In recent years, the global movement towards green finance – finance that takes into consideration the impacts of business and capital flows on the environment – has been gathering pace. According to UN Environment estimates, over 200 policy measures to “green” the financial system have now been instated in 60 countries, which is double the number compared to two years ago. In addition, the G20, the G7, and the European Commission all have launched or will soon launch work streams and study groups focused on removing institutional barriers to the implementation and scaling up of green finance.
Much of the green finance movement was triggered, and continues to be driven, by a growing recognition of the negative impacts of “business-as-usual” financial practices. In Singapore and Southeast Asia, a major trigger has been haze and carbon emissions from land and forest fires.
Partially in response to the historic haze episode in 2015, Singapore’s financial industry has now taken significant steps across all major asset classes towards “greening” the local financial industry. In October 2015, the Association of Banks in Singapore has introduced its Responsible Financing Guidelines, which it is helping local banks to implement using a Haze Financing Toolkit. In June 2016, the Singapore Exchange launched a new “comply or explain” reporting regime for listed companies. In November 2016, the Singapore Stewardship Principles for Responsible Investors were released, and earlier this week, the Life Insurance Association of Singapore also released a statement supporting the adoption of ESG principles.
These changes represent a vital first step and an important signal for local financiers. However, green finance is about not merely mitigating risk, but also harnessing the business opportunities that will be created by the global shift towards a green, low-carbon economy. The huge cost of this transition – an estimated US$90 trillion over the next 15 years – makes private financing essential. Without keeping the business case firmly in sight, it will be difficult to get the rest of the mainstream financial industry on board and create the systematic change that will be required.
The opportunities presented by green finance are becoming less theoretical and increasingly concrete. Fuelled by strong demand in the Chinese and Indian markets, the global green bond market almost doubled in 2016 to US$81 billion. By 2015, total global assets invested according to socially responsible investment (SRI) strategies had reached US$21.4 trillion. Finally, the gap between losses due to climate-related catastrophes and those covered by has increased to US$100 billion annually, according to December 2016 estimates by the ClimateWise institute at the University of Cambridge. This represents a large opportunity not only for insurance, but also for related products such as resilience impact bonds and investments in resilience-enhancing infrastructure.
There is a pressing need for Singapore’s financial institutions to identify strategies for green finance and build internal capacity to understand, identify, and capitalise on these opportunities.
Green finance is not just about risk – it is also about opportunity. If harnessed correctly, the global shift towards green finance will help Singapore maintain its leadership position as a financial hub, as well as create a better world for us to live in.
The Singapore Institute of International Affairs is holding our 4th Singapore Dialogue on Sustainable World Resources on 6 April 2017 at the St. Regis Singapore, on the theme of “Inclusive Collaboration: Working Together for Sustainable Value Chains”.
