Funds Global – We’ve seen a number of asset managers open a sustainability hub in Singapore. What factors make Singapore the ESG location of choice?Voumard
– There are three points that we think make Singapore the ESG location of choice. The first one is clearly government support. The Business and Sustainable Development Commission wrote the very widely read ‘Better Business Better World’ report in 2017’. They predicted that opportunity in sustainability could contribute something like US$12 trillion in GDP and create 380 million jobs by 2030, that’s pretty positive thinking. I know the MAS [Monetary Authority of Singapore] has looked closely at that report and have quoted it a number of times, and they want Singapore to be the leading centre for green finance in Asia.
They have a green finance action plan which has six key components. The first one is environmental risk management guidelines across the banking, insurance and asset management sectors, and that’s something that we’ve been subject to.
They have a series of grant schemes to support the mainstreaming of green and sustainability-linked loans, there’s a $2 billion Green Investments Programme, they’re planning to expand the number of external reviewers and rating agencies in Singapore to review ESG [environmental, social and governance] funds, so that all helps build the critical mass. There’s the concept of Anchor Centres of Excellence where they work with world class research institutions and leading universities to focus on Asia-specific climate research and training programmes, and lastly, in the accelerator fintech last year in Singapore, green finance was a big theme. The MAS announced a US$1.8 billion investment to be allocated to five asset management firms for climate-related investments and the idea is that those five managers will drive their regional sustainable efforts by launching new thematic themes around ESG concerns, and that each of those asset managers, which are obviously large asset managers, are committed to making Singapore their Asia-Pacific hub.
The second point really is probably the regulatory requirements. The MAS expects that all financial market participants will make climate-related financial disclosures from June 2022.
The third reason is that Singapore has been putting commitments into action, so focused not just on talking the talk but actually doing it is what makes Singapore the ESG location of choice in Asia. We have seen SG$11 billion (US$8.2 billion) of green, social and sustainability bonds issued by Singapore in the last four years, SG$22.5 billion of green sustainability-linked loans issued over the last four years, and six green fintech projects launched through an innovation grant for which they’ve earmarked SG$50 million.
Singapore is one of the 20 most efficient carbon countries in the world – they introduced a carbon tax in 2019, I believe – and just in terms of life here, we enjoy 47% green cover in Singapore, which is pretty amazing; 80% of households are within a ten-minute walk of a park and, as per the sustainability blueprint, there’s now something like 72 hectares of rooftop gardens and green walls, and they aim to triple that by 2030. Lastly, as part of the Paris Agreement and the United Nations 2030 Agenda for Sustainable Development, Singapore has trained over 100,000 officials from over 100 developing countries in key areas such as sustainable urban water, human resources management, health, education.
– Singapore is a location of choice due to its stable investment environment and generally the Singapore government always has this commitment to adopt the best practices, learning from other jurisdictions on what’s working and to learn from the best practices from other jurisdictions around the asset management sector.
– First, where else in Asia other than Singapore? Second, Asia has hit an inflection point around ESG. ESG leadership across the world has been Australia, New Zealand and Europe, and now you’re seeing it gather steam in the US and Asia-Pacific, other than Japan of course where there is a longer history.
We’re seeing approaches like Sharia increasingly emerge as a different perspective on ESG, and so Singapore’s location is quite helpful. It highlights that we are going to have to figure out what ESG means for a range of very different constituents; preferences are not homogeneous, in fact Asia is more heterogeneous than any of the other regions, I would argue. No country is better placed than Singapore – authorities have clearly understood the shift in investor sentiment, and what Mark said in terms of being able to capitalise on that, but Singapore also has those natural advantages.
– If you take a ten-year view, every sustainable development issue should become an investment issue straight away – either an opportunity or a risk. Any long-term investor should have sustainable development issues encoded into their process. It is within that context that we have always been fascinated by the region.
What sustainable development really means for us is the ability of a company to treat all its stakeholders as fairly as possible. If companies do this, shareholders will do well in the long term. For instance, we engage managements about paying their fair share of tax in the economies they operate in. Many managements believe taking tax shortcuts means they are maximising shareholder returns. To our simplistic minds, they are taking long-term risks as governments will come back to claim their fair share. It is a question of time horizons again. In this context, we generally think Asia has some fantastic businesses and family stewards who think over multi-generational timelines and understand the spirit of sustainable development.
– I think a lot of the points from a Singapore perspective have been covered, Mark from his perspective, and then of course from Shashi seeing it day in and day out. From our businesses, when we are dealing with managers, an interesting observation over the last years has really been that not a conversation passes by where you don’t have ESG as part of the discussion, and that wasn’t the case a few years back – the focus now is more apparent. In our businesses, usually you would expect we are always talking about core services, and I would say more and more of the conversations for businesses start from an ESG perspective.
But then you look at it with a broader context, not just from a Singapore but maybe Asia-Pacific, since these are the markets our SFAA clients would look at. While in Singapore there is strong support from the regulator, generally as you look around, there is lack of enough regulation. A lot of the impetus in the market is coming from LPs [limited partners] and they are driving the conversations with managers that we work with in terms of looking at ESG, defining their ESG policies and then how that flows down through the portfolio-level companies.
We work in an industry that is highly dependent on data, which requires it to be as standardised and transparent as possible. Which today, from a regional perspective Asia-Pacific’s regulatory framework for ESG is not as established as the EU. This is one of the most challenging aspects and the need for regulatory drivers of change starting with disclosures. This is further complicated as the APAC market is highly diversified in its sophistication and maturity on this topic. To address this, the MAS has taken up the initiative of not only providing direction but also enhancement of capacity and broadening the market through various educational efforts. We are also expecting enhanced regulatory disclosures for investment funds by early 2022.
As we compare notes with our member firms, we notice there are certainly a lot more discussions on a pre-screening perspective on the private funds segment. ESG audits are becoming more common, so people will have a little bit more on an ESG perspective because you would have ESG audits, you would have certain disclosures around that. But again, in terms of what the data is, in terms of the data disclosures, and in terms of the data comparability leading to standardisation, I feel like those are topics that we will continue to spend much more time on.