Singapore central bank to slash carbon intensity of $300bn reserve fund

MAS has separately published new disclosure rules for retail ESG funds.

The Monetary Authority of Singapore (MAS) will stop investing in coal and oil sands and tilt its equity investments to lower-carbon activities as part of a strategy to manage transition risks.

The commitments will apply to the central bank’s foreign reserves portfolio, valued earlier this year at around $354 billion, which is used to finance government expenditure and stabilise the local currency.

It will be done via a newly announced “climate overlay programme”, targeting less carbon-intensive companies in each sector and excluding companies that derive more than 10 percent of revenues from thermal coal mining and oil sands activities. MAS expects the average carbon intensity of the portfolio’s equity investments to be reduced by half by 2030 as a result.

The programme will start with a pilot allocation to a customised equity benchmark in 2023 and scale up over time. Although the portfolio has a larger allocation to fixed income securities, MAS expects the impact on bonds to be “more muted as the overall higher credit quality of the portfolio… is not expected to deteriorate significantly across climate scenarios”.

MAS has been contacted to request details on the benchmark provider and secular exposures.

A separate group of five ESG and climate mandates amounting to $1.8 billion – also drawn from its foreign reserves – is now fully funded, MAS said in its annual sustainability report released last week. The strategy is aimed at capturing “upside opportunities” and was first announced in 2021 as part of efforts to support the launch of ESG funds for Asia Pacific. MAS has not named the five managers.

Publication of the report came on the same day that MAS announced new disclosure and reporting guidelines for retail ESG funds sold in the island state. The new rules, which will apply from 2023, will require retail funds to justify their ESG credentials by providing information on the criteria used to select investments and ensuring that at least two-thirds of assets are invested in accordance with the stated sustainability strategy.

The central bank is responsible for delivering key elements of Singapore’s sustainable finance programme, which include a transition-focused green taxonomy (currently on its second consultation) and an ESG disclosure platform for companies, due to be launched later this year.

MAS has also incorporated a range of long-term climate scenarios developed by the NGFS as part of its 2022 supervisory stress tests, which will release findings in the coming months.