Singapore sustainable bond issuances hit S$13.3 billion in 2024: MAS

[SINGAPORE] The volume of green, social, sustainability and sustainability-linked (GSSSL) bonds, as well as transition bonds issued in Singapore, hit S$13.3 billion last year, up 79.7 per cent from 2023.

This is in line with the rise in bond issuances globally, due to a more benign interest rate environment, said the Monetary Authority of Singapore (MAS) in its sustainability report on Wednesday (Jul 9).

GSSSL loans originated from Singapore also rose for the seventh consecutive year, with over S$48 billion in loans issued.

Singapore accounts for more than half of Asean’s market for GSSSL bonds and loans, making it the region’s largest market for these instruments, MAS noted.

The “economic case for Asia’s transition is growing”, said MAS chairman Gan Kim Yong.

“As energy demand in South-east Asia grows, we will also work with our Asean partners to support the financing of key infrastructure such as the Asean Power Grid to strengthen regional energy integration,” he said.

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MAS’ chief sustainability officer Gillian Tan noted that close to S$1.1 trillion in financing is needed over the next decade to ramp up the region’s renewable energy capacity, upgrade existing power grid infrastructure and invest in battery storage systems.

Active equity strategy

Separately, MAS provided two updates on its Climate Transition Programme (CTP) – it has begun shifting CTP equities portfolio from passive to active management, and is extending the programme to its corporate bonds portfolio.

In FY2023, MAS allocated about 2 per cent of its portfolio, or slightly over $8 billion, to the CTP. The allocation, from the equities portion of the central bank’s official foreign reserves, was invested into companies in two climate indices – otherwise known as a passive strategy.

The shift to an active strategy – where portfolio managers pick investments – allows MAS “to be nimbler as geopolitical and climate policy uncertainties shift”, said the central bank.

It noted that in portfolios managed against climate indices, index weights are influenced by longer-term factors such as green revenue. However, constituent prices may be affected by short-term factors, such as energy or weather shocks, or policy uncertainty.

“Hence, active management can help to mitigate financial risks and enhance resilience of the portfolio,” said MAS.

MAS further believes that active management will help it to better understand the trade-off between investment performance and carbon reduction.

This is by “observing how portfolio managers calibrate their investment decisions when their performance is measured against climate indices instead of conventional market capitalisation-weighted indices”, MAS explained.

Next steps could include developing a framework to assess the performance of active portfolio managers, taking both investment returns and climate resilience into account. Climate metrics could include carbon emissions, green revenue, and climate value-at-risk.

“Monitoring of portfolio managers’ active investment strategies will also improve understanding of the drivers of financial performance and climate risk profile of the portfolio,” said MAS.

Such monitoring includes reviewing deviations in countries, sectors, and companies between the active portfolio and climate benchmarks.

“This process will help refine and enhance the design of the active investment programme over time, and achieve its dual financial and climate risk mitigation objectives,” said MAS.

Corporate bonds

The central bank has also decided to “gradually tilt” its corporate bond portfolio towards less carbon-intensive exposures. It plans to align the portfolio more closely with the low-carbon transition, using climate indices.

“We will initiate the programme with a small allocation, with the aim of scaling up over time,” MAS said.

It noted that corporate bonds are relatively less impacted by climate risks than equities, as bonds generally have shorter duration. Corporate bond investors are also higher up the capital structure as creditors, compared to shareholders.

However, climate risks can still cause corporate creditworthiness to deteriorate, impacting bond values, MAS noted.

“Implementing appropriate climate risk mitigation measures for corporate bonds is also important for creating a climate-resilient portfolio,” it said.

Lowering emissions

MAS’ total emissions for FY2024 fell 21.8 per cent compared to the previous year. The chiller plant upgrading in Currency House brought Scope 2 emissions down by 9.1 per cent. Meanwhile, emissions from outsourced currency operations fell 36.4 per cent.

MAS said that it is on track to achieve its emissions reduction targets. The central bank aims to reduce its Scope 1 and Scope 2 emissions, as well as Scope 3 emissions from business air travel, by 17.5 per cent by FY2025, compared to FY2018. The FY2030 target is a 30 per cent reduction.

It also plans to reduce Scope 3 emissions from outsourced currency operations by 10 per cent by FY2025, and by 20 per cent by FY2030.

The central bank has encouraged Singaporeans to avoid withdrawing newly-printed notes for the Chinese New Year, instead opting for good-enough existing notes, called “Fit-for-Gifting” notes.

During this year’s festivities, the number of Fit-for-Gifting notes exchanged rose 38 per cent to 16.2 million. This translates to emissions savings of 517 tCO2e, comparable to powering 280 four-room HDB flats annually.

Emerging areas

MAS plans to continue working with the financial industry on emerging areas, such as nature-related risks and opportunities.

The central bank seeks to be “risk-proportionate, pragmatic and flexible” in its engagement, said Tan.

Talent development is another key focus. Since the launch of the Sustainable Finance Jobs Transformation Map in last year, at least 4,100 financial sector professionals across over 100 financial institutions have been trained in sustainable finance through IBF-accredited or recognised courses.

Over 8,200 Skills Badges have also been awarded to individuals who have completed IBF-accredited sustainable finance courses.