In the latest regulator move to combat greenwash in sustainable finance, the Monetary Authority of Singapore (MAS), the country’s central bank and financial regulator, has announced new reporting and disclosure requirements for ESG funds specifically targeted at listed companies, major financial institutions, and retail investors.
The new rules were unveiled by MAS managing director Ravi Menon, who said: “To reach net zero, greening the economy is more important than growing the green economy.”
New disclosure standards part of ‘greening’ Singapore’s markets
The new rules aim to ‘green’ the sectors that make up the bulk of Singapore’s economy, as part of a wider cross-sectoral transition strategy to reduce the country’s carbon footprint.
“High quality sustainability disclosure is critical to managing environmental risks and allocating capital to climate risk mitigation”, stated Menon.
According to the World Bank, as a small, coastal, low-lying city-state, Singapore is particularly vulnerable to the consequences of climate chance such as rising sea levels, intense rainfall, dry spell, and other extreme weather events. Climate mitigation has therefore become a national priority despite the fact that, according to Menon, the nation only generates 0.11% of global carbon emissions.
Currently, Singapore has set a goal of achieving net zero ‘by or around mid-century’, but has yet to set a formal target.
ESG disclosure rules are emerging globally
Singapore is the latest country to solidify more comprehensive disclosure requirements for its business and financial sectors.
The EU will also implement its new Sustainable Finance Disclosure Regulations (SFDR) by the beginning of 2023, delayed a year from its original implementation date of January 2022 due to the “length and technical detail” of the new standards. Part of the EU Taxonomy, these rules are set to be the most comprehensive classification system for sustainable finance.
In the US, the Securities and Exchange Commission (SEC) proposed new disclosure rules in May 2022 for funds that claim to incorporate ESG aspects into their investment products and services. As part of the rules, at least 80% of a fund’s assets would need to be invested in assets that are congruent with an ESG investment policy in order to use ‘ESG’ in a fund’s name. The proposed rules are currently under review..
The UK’s Financial Conduct Authority (FCA) has also proposed disclosure rules as part of the Sustainability Disclosure Requirements (SDR), a key pillar of the country’s Green Finance Strategy. These rules would be in line with the EU’s SFDR, combining both disclosure requirements and a labelling system. Public consultation has been delayed until autumn 2022 in order to take into account other emerging international policy initiatives and to give stakeholders more time to prepare.
Across all new disclosure rule proposals, a focus on increasing clarity and transparency to rightly label an investment or fund as ‘sustainable’ is a priority to combat greenwashing in the booming ESG market.
What are the new disclosure requirements?
Listed companies in Singapore will be required to disclose their climate-related risks from 2023 onwards. The reporting requirements will be based on the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, an initiative born from the Financial Stability Board (FSB) to help increase market transparency and provide climate risk disclosure guidance for companies.
Listed entities from the financial services, energy, agriculture, food and forest product industries will be looked at first by the MAS, with the goal of covering more than 60% of the 673 companies listed on the Singapore Exchange, representing a total domestic market capitalization of $ 663 million.
ESG funds that are sold to retail investors in Singapore will also have to provide relevant information to back-up their sustainability claims as of January 2023. The new requirements include disclosing details on the ESG fund’s investment strategy, criteria and metrics used to select investments, as well as risk and limitations associated with the fund’s strategy.
Singapore to align with ISSB standards
MAS also plans to introduce climate-related disclosures for major financial institutions in line with the forthcoming International Sustainability Standards Board’s (ISSB) sustainability disclosure requirements. These build on the TCFD recommendations with the aim of outlining a more comprehensive global baseline sustainability reporting standard. While the final ISSB framework is due to be released by the end of the year, its preliminary decisions were released in July 2022.
Later this year, MAS and Singapore Exchange Limited will also launch an ESG disclosure platform under Project Greenprint, a collection of initiatives that aims to harness technology and data to enable a more transparent, trusted and efficient ESG ecosystem to enable green and sustainable finance. The platform is intended to streamline and reduce corporates’ ESG reporting burden and ensure comparability in sustainability data.
Not only that but the Government of Singapore has announced plans for its first green bond, details of which are to be announced soon. It is part of a planned S$35 billion ($25 billion) multi-year green bond programme. The first bond is expected to be around S$1.5 billion, according to a statement from MAS.