Singapore clamps down on greenwashing risks

In a further significant move as regulators seek to take a more proactive stance against so-called greenwashing, Singapore’s central bank has issued new disclosure and reporting guidelines for retail Environmental, Social, and Governance (ESG) funds.

Greenwashing is a term used when an organisation overstates the climate-friendly credentials of its products to investors.

Such funds sold to retail investors will have to give details such as investment strategy and criteria and metrics used to select investments, as well as risks associated with a fund’s strategy, the Monetary Authority of Singapore (MAS) said in its annual sustainability report issued this week.

The measures will come into effect from next January.

The move by the MAS comes as the volume of money flowing into funds that seek to display their ESG credentials has risen sharply globally this year.

However, regulators have consistently warned about the risk of greenwashing, and have expressed concerns about the lack of reliability and comparability of ESG data asset managers disclose.

Last year, for example, IOSCO, the International organisation of securities commissions, set out how regulators can better protect investors from greenwashing and what sustainability-related standards the authorities should expect from asset managers.

Now Singapore’s central bank has said the new disclosures will need to be made on an ongoing basis, and investors will receive annual updates on how well the fund has achieved its ESG focus.

The MAS also said it will shift its equities investments towards exposures that are less carbon-intensive and more aligned with a low-carbon transition, starting from next year.

The equities and corporate bonds of companies which derive more than 10% of their revenues from thermal coal mining and oil sands activities will be gradually excluded from MAS’s portfolio.

“Such companies have high transition risks but limited long-term prospects as the world transits to the use of cleaner or renewable sources of energy,” Ravi Menon, managing director at the MAS, said.

“The exclusion will minimise our portfolio exposures to companies with the largest risk of asset stranding,” he added.

As a result of these climate portfolio actions, MAS expects the weighted average carbon intensity of its equities portfolio to be cut by up to 50% by 2030, compared to the base year of 2018.

“There will be no sacrifice in (investment) returns”, Menon said, adding that thermal coal mining and oil sands have a high chance of becoming stranded assets.