Singapore aims to curb 'greenwashing' via stress tests, technology: MAS, Banking News & Top Stories
SINGAPORE (BLOOMBERG) - Singapore's financial regulator is turning to regulation and technology to combat so-called "greenwashing," which it believes is the weakest link in expanding sustainable finance.
Banks in Singapore will have to undergo stress tests from next year while also making regulatory disclosures to ensure they are managing risks related to climate change and other environmental issues, Ravi Menon, executive director of the Monetary Authority of Singapore, said in an interview. Data validation with technologies that can prove the origin of environmentally friendly products is also needed, he added.
Greenwashing is the making of false or misleading claims about the environmental benefits of a product, service, or technology.
Mr Menon said the potential for greenwashing is increasing as more funds are allocated to sustainability projects. Stocks and funds that ranked highly on environmental, social, and governance metrics have attracted trillions of dollars in investment over the past few years.
The introduction of stress tests means banks need to better manage the climate risks associated with their borrowers, their customers and supply chains, said Menon, who also heads the city-state's central bank. "That is increasingly becoming a prudential expectation," he said.
Disclosure Obligation
MAS, along with other central banks in the UK, Europe and Canada, subjects its financial institutions to an assessment that examines the effects of climate change on everything from real estate to corporate loans.
Starting next year, all Singapore publicly traded companies, including banks, will be required to disclose information as recommended by the Group of 20 Task Force on Climate-Related Financial Information. The disclosure requirement will also extend to ESG fund products that are sold to private investors, Menon said.
In Europe, cash flow in ESG funds picked up in the last quarter following the introduction of new disclosure requirements to restore confidence in a market hit by greenwashing allegations. The ESG market has been haunted by allegations of inflated and even false claims about the benefits of investing. In March, the EU passed the so-called SFDR (Sustainable Finance Disclosure Regulation), a historic measure that sets the pace for global requirements.
In line with major global banks, lenders in Singapore have started scaling back their exposure to some of the climate change related industries such as coal. DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank, the three major banks in Singapore that are also the largest in Southeast Asia by assets, have pledged to stop funding new coal-fired power plants and only honor previously promised projects.
Many emerging economies in the region such as Vietnam and Indonesia still rely on coal, which is considered to be the dirtiest fuel in the world. Palm oil is another important industry in Southeast Asia that is often associated with deforestation and haze.
When asked if MAS would ask local banks to cut funding for palm oil-related activities, Mr Menon said the regulator never makes any statements about any particular sector.
"These are issues that we are studying closely," said Mr Menon. "You don't mean to rush to say, 'this activity is brown and you shouldn't invest in it or borrow to fund it'."
People must be offered "greener alternatives" to anything they do that is not as environmentally friendly, Menon said. Banks can offer funding to help the industry transition to a palm replacement if and when there is one, he said.
"So if the way that palm oil is grown is reformed in five or ten years' time, lenders need to pay more attention to it," he said, adding that they could work with borrowers to change the way Improve harvest to minimize deforestation.
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