Singapore seeks views on financing standards for early phase-out of coal in Asia

SINGAPORE - The Republic is seeking public views on standards for financing a speedy but less disruptive phase-out of coal-fired power plants in Asia.

The public consultation launched on Wednesday by the Monetary Authority of Singapore (MAS) was announced by Ms Indranee Rajah, Minister in the Prime Minister’s Office and Second Minister for Finance and National Development.

Speaking at a conference organised by the International Capital Market Association (ICMA), Ms Indranee said that a transition framework is needed to phase out coal-based power generation in the region in a manner that curbs greenhouse gas emissions while avoiding the loss of livelihoods and energy security at the same time.

Coal is one of the main sources of energy powering Asia’s growth.

It accounts for nearly 60 per cent of electricity generation, but also 30 per cent of the region’s greenhouse gas emissions.

Ms Indranee said it has become increasingly clear that Asia’s energy transition cannot take place without tackling the issue of the significant number of coal-fired power plants in the region.

“Coal presents a Catch-22 situation for us,” she told participants at ICMA’s 2023 Annual Conference of the Green, Social, Sustainability and Sustainability-Linked Bond Principles, held at the Sands Expo & Convention Centre.

“While financing coal activities is less and less defensible in a decarbonising world, the indiscriminate withdrawal of financing can result in undesirable outcomes, such as the loss of energy security or of livelihoods for communities that depend on coal.”

MAS, in a separate statement, said the detailed thresholds and criteria for financing the early phase-out of coal-fired power plants will become part of the Singapore-Asia Taxonomy. This is a framework of standards that determine whether an investment is sustainable, and was developed by the Green Finance Industry Taskforce.

The task force has already carried out three phases of taxonomy consultations, and this will be the fourth and final round before the Singapore-Asia Taxonomy is finalised and launched for use later in 2023.

Ms Indranee said: “We cannot adopt a binary approach to coal, nor force people into having to choose between sustainability and livelihoods.”

Guidelines in the finalised Singapore-Asia Taxonomy will enable leveraging transition finance to accelerate the early phase-out of coal-fired power plants in a managed, credible way, she added.

Transition finance is a new financing approach that aims to support companies trying to reduce emissions in accordance with a long-term strategy to decarbonise.

The minister said the alignment of Singapore Green Bond framework, which lays the foundation for the issuance of green bonds by the Singapore Government, with the Singapore-Asia Taxonomy will also be an important step.

“As we grow the transition finance market, the Singapore Government will also explore the issuance of public sector transition bonds for suitable projects that are in line with the transition activities under the taxonomy,” she said.

As capital allocation decisions into green and transition finance become increasingly mainstream, the use of environmental, social and governance (ESG) ratings and data products is also growing.

But ESG ratings and data providers are part of a nascent industry where regulatory clarity and direction is still evolving.

Hence, Ms Indranee said, there is a need to establish minimum industry standards of transparency in methodologies and data sources, governance, and management of conflicts of interest.

To address this issue, the minister announced the launch of a public consultation on an industry code of conduct for providers of ESG ratings and data products by MAS.

She said: “The industry code of conduct aims to elevate the quality, reliability and transparency of ESG ratings and data products in Singapore.

“ESG rating and data product providers will be required to disclose how forward-looking elements are factored into their products. This will enable financial market participants to better understand the use case of ESG products and provide more accurate market pricing signals relating to transition risks and opportunity.”

Mr Lim Tuang Lee, assistant managing director for capital markets at MAS, said: “The industry code of conduct will help give greater confidence to financial market participants using ESG ratings and data products.”

He added that the call for product providers to disclose forward-looking elements is critical for more accurate market pricing signals related to climate risks and opportunities.