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On green financing, a lack of colour on required standards


ASEAN will need US$200 billion in green investment from 2016 to 2030, a five-time increase from current levels - and that speaks to the "significant potential" for private capital to enter this space, said a top executive from the Monetary Authority of Singapore (MAS) on Thursday.

But there needs to be more clarity in the standards of debt instruments in this area - better known as green bonds - so as to boost confidence among investors, said Ng Yao Loong, assistant managing director, development & international group, MAS.

Speaking at the Green Bonds Asia Conference in Singapore organised by the World Bank's IFC, Mr Ng said that the nascent market must avoid fragmentation at the onset.

"Investors need clarity on and confidence in the standards that green bond issuers are adopting," he said.

"Singapore is a strong proponent for the adoption of international standards."

Mr Ng pointed to the efforts by China's Green Finance Committee and the European Investment Bank to jointly identify the differences between the two standards with a view towards harmonisation.

Singapore's existing green bond grant scheme also applies existing international green bond standards, and the Asean Green Bond Standards have been deliberately aligned with the green bond principles of the International Capital Market Association.

"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 to which international issuers and investors are accustomed," he said.

Mr Ng noted that if the share of private financing in Asean is assumed to increase from the current 25 per cent level to more than 50 per cent of total green financing needs, the supply of private green finance has to scale up by over 10 times from today's level.

This means that private sector participants, including investors, underwriters or issuers, will need to build up the expertise and capabilities in order for the green finance market to grow, said Mr Ng. The green bond market started a decade ago, and has grown to a US$156 billion issuance market last year.

Asia now contributes about a quarter of global green bond issuances annually, driven by the hive of activity out of China. It was only recently dethroned as the largest green bond issuer in the world by the US, reflecting the impact from a substantial US$25 billion mortgage-backed green securities issue by Fanny Mae, an S&P report earlier this year showed.

Mr Ng said: "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."

There have been some signs of institutional demand for such an asset class in Singapore alone, with Mr Ng citing the 19.5 billion rupee (S$387 million) green masala bond deal issued by the Indian Renewable Energy Development Agency that was listed on the Singapore Exchange (SGX).

In November 2017, Manulife Financial Corp issued and listed a S$500 million green bond on SGX, and in April this year, Indonesia's Star Energy Geothermal issued and listed a US$580 million amortising green project bond here as well.

In a Memorandum of Understanding signed on Thursday, MAS and IFC said they would work together to spur green bond issuances by financial institutions in Asia. The agreement was signed on the sidelines of the IFC conference.

The two agencies plan to promote the use of internationally recognised green bond standards and frameworks, and raise awareness and knowledge of finance professionals on green finance issues.

Vivek Pathak, IFC's director for East Asia and the Pacific, said in a media statement that Singapore is "well placed" to catalyse the funding of low-carbon investment and financing in the region and be at the forefront of this growing asset class.

"Addressing climate change will require innovative, high-impact financial solutions that mobilise the private sector," he said. "Through this collaboration with MAS, we hope to strengthen financial institutions' awareness of green bond issuances and help build capacity for decision makers and banks."

READ MORE: Can green bonds help power emerging Asia's fixed income markets?