Green and Sustainable Finance: Investments, Banking, and FinTech

On 26 August, four distinguished speakers joined Associate Professor Tao Chen Jonas, Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Singapore, in a discussion on how investment, banking, and fintech can incorporate green finance agendas in their business goals.

The speakers were Mr Kwok Quek Sin, Executive Director, Green FinTech, Monetary Authority of Singapore (MAS); Ms Rachel Teo, Head, Futures Unit, Economics & Investment Strategy Department at GIC; Mr Wei Han Ong, Senior Country Business Manager, South and Southeast Asia, JP Morgan; and Mr Benjamin Soh, Co-Founder and Managing Director of fintech development company STACS.

The Central Bank’s efforts

Mr Kwok began the session by sharing how MAS puts their sustainability talk into action. He suggested three motivations that can drive actions, namely social responsibility, financial relevance, and market regulation. To further encourage alignment of business interests with sustainable efforts, the central bank has put in place a five-part Green Finance Action Plan. The plan aims to strengthen financial sector resilience to environment risks, develop green financial solutions and markets for a sustainable economy, build knowledge and capabilities in sustainable finance, enhance comparability and reliability of sustainability-related disclosures, and leverage technology to enable trusted and efficient sustainable finance flows.

MAS launched Project Greenprint in December 2020 to harness technology and data, to enable a data driven ESG ecosystem. Mr Kwok emphasised that the financial sector has a responsibility to take a leading role in greening efforts with quality ESG data and metrices in place to enhance these efforts.

Integration into investment processes

Sustainability is integral to GIC’s mandate, explained Ms Teo, as she introduced GIC’s management of climate change, emphasing that GIC takes a holistic and long-term approach towards integrating sustainability into its investment processes. Specifically, there are three ways climate change can impact investments, namely physical risks, transition risks, and market risks. GIC takes a scenario analysis approach to navigate uncertainties. Through these scenario analyses, Ms Teo consolidated three main implications for investors - climate change is a material long term investment risk, it needs to be holistically integrated into investment portfolios and processes, and there are opportunities to invest in firms’ transition to low carbon consumption. To know more about GIC’s thinking and analyses on climate change and sustainability, she invited participants to visit https://www.gic.com.sg/thinkspace

Banks’ collaborative efforts

Speaking from a banking perspective, Mr Ong shared JP Morgan’s sustainability efforts, which include sustainable solutions and financing, operational sustainability, and stakeholder and policy engagement.

Mr Ong believes that banks are increasingly playing the triple roles of financier, innovator, and trusted advisor. First, sustainable solutions and carbon transition are expensive exercises and banks as financiers are important to mobilise private capital towards these efforts. Second, banks need to innovate financial products to suit client needs. Working with fintech, for example, can help clients make use of data to drive their sustainability efforts. Finally, banks need to be trusted advisors who can help clients in their transition journey. Consequently, Mr Ong stressed that banks should “learn more, innovate more and collaborate more” to fulfil these three roles.

The fintech perspective

Mr Soh mentioned that organisations still face challenges despite governmental incentives. The fintech industry aims to provide technological platforms to overcome such challenges. Fintech would enable financial institutions to mobilise more capital within the private sector for an efficient and sustainable market. #STACS envisions a digital ESG hub that is scalable, interoperable, and agile. But he stressed that an ecosystem of partners with various technologies is crucial for sustainability efforts. On the one hand, fintech could provide greater confidence in ESG and allay the fears of green washing for banks and insurance companies. On the other hand, digital platforms could lower barriers of entry for companies, allowing more of them to obtain green licensing.

Q&A Session

During the Q&A session, Mr Kwok addressed a question on firms ignoring ESG. He that more regulations will come into play globally and, beyond financial institutions and listed companies, regulators expect periodic reports. On the business side, loan facilities such as banks expect disclosures and if firms ignore ESG, their accessibility to loans may be more limited. Smaller firms that want to bid on projects with governments, for example, may also have less time to react if they ignore ESG.

To another question on the difference between developed countries and emerging markets in forming investment strategy, Ms Teo stressed that GIC conducts thorough analysis across the whole portfolio, in all countries they invest in, including emerging markets.

In response to a question on whether sustainability ranking is taken into consideration when banks look for vendors, suppliers, and partners, Mr Ong shared that JP Morgan puts a lot of their suppliers through filters. Importantly, the bank looks for suppliers who are resilient as problems that suppliers face will affect the bank too.

Mr Soh brought up the example of logistics trucks when asked for a tangible example of real-time data that fintech provides, drawing attention to how this data forms part of a value chain. In the event that materials are transported in an inefficient manner, they can increase the firm’s carbon emission. In this case, data from fintech can be helpful in detecting and solving these issues.

Finally, participants were interested to know ways to promote more tangible actions towards sustainability. Mr Kwok suggested digitalisation as one way. As friction often exists within firms and authorities due to a lack of data alignment, better data flow through technology can help move everyone beyond this friction. Ms Teo suggested three areas for tangible actions such as investing in climate change solutions, investing in companies transitioning their business model, and integrating climate change considerations into investment processes. Mr Ong added that the faster we can put a price on climate change, the quicker it will be for any sustainable action to materialise. Mr Soh stressed that enabling transfer of information for better decision-making can make obtaining green certificates more cost effective for companies.