Judging from developments in the wake of the Covid-19 pandemic, the race between Hong Kong and Singapore to become the centre for sustainable investing in Asia has intensified.
In a period of two months, regulators in both financial centres launched initiatives to strengthen guidelines for sustainable investing that are expected to be implemented quickly. The fact that these stricter rules are coming as the financial sectors in both cities are still coping with the impact of the pandemic seems to be academic.
In June, the powerful Monetary Authority of Singapore (MAS) – which has always been a step ahead of most of its Asian counterparts when it comes to paving the way for new regulatory developments – launched a consultation with the local financial sector that focused on stricter environmental risk management guidelines for asset managers, insurers and banks.
The proposed MAS guidelines are intended to drive the transition to an environmentally sustainable economy by enhancing the integration of environmental risk considerations in financial institutions’ investment decisions and promoting new opportunities for green financing. The consultation, which began June 29 and ended August 7, will be followed by a 12-month transition period that will begin once the guidelines are finalized.
Before this, the Hong Kong Monetary Authority (HKMA), on May 7, unveiled three sets of measures to support and promote Hong Kong’s green finance development. Its measures include the establishment of a green and sustainable banking framework; the adoption of a responsible investment philosophy with priority given to green and environmental, social and governance (ESG) investments by the Exchange Fund; and the establishment of the Centre for Green Finance under the HKMA Infrastructure Financing Facilitation Office, which will serve as a platform for technical support and experience sharing for the green development of Hong Kong’s finance industry.
While the impact of these initiatives may not be felt immediately, they are creating a lot of buzz in the financial sector and business communities as banks, asset managers, and their clients start to work on preparing for compliance with these initiatives.
For example, board directors and senior management in both jurisdictions are expected to have oversight of the sustainability policies and operations of their respective corporates, something for which not all of them may have the technical know-how, capability, or an interest in.
For institutional investors, the challenge is how to transition their portfolios to comply with the sustainability requirements of the MAS and the HKMA, particularly with the uncertainty in the markets created by the pandemic.
But while these challenges, among others, may look daunting at present, the long-term benefits of successfully transitioning both Hong Kong and Singapore’s financial markets to sustainable investing can reap huge rewards.
In the end, although the HKMA and the MAS may be in a race, it’s race where both may come out winners based on their overall objectives.
The MAS explained its approach to sustainable investing in a reply to a question from member of parliament Louis Ng Kok Kwang on September 4, when it said: “Our approach is not to outrightly disallow financial institutions from serving industries that are subject to climate-related risks at this stage. Instead, MAS expects financial institutions to assess their exposures to these industries, mitigate risks, work with each higher-risk customer to improve its environmental risk profile, and ensure there is senior-level oversight on these issues.”
The MAS statement is consistent with the HKMA’s statement of its own approach. “Climate change is one of the major risks threatening the well-being of mankind,” stated HKMA chief executive Norman Chan, during the HKMA Green Finance Forum last May 7. “It must be tackled on a global basis and across different sectors of the economy. How the banking and financial system operates will clearly have an impact on the way in which climate risk is managed or reduced.”