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Singapore 'can help set standards' for the jungle of green bonds

Singapore

AS THE global economy shifts from spending trillions of dollars a year in subsidies for fossil fuels, Singapore can play a leadership role in standardising the issuances of green bonds, said a top economist from Amundi Asset Management.

This comes as there already has been some disquiet about the standards of green bonds, as observers quip that the green bonds are in shades of "light green, medium green and dark green", and some worry that "greenwashing" will kill this alternative asset class emerging from this part of the world.

China has issued more than 50 per cent of green bonds globally, but of varying quality standards, said Ji Mo, chief economist, Asia ex-Japan at Amundi, in an interview. Not all follow global practices, she said. "Singapore can do something to try to formulate standards on how we should really define the green list," said Ms Ji from Amundi, which has jointly launched with IFC, the world's largest green-bond fund dedicated to emerging markets. The Green Cornerstone Bond Fund is a US$2 billion fund targeted at climate investments.

One set of guidelines used for green bond issuances is the Green Bond Principles (GBPs) given by the International Capital Market Association. The Asean green bond standards will be developed based on the GBPs.

Following the GBPs, green-bond issuers can use the proceeds for projects ranging from renewable energy to the construction of green buildings. The principles recommend issuers to opt for external verification, and one way is to go through a second-party review and consultation. The Monetary Authority of Singapore has been offering a grant to green-bond issuers to cover expenses. Since March, bond issuers who qualify can offset all expenses from obtaining an external review of green bonds, up to a cap of S$100,000 per issuance. Singapore can step in to look at ways to coordinate the industry review involved in project verification, Ms Ji observed, as well as look at designing systems to define timelines for project implementation.

"In the beginning, there is policy design. When everything follows, the money follows," she added.

Energy subsidies were projected by IMF in 2015 at US$5.3 trillion, or 6.5 per cent of global GDP then. But this comes as most major nations have signed on to the Paris Agreement to address global warming.

Green bonds are used to fund projects that have a positive impact on the environment. The green bond market has grown rapidly over the years, with Bank of America Merrill Lynch (BOAML) estimating a need of about US$90 trillion of investments into low-carbon infrastructure through to 2030, in order to hit global growth expectations. Of this, 60 per cent of such investments will be needed in the emerging markets. China alone will require about US$450 billion in investments.

BOAML is projecting as much as US$130 billion of green-bond issuances in 2017, led mainly by China.

"China has been leading in terms of green bonds. You'd never have imagined," said Ms Ji. "As a global leader, you want to move first."

Ms Ji added that the expected growth in the green bond market speaks to the need for infrastructure investments to transform economies - not just in China - to ones that boost aggregate demand, rather than just focusing on growing consumption alone.

"Demand has two dimensions, number one is consumption, and the number two is investment," said Ms Ji. "But when you consume online, you don't consume offline... we have to invest (in infrastructure) to transform the model."