“Building Resilience and A Climate of Hope Amidst Uncertainty”

The climate crisis is now a key preoccupation of governments, businesses, and communities around the world. The latest climate science, summarised in the Synthesis Report of the International Panel on Climate Change ("IPCC") Sixth Assessment Report ("AR6"), points to a “rapidly closing window of opportunity” to keep to the 1.5 degrees Celsius temperature target. We should not need to rely only on reports to understand the urgency of this challenge, given the series of extreme weather events we are already experiencing in Asia. These range from record-breaking floods in Pakistan and South Asia, to unprecedented heatwaves in China and India. Few regions, if any, will be spared from the human and economic destruction brought about by the climate crisis.

This climate crisis is further complicated by a confluence of factors. The ongoing war in Ukraine continues to disrupt global energy and food supplies, translating into higher inflationary pressures. The growing tensions between the US and China have affected trade and investment flows. Increasing concerns over greenwashing have dampened activities and affected investor confidence in the market. Progress on tackling urgent climate change has been impeded and deprioritised over energy security and affordability imperatives.

Amid these challenges, the scale of investment required to decarbonise the economy is significant. According to McKinsey, achieving net zero by 2050 will require about US$9.2 trillion of annual investment per year, with a third of this investment in Asia. However, only about US$5.7 trillion per year is being invested globally today. We are more than 35% short of the annual investment required.

Winds of Change and A Climate of Hope

Yet, there are promising and encouraging signs from which we can take heart. We have witnessed increased global momentum and commitments around the net zero transition. In the US, the introduction of the Inflation Reduction Act will direct nearly US$400 billion in federal funding to incentivise low-carbon investments – in areas such as clean energy generation and storage, electric vehicle manufacturing, and carbon capture. In Europe, the REPowerEU Plan will mobilise up to €300 billion of investment in areas such as renewable energy, storage and energy efficiency, to achieve the 2030 target of a renewables share of 45% in energy production.

The winds of change are blowing not just across governments, but also the business and financial communities. Some 2,600 corporates globally have set science-based climate targets, according to the Science-Based Target initiative ("SBTi"). The financial sector has also stepped up to assume this collective responsibility for action. The Glasgow Financial Alliance for Net Zero ("GFANZ") continues to grow, now with over 550 financial institution members who are committed to achieving net zero. Singapore’s major banks – DBS, UOB and OCBC – have signed up with the Net-Zero Banking Alliance ("NZBA"), and published the first iterations of their respective net zero transition plans. These efforts are bearing fruit, with the International Energy Agency reporting that for every $1 invested in fossil fuels today, $1.70 is going to clean energy.

These developments give us hope. They show that sustainability and decarbonisation have become a core strategy for forward-thinking organisations. Government agencies, businesses and financial institutions are taking the lead to embed climate considerations into every aspect of their work and investments are starting to flow to green and transition sectors.

The Imperative of Green and Transition Finance

In 2019, the MAS launched the Green Finance Action Plan ("GFAP") to enable Singapore’s financial sector to support sustainable development in Asia. We published our first Sustainability Report in mid-2021, in alignment with the Task Force on Climate-Related Financial Disclosures ("TCFD") recommendations. We also strengthened our internal governance structure, including the reorganisation and expansion of the Sustainability Group and the establishment of sustainability-focused cross-department platforms, to spur development of the sustainable finance ecosystem in Singapore and deepen MAS’ engagements at global and regional sustainable finance platforms.

These efforts span across MAS' core supervisory and developmental functions. They reflect our commitment to leverage finance to drive the decarbonisation of the real economy, in support of an orderly and just net zero transition in Asia.

Over the past year, our sustainability efforts have been guided by three key thrusts:

• Transition. Pure green activities are estimated to make up less than 8% of the global economy, and merely financing such activities is insufficient to get the world to transition to net zero. To move the needle, we need to enable the decarbonisation of all sectors that make up the remaining 92% of the economy. Within Asia, coal constitutes a significant portion of the energy mix, and it is critical to manage the phaseout of these coal assets in a responsible manner. Transition finance has permeated our work priorities; we therefore launched the Finance for Net Zero ("FiNZ") Action Plan in April 2023, where we built on the Green Finance Action Plan to include transition finance strategies.
  
  
• Credibility. We will continue to promote consistent, comparable, and reliable climate data and disclosures to guide decision making by financial market participants, and safeguard against greenwashing risks. Our enhancements to MAS’ sustainable bond and loan grant schemes with inbuilt safeguards in relation to transition instruments, and the issuance of disclosure and reporting guidelines for retail environmental, social and governance ("ESG") funds to mitigate greenwashing risks, are testament to this.
  
  
• Collective Action. Given the scale of investment required to get to net zero, the role of public capital must be reoriented to incentivise private capital investment to serve the global and regional public good. This has guided our focus on scaling the use of blended finance to support the region’s transition. Our partnership with the industry will deepen and broaden, with the set up of the Singapore Sustainable Finance Association and the launch of the FiNZ Connect series to facilitate greater collaboration with and across the financial sector and the broader economy.

It has been said that Chief Sustainability Officers are also “Chief Sensemaking Officers”. Our role entails making sense of the rapidly evolving landscape and massive streams of information – from the latest climate science and global guidance on transition planning, to policy and regulatory changes and advancement in game-changing decarbonisation technologies. It means understanding and managing the risks posed by climate change to financial institutions and the financial system.

We will also need to evaluate and strengthen the new job and business growth opportunities that will be presented as we pursue a net-zero future. These insights will help deepen our perspectives and guide the implementation of sustainability strategies.

While the climate crisis is the defining challenge of our time, it is equally an opportunity for the financial sector, the real economy, industry partners, governmental agencies, and academic institutions to work together to effect the massive transformation across our economies and societies to net zero. It is an opportunity not just to do good for the planet and build a greener future for all, but also to seize new growth pathways, create new green jobs and industries, and ultimately come out of this crisis stronger together.

Ms Gillian Tan
Chief Sustainability Officer