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Asia-PacificNovember 17 2022

Singapore-China green finance agreement signals regional trend

A set of new sustainable development initiatives is establishing Singapore as a green finance hub and hints at Beijing’s broader intentions in the region. James King reports.
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Singapore-China green finance agreement signals regional trendImage: Getty Images

Singapore and China will deepen green finance and capital market ties under a multi-initiative agreement reached during the two countries’ annual Joint Council for Bilateral Cooperation, announced on November 1.

Taken together, the initiatives aim to align green finance standards, definitions and financing solutions on specific projects, while establishing broader capital linkages between south-east Asia’s biggest financial centre and the world’s second largest economy.

The accord includes the launch of a Green Finance Taskforce to mobilise additional private finance to address Asia’s sustainable development needs, an exchange-traded fund (ETF) product link and a low-carbon index family that will act as a benchmark for fund managers launching green funds focused on the wider region.

Commenting on the agreement, Leong Sing Chiong, the Monetary Authority of Singapore’s (MAS) deputy managing director for markets and development, said: “The launch of the Green Finance Taskforce is very timely, as finance plays a key role in catalysing our transition to a more sustainable future.”

Beijing multiplies regional ties

The agreement is a notable new addition to intra-regional co-operation on climate finance, and could be the first of many bilateral agreements reached between China and fast-growing economies in Asia. The first changes are expected as early as the end of 2022, with both the ETF product link and low-carbon index family expected to launch in the coming weeks. 

“This collaboration in green finance builds on earlier initiatives to strengthen renminbi and capital market connectivity. MAS will continue to work closely with our central bank and regulatory counterparts in China to deepen our financial co-operation and unlock new growth drivers for our economies,” said Mr Leong.

According to MAS, the Green Finance Taskforce is expected to “facilitate greater public-private sector exchanges to better mobilise private capital for the region’s sustainable development needs” and to open up new opportunities for collaboration when it comes to “standards and definitions, green and transition financing solutions, data and technology enablers”. 

Singapore’s Apex Bank thinks these developments will boost green financing flows and underscore investment opportunities in China and the wider region. 

Leapfrogging Hong Kong

In this respect, Singapore’s role in the agreement is vital. Not only is the city-state positioning itself as south-east Asia’s dominant green finance hub, but it is happening at a time when investor confidence in the region’s other leading financial centre, Hong Kong, is dipping. 

“I think Singapore will attract more green capital and environmental, social and governance investors than Hong Kong. So if you're thinking about this as a way of raising long-term capital, and getting foreign investors’ attention, then Singapore is probably a better finance hub,” says Corrado Forcellati, managing director of Paia Consulting, a sustainability consultancy. 

Moreover, the deepening of Singapore-China green finance ties is happening as regional initiatives for sustainability-linked cooperation, particularly among the Association of Southeast Asian Nations (Asean), seem to be stuck in first gear.

The development of an Asean sustainable finance taxonomy is a case in point; although the bloc’s framework is expected to complement sustainability regimes developed at the national level, including in Singapore and Malaysia, only limited progress has been achieved to date. And it still remains unclear how the regional taxonomy will interact with national-level approaches. 

“Asean doesn’t have a strong track record when it comes to regional co-operation as a bloc. I mean, the Asean taxonomy came out a year ago, but it’s only in stage one; they still haven’t developed stage two of the framework,” says Bennett Wong, principal consultant with Paia Consulting.

More to come?

As a result, there is an expectation that the agreement reached between Singapore and China could be the first of many bilateral arrangements involving Beijing and south-east Asian governments. 

“There’ll probably be more bilateral arrangements between countries in Asean and China that will replicate, to some degree, the announcement that MAS has made on a country-to-country level,” says Mr Wong. 

If this is the case, the coming years are likely to see the growing involvement of China, and Chinese capital flows, in sustainability-linked projects across Asia. 

In the context of the existing Singapore-China agreement, which includes an ETF link, as well as the cooperation of the Singapore Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange on a low-carbon index family, the benefits for the city-state could be sizeable. 

“Generally liquidity in the Singapore capital markets is quite low from a retail perspective compared to other markets. So I’d see this more as an opportunity for private capital to flow into Singapore,” says Mr Wong.

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