MAS: The World Needs to Move Beyond Just Green Finance to Transition Finance

MAS: The World Needs to Move Beyond Just Green Finance to Transition Finance

by July 29, 2022

Green finance alone is not enough as the world, and Asia in particular, needs transition finance, according to Ravi Menon, Managing Director at the Monetary Authority of Singapore (MAS).

During the MAS Sustainability Report 2021/2022 media conference, he added that the threat of climate change has grown but progress in mitigating it has been slow.

According to the latest report by the Intergovernmental Panel on Climate Change (IPCC), global warming is already causing widespread climate-related disruptions around us.

To limit global warming to 1.5 degrees Celsius, global greenhouse gas emissions must peak by 2025 and come down by about 45% by 2030 relative to 2019 levels.

This is far from the emissions trajectory the world is currently on and the already tepid transition towards net zero has been thrown off course by the war in Ukraine.

Ravi Menon

Ravi Menon

Menon said,

“Where the industry needs to do better is in transition finance – to provide the funding support for companies that are not so green, to become greener. Last year saw just twelve transition bonds issued globally, amounting to US$4.4 billion.

 

The transition bond market has good potential to grow. Transition finance is an important theme that permeates this year’s MAS sustainability report.”

Menon went on to say that the global financial industry has made good progress in harnessing green finance.

This was evidenced by the issuance of green and sustainable bond reaching US$800 billion last year which is a ten-fold increase from 2015.

The MAS Sustainability Report reflects how sustainability is integrated across its functions as a central bank, an integrated financial regulator, and promoter of the financial sector.

It details the regulator’s efforts together with the financial industry to strengthen the resilience of Singapore’s financial sector to environmental risks.

In line with this, MAS has incorporated a range of long-term climate scenarios as part of this year’s stress tests for the financial industry.

Additionally, SGX and MAS are stepping up efforts to strengthen the comparability and reliability of sustainability-related disclosures  for listed companies, major financial institutions, and retail ESG funds.

MAS is also putting out disclosure and reporting guidelines for retail ESG funds. Some of the required information includes details on the ESG fund’s investment strategy, criteria and metrics used to select investments, as well as risks and limitations associated with the fund’s strategy.

The regulator is also planning to engage financial institutions on their transition plans towards net-zero or other relevant emissions targets.

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