Singapore greens the investment landscape

Singapore greens the investment landscape

In recent years, Singapore has been pushing greener standards in the investment and finance market, as well as the larger economy. (Photo: Joel Chong)

‘Overall, it’s a good thing to have,” said Khoo De Wan. He was speaking of Singapore’s Environmental, Social and Governance standards, or ESG, which listed companies in the nation must abide by. The local resident and investor added, “It may help to bring in more business, but by itself it’s not enough to make a company an investable company. That’s my thinking.”

“Sad to say, the end goal [of investing] is monetary or financial, rather than environmental,” said Mr Khoo.

Thinking like Mr Khoo’s are what the Singapore Exchange (SGX) has been seeking to shift over the past six years or so. This is part of the city-state’s aim of being not just a global financial hub — it is the fourth most competitive in the world — but a green one too.

To promote the relevance of sustainability in investment portfolios and bring attention to sustainability investing, the exchange introduced compulsory sustainability reporting in 2016 under a “comply or explain” framework for all listed companies. The Singapore Exchange tightened this requirement in December 2021, obliging companies in select industries — such as energy and agriculture — to make climate-specific disclosures in their sustainability reports.

Almost all, or 99.5%, of SGX’s 569 issuers complied with the sustainability reporting framework in 2021.

“I can see some companies getting more serious,” Tan Seng Chuan, managing director of the sustainability consulting firm Tembusu Asia, said after the SGX’s latest policy move. “[Previously,] I think companies were still not understanding [the shift].”

But SGX’s requirements, as well as the government’s Green Plan 2030, have “helped companies to think about how they can carry out reporting in a more sustainable way – not just for the sake of submitting the report to SGX,” Mr Tan added.

Given SGX’s market capitalisation of about S$900 billion (21.9 trillion baht) and the fact that 40% of its equity market capitalisation comes from overseas, this will not be a small shift in corporate practice for both Singapore and Southeast Asia.

The exchange has sought to further sweeten the appeal of green investments and boost the profile of ESG-robust companies by introducing a suite of ESG indices, which tracks the performance of ESG-rated stocks and Real Estate Investment Trusts (REITs).

These efforts’ impact on investor demand, however, remains mixed.

“I know that [green investing] is of interest to institutional investors and larger retail investors — the family offices,” said Chia Tek Yew, vice president of the global consultancy firm Oliver Wyman, Singapore. “There is a huge demand and very little supply. So effectively it is driving, to some extent, some of the prices of companies that are seen to be more green.”

But this enthusiasm has not been matched by individual investors, Mr Chia says.

Only 26% of Singaporeans are aware of ESG investing, according to a 2021 Asia Sustainable Investing Survey. This figure is the lowest among respondents in the five East Asian economies where the survey was done, and well below the average of 43% in the survey findings. The survey found that only 6% of Singaporeans are currently invested in ESG, compared to 10% of respondents in the four other economies.

At the same time, over 70% of Singaporean respondents affirmed the importance of sustainable living and 57% want to invest or save more sustainably as a result of Covid-19.

“It’s not that I’m not pro-green — I guess you have to pick your battles,” said Anders Lee, who has been investing for just over a year.

For Lee, who works in international development, the pivotal factor would instead be the political profile of investments. “There are certain red lines – like if they fund [political] parties that I don’t support, if they are working with an authoritarian regime, that kind of thing,” he said. “I think that will be my red line, rather than sustainability.”

Still, the space for green investments and finance space in Singapore continues to broaden amid a growing interest in sustainability, global citizenship and responsible business practices — not least given the Covid-19 pandemic.

This shift has also been fuelled in no small part by a considered push from the Singapore government to green its economy and financial services sector.

For instance, Singapore introduced a carbon tax scheme in 2019 — thus far the only Southeast Asian country to do so. A Green Finance Action Plan, which listed priorities ranging from environmental risk management and green fintech to the development of green financial standards, was launched that same year.

The financing needed to green Asia’s economies would be substantial, the monetary authority’s assistant managing director, Benny Chia, said in 2019. “These huge green financing needs cannot be borne alone by the public sector or bank lending. There is a pressing need, and an opportunity, to diversify sources of green financing, and to unlock and crowd in private capital.”

Green financial technology like mobile applications can further revolutionise access to these green investment instruments.

“Typically for us as individuals, you don’t normally get access to all these. These are all the big-ticket items that unless you are an [institutional] investor, unless you have 100,000 dollars and above, you will find it hard to invest in some of these,” said Mr Chia.

However, the use of fintech solutions like micro-lending and peer-to-peer payments can allow a broader segment of investors “bite-sized” access to green bonds. This increased accessibility, or what Mr Chia calls the “democratisation” of investment access, levels the playing field and can attract more investors.

In the end, much will depend on how individuals make a connection between the push for sustainability and where they put their money.

“[Sustainability] is at the corner of my eye, but I will not say it’s in centre focus. So I’m still keeping an eye on it here and there, just to know how far it has developed, how widely it has been adopted. And from there, my mindset may change,” said Khoo. ©2022 Reporting ASEAN

This is part of the Reporting ASEAN’s Lens Southeast Asia series.