Singapore's Monetary Authority has announced a plan to broaden its focus from green finance to include transition finance by defining clear guidelines, encouraging innovation, and offering additional grants.
The authority plans to develop sustainable debt markets with green and transformational solutions, enhance data quality and disclosure of information on environment, society, and governance, and ensure that financial institutions have reliable transition plans in place.
MAS will expand its sustainable bond and loan grant schemes to include transition bonds and loans while ensuring that they align with internationally recognized taxonomy and transition finance principles. Safeguards will be put in place to reduce the risk of "transition-washing."
MAS will provide a subsidy for early adoption of entity-level sustainability disclosures by issuers or borrowers to promote transparency in the sustainable debt market. It has set aside US$15 million over the next five years for enhanced grant schemes until 2028. The grant will cover the expenses associated with the issuance of insurance-linked securities and catastrophe bonds that focus on risks in Asia.
MAS will work with the private sector and philanthropic foundations to increase financing for the decarbonization of carbon-intensive sector and the management of phasing out coal-fired power plants.
Additionally, MAS will support the development of carbon services and carbon credit markets, directing financing towards carbon abatement and removal projects in Asia, especially Southeast Asia, which is still heavily reliant on coal-fired electricity.
The central bank is also collaborating with the International Energy Agency to create decarbonization strategies for emissions-heavy sectors in the region.
While Europe has been the global leader in green finance, there are controversies over transition instruments, as banks that finance carbon-intensive industries have to account for those emissions in their disclosures. Advocates of aggressive action on climate change said that transition funding lets polluters off the hook.
Asian countries and regulators have disagreed, arguing that the transition away from fossil fuels would be very expensive — and is largely a solution to a problem for which they bear little historical responsibility.
Singapore's new strategy could turn it into a transformative financial center in the region. It can also link the financial needs of developing economies with investors in developed capital markets. This shows that Singapore is dedicated to its commitment to a reliable green transition in Asia.