Singapore aims to curb greenwashing via stress tests, technology

SINGAPORE: Singapore’s financial watchdog is turning to regulation and technology to tackle so-called “greenwashing,” which it considers the weakest link in the push to expanding sustainable finance.

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

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

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 Menon, who also heads the city-state’s central bank.

“That will increasingly become a supervisory expectation,” he said.

The MAS is joining other central banks in the UK, Europe and Canada in putting their 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, 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 EU adopted in March what’s known as SFDR, for Sustainable Finance Disclosure Regulation, an historic measure that’s 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 Group Holdings Ltd, Oversea-Chinese Banking Corp and United Overseas Bank Ltd, 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. — Bloomberg

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