Singapore consults on ESG data and ratings code of conduct

The central bank is separately seeking feedback on provisional criteria for coal phase-outs under its incoming taxonomy.

Singapore skyline

The Monetary Authority of Singapore (MAS) is seeking feedback on a proposed voluntary governance framework for providers of ESG ratings and data, and draft green taxonomy rules for financing the early retirement of coal plants.

It comes soon after regulators in the EU, India and Japan published ESG ratings and data rules or voluntary guidelines for their respective markets, following a global call to action to do so by global regulatory forum IOSCO. The UK’s FCA is also expected to publish an ESG ratings and data code of conduct shortly.

Singapore’s proposals are closer in structure to Japan’s voluntary framework, asking providers to ratify the code of conduct and explain instances where they are unable to comply. It will also apply to both ESG ratings and data products that incorporate additional “estimations, calculations or analysis”.

The EU regime, in contrast, is mandatory and only applies to ESG ratings.

Unlike other jurisdictions, the Singapore proposals include a requirement for ESG product providers to include disclosures on whether they consider forward-looking elements, such as strategic plans and targets, within their products.

This is to help users understand the use cases for ESG ratings and data, and “consider transition risks and opportunities when making decisions on capital allocation”, MAS said.

Singapore’s code will require commercial providers to clearly set out the objectives of their ESG products, ensure transparency of methodology and data sources, and assess whether they have “sufficient personnel and technological capabilities” to produce high-quality products.

Providers must also disclose when their products are not based on public sources of information and establish systems and controls to address potential conflicts of interest (COI) arising from other business interests. The draft code does not require ESG ratings and data to be offered by a separate legal entity to those that could cause COIs, as per the approach taken by the EU.

MAS is seeking additional feedback on whether the code should be extended to cover providers of second-party opinions, such as external reviews of labelled bonds, and whether providers should octain assurance to demonstrate their compliance with the code.

The consultation will run until 22 August.

Coal phase-out rules

The central bank is separately seeking feedback on provisional criteria for coal phase-outs under its incoming taxonomy, now renamed the “Singapore-Asia taxonomy”.

To qualify for taxonomy-aligned financing, coal plants must cease operations by 2040 and have a maximum operating duration of 25 years. Facilities which cannot demonstrate economic viability, and would likely be forced to shut down anyway, will not be eligible.

Plants must also commit not to develop new coal projects after reaching financial close.

The proposals are more stringent than those set out by the ASEAN taxonomy which recommends a 35-year operating limit for coal plants that could raise green financing.

Stakeholders have until the end of July to respond.

The twin consultations were announced at ICMA’s annual green bond principles conference by second minister of finance Indranee Rajah, who spoke about the acute need to catalyse transition finance.

“Channelling funding to green activities such as the building of solar farms or improving energy efficiency is important, but pure green activities make up only about 8 percent of the global economy,” she said.

“As we grow the transition finance market, the Singapore government will also explore the issuance of public sector transition bonds for suitable projects that are in line with the transition activities under the taxonomy.”