Nominated Member of Parliament (NMP) Anthea Ong, in her speech in Parliament last Monday (6 Jan), supported the Banking (Amendment) Bill that “seeks to remove the two-tiered banking system” and “consolidate the licensing and regulation of merchant banks”.
“Yet there is one significant and glaring development that we must talk about”, she said.
“With the growing prevalence of climate-induced events in the world and specifically in our region, there is an urgent need to safeguard financial assets yet be innovative in legislative interventions to reduce future risks to Singapore’s banking industry.”
She urged the Monetary Authority of Singapore (MAS) to take action on the matter as the Network for Greening the Financial System (NGFS) warned that climate risks could be more devastating, prevailing, and unpredictable than “any other structural change”.
“Regulatory frameworks around climate-related risk management will allow for a systematic adoption of practices for the accelerated transition towards a sustainable banking sector”
Quoting Education Minister Ong Ye Kung’s speech last November, Ms Ong suggested more can be done in “measuring, mitigating, and disclosing these risks” for Singapore to attain “a sustainable and resilient financial system”.
In terms of measuring risks, she urged “banks to obtain carbon emissions-related data and estimate their borrower’s exposure to carbon regulation and transition risks”, so that “such data” can “be used for carbon risk assessment and be mandated for reporting” by companies listed in Singapore Exchange (SGX).
Focusing only on high-carbon assets may be “a good first step but still insufficient”.
“As a former corporate banker myself, I would even push for data collection beyond just carbon emissions data”, she added, “our bankers must also obtain information from borrowers to understand where business value could be at risk”.
She added that “metric selection is also critical” and used the 2011 floods in Thailand as “a critical example of how risks could be embedded in the supply chain and may not be obvious through a carbon data metric”.
To combat this, she recommended having an “ASEAN taskforce that embarks on a bottom-up modelling of business risks from climate change across our region, including the supply chain impacts across borders”.
MAS should also “support the banking industry with centrally-developed stress test scenarios that incorporate the views of experts and civil society”, she stated.
Ms Ong explained that “mandatory standards in Singapore and international alignment are key signposts” to ensure the banking industry “is robustly equipped to mitigate environmental, social and governance risks, particularly around climate change”.
“Bangladesh already has a mandatory environmental risk management guideline for Bangladeshi banks.
“While the Association of Banks in Singapore, or ABS, has Responsible Banking Guidelines and a haze toolkit” that are voluntary, she elaborated.
In terms of international alignment, she said, “only one Singapore bank is a signatory to the Equator Principles and none have signed the United Nations’ Principles of Responsible Banking”.
Quoting the Governor of the Bank of English Mark Carney, who said that “climate disclosure must become comprehensive” to involve climate risks in financial decision making, Ms Ong stated that “we should also consider the disclosure of climate risks”.
In a review by World Wide Fund for Nature (WWF) Singapore on ASEAN Sustainable Banking Regulations, “only Malaysia has firmly expected banks to assess,mitigate and publicly disclose their portfolio-level exposure to material environmental and social or E&S risks (including climate risk)”.
“Singapore should be requiring our banks to do the same,” she added, which is why Taskforce for Climate-related Fiancial Disclosures (TCFD) should mandate “a timeline” for “disclosures for financial industries as well as listed companies”.
“Plans for national green banks and green financing, including the standards for green loans” should be established
Ms Ong noted that green investments can be “a business opportunity, accelerating the growth of green finance” that “reduces instability to our financial system in the future”.
“While our Singapore banks have all been highly positive on the green finance opportunities—a number of countries have established national green banks to provide initial funding to develop clean energy, transport, energy efficiency markets.
“In its latest annual report, CEFC has made A$2.3 billion of commitments, and every A$1 spent, has brought in A$2 of accompanying private investment.”
Singapore should have sustainable finance as “a key component” of the “digital bank roadmap”
“With the opening of five digital bank licenses by MAS—we must, therefore, incentivise and harness the innovative essence of these new digital partnership—to encourage collection and use of new data” and “to create new sustainable financing solutions”, Ms Ong said.
The Sustainable App, which was launched by the International Netherlands Group (ING) Real Estate Finance (REF) and its partner, “helped identify 35 million Euros of potential energy cost savings within its real estate portfolio”, she elaborated.
Quoting Aviva Chief Investment Officer David Cumming, who said that “[understanding climate risk] isn’t an exercise in trying to save species and habitats—this is also about protecting people’s retirement income and their investments”, she said that they “absolutely cannot let such risks build-up with little or no visibility”.
“We must act with the fierce urgency”, she added, “to build a climate-change resilient, robust and responsible financial industry for Singapore”.
It was highlighted earlier in recent study by the Environmental Study Centre in Riau University, that Singaporean banks financed S$1.9 billion to 17 Indonesian companies linked to the 2019 fires that blanketed the country and its neighbours in a toxic haze.
Among all Singapore banks named in the study, Oversea-Chinese Banking Corporation (OCBC) was the fifth largest overall financier of the 17 companies linked to the 2019 fires, providing US$960 million (S$1.3 billion) in finance to four palm oil companies. The Development Bank of Singapore (DBS) also provided S$281 million to finance another three palm oil companies.