catalyse green lending. In contrast, the ASEAN green bond market is smaller in size, more heterogeneous and at an earlier stage of development but we have made good progress to develop common frameworks and standards. ASEAN launched the first edition of the ASEAN Green Bond Standards in November 2017 and updated it a year later to achieve alignment with the 2018 edition of the International Capital Market Association’s (ICMA) Green Bond Principles.
5. Singapore’s green bond market stands at more than USD4.5 billion today. As an Asian centre for capital raising, enterprise financing and fixed income, Singapore is enhancing its capabilities to support growth in the financing of green investments and sustainable practices in the region. For example:
- In April 2019, ICBC Singapore bank branch issued the world’s first green “Belt & Road Inter-bank Regular Cooperation” bond. The USD2.2 billion raised across three currencies will be used to finance the construction of green projects in the Belt and Road Initiative (BRI).
- In February this year, Philippines-based Ayala Corporation’s energy arm, AC Energy, raised a USD300 million green bond to finance its renewable energy expansion in the Philippines and around the region. The company aims to install five gigawatts of renewable energy capacity by 2025.
Partnership to grow green capabilities in Asia
6. Regional and multilateral institutions like IFC, World Bank, and the Asian Development Bank play important roles in developing green capabilities and growing the green bond market. IFC is one of the earliest advocates of green bonds. To-date, IFC has issued more than USD7 billion of green bonds to finance green projects ranging from wind power farms in Panama to geothermal energy plants in the Philippines. IFC is leveraging the experience to actively help other financial institutions issue their own green bonds.
7. Singapore is glad to partner IFC in developing the Asian green finance ecosystem. Last year, the Monetary Authority of Singapore (MAS) signed an MOU with IFC to accelerate the growth of green bond markets in Asia. Capacity building programmes are a crucial part of this collaboration to address both supply side and demand side challenges, and overcome inertia. On the supply side, potential issuers may find it daunting to set up the necessary processes and frameworks to evaluate eligible financing projects, and monitor outcomes for investors’ disclosure. On the demand side, investors would need to have the right level of knowledge on how to identify, evaluate and track the performance of their green investments.
8. I am pleased to note that through the partnership, IFC has to date organised four capacity building workshops
Social and sustainability bonds
9. Social and sustainability bonds can play a distinct yet complementary role to green bonds. Social bonds are aimed at delivering positive social outcomes such as basic infrastructure, affordable housing and employment for specific segments of the population, including people living below the poverty line and marginalised communities. These financing initiatives dovetail with sustainability bonds which cater to both environmental considerations and social outcomes. Globally, social and sustainability bond issuance volume reached USD32 billion in 2018
10. Social and sustainability bond issuances in Asia are still at a very nascent stage but the impact is already being felt. In 2017, Singapore-based impact investing platform, Impact Investment Exchange, issued a pilot USD8 million social bond. The proceeds were lent to social enterprises and microfinance institutions to improve the livelihoods of more than 385,000 women in Cambodia, the Philippines and Vietnam. In early 2018, Indonesia-based Tropical Landscapes Finance Facility issued a USD95 million sustainability bond to finance PT Royal Lestari Utama’s sustainable natural rubber plantations in Jambi, Sumatra and East Kalimantan provinces.
11. Together with other ASEAN regulators, we have taken steps to nurture the growth of the social and sustainability bond markets in the region. The ASEAN Capital Markets Forum launched the ASEAN Social Bond Standards and Sustainability Bond Standards in October last year. These standards are aligned with ICMA’s Social Bond Principles and Sustainability Bond Guidelines, and are meant to provide guidance for ASEAN issuers.
12. In 2017, MAS launched the Green Bond Grant Scheme to catalyse the green bond market. The grant would fully fund eligible expenses for obtaining an external review for green bonds, subject to a cap. In February this year, the grant scheme has been expanded to include social and sustainability bonds, and renamed as the Sustainable Bond Grant (SBG) Scheme. We have also lowered the minimum issuance size requirement and extended the grant scheme by a further three years to end of May 2023. This recognises at the onset that social and sustainability projects in Asia could be smaller in scale and have lower capital needs than the minimum issuance size requirement
13. In conclusion:
- Green financing needs are large in Asia.
- Capital market solutions such as green bonds have the potential to connect green-conscious investors to green investments, meeting a need and creating an opportunity.
- Strong partnerships and the development of standards and incentive schemes can help uplift green capabilities in the region and scale up the green bond market.
- However, more innovative solutions and ideas are needed for the time to act is short.
- That is why we are here at Innovate4Climate, “where finance, markets, technology and investment meet to accelerate climate action.”
On this note, have a fruitful green discussion. Thank you.
MAS announced the launch of the Transition Credits Coalition (TRACTION) and two pilot projects to test the use of high-integrity transition credits in transactions for the early retirement of coal-fired power plants.
MAS launched the Singapore-Asia Taxonomy for Sustainable Finance (Singapore-Asia Taxonomy) – which sets out detailed thresholds and criteria for defining green and transition activities that contribute to climate change mitigation across eight focus sectors.
MAS has launched Gprnt, an integrated digital platform that harnesses technology to simplify how the financial sector and real economy collect, access and act upon environmental, social and governance (ESG) data to support their sustainability initiatives.