Singapore to tackle 'greenwashing' via stress tests and tech

The Monetary Authority of Singapore (MAS) is turning to regulation and technology to tackle so-called "greenwashing", which it considers the weakest link in the push to expand sustainable finance.

Banks in Singapore will have to undergo stress tests from next year while making regulatory disclosures to ensure they are managing risks related to climate change and other environmental issues, MAS managing director Ravi Menon said in an interview.

Data verification using technology that can attest to the provenance of green products will also be required, he added.

Greenwashing is the act of making false or misleading claims about the environmental benefits of a product, service or technology.

Mr Menon said the potential for greenwashing is on the rise as more funds are allocated for sustainability projects. Stocks and funds highly rated on environmental, social and governance (ESG) metrics have attracted trillions of dollars of investments in recent years.

The introduction of stress tests means banks will have to get a better handle on the climate risks tied to their borrowers, their customers and supply chains, said Mr Menon. "That will increasingly become a supervisory expectation," he said.

At its annual fintech festival yesterday, Singapore launched a national programme that will use artificial intelligence to help with risk analysis for the financial industry. Part of the programme is a partnership between local lenders and fintech firms to assess companies' environmental impact and identify emerging environmental risks, as well as check against greenwashing.

The MAS is joining other central banks in Britain, Europe and Canada in putting financial institutions through assessments that scrutinise the impact of climate change on everything from real estate to corporate loans.

Starting next year, all listed firms in Singapore, including banks, will need to publicise information in line with recommendations from the Group of 20's task force on climate-related financial disclosures. Mandatory disclosure will also extend to ESG fund products sold to retail investors, Mr Menon said.

In Europe, the flow of cash into ESG funds picked up last quarter following the introduction of new disclosure requirements to help restore confidence in a market hit by greenwashing accusations.

The ESG market has been dogged by allegations of inflated and even false claims about the benefits that investments bring. The European Union in March adopted what is known as sustainable finance disclosure regulation, or SFDR, a historic measure that has been setting the pace for global requirements.

In line with major global banks, lenders in Singapore have started to reduce their exposure to some of the industries linked to climate change, such as coal. DBS Bank, OCBC Bank and UOB, the three major Singapore banks that are also the largest in South-east Asia by assets, pledged to stop financing new coal-fired power projects, honouring only previously committed ones.

Many emerging economies in the region, such as Vietnam and Indonesia, still rely on coal, considered the world's dirtiest fuel. Palm oil is another major industry in South-east Asia often linked to deforestation and haze.

When asked if the MAS would ask local banks to curb their financing for palm oil-related activities, Mr Menon said the regulator never makes pronouncements on any particular sector.

"These are issues we study closely," he said. "You don't want to rush to say this activity is brown and you should not invest in it, or that you should not make loans to finance it."

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A version of this article appeared in the print edition of The Straits Times on November 09, 2021, with the headline Singapore to tackle 'greenwashing' via stress tests and tech. Subscribe