AS THE world confronts the urgent challenge of climate change, the financial sector has become a key player in steering the global shift towards a low-carbon economy.
Green bonds and other sustainable finance tools have quickly moved into the spotlight, evolving from niche products to essential parts of both ethical investments and long-term financial strategies. Singapore has positioned itself as a leader in this space, championing sustainable finance as central to the region’s economic growth.
The surge in green bonds and sustainable finance has been driven by a mix of factors. Increasingly, companies are weaving sustainability and climate action targets into their core strategies, pushed by both regulatory pressures and shifting market expectations. However, this is not merely about ticking boxes for compliance, but reflects a growing understanding that sustainability is key to long-term business success.
Investor attitudes have followed a similar shift. Armed with a deeper knowledge of environmental, social, and governance (ESG) factors, investors are looking for options that not only align with their values but also promise solid financial returns. “Today’s investors are more discerning, seeking investments that balance impact with financial returns,” says Cherine Fok, partner, KPMG ESG, at KPMG in Singapore. She adds that many are adopting sustainable finance frameworks and conducting rigorous ESG evaluations before making investment decisions.
This growing demand has fuelled significant expansion in the global green bond market, which is on track to hit US$1 trillion in 2024, according to Dennis Lee, partner and head of business consulting at RSM Singapore. “Companies on a growth trajectory are now confident of capitalising on green bonds to finance their green transition plans,” he adds.
Driving real environmental impact
Green bonds have shown themselves to be highly effective in delivering real environmental benefits, especially when they are designed with clear impact goals and strong oversight. These bonds have been instrumental in financing renewable energy projects and green buildings, both of which have contributed to meaningful reductions in greenhouse gas emissions.
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UOB’s efforts are a clear example of this impact. As at end-2023, the bank’s financing of solar projects under its U-Solar programme has helped to reduce over 660,000 tonnes in greenhouse gas emissions since it was launched in 2019. “This is equivalent to taking more than 147,000 passenger cars off the streets for a year,” says Eric Lim, chief
sustainability officer at UOB.
This kind of environmental progress is made possible by established industry best practices that ensure transparency and accountability. Says Mike Ng, group chief sustainability officer at OCBC: “With these safeguards in place, green bonds can drive real impact.”
Addressing greenwashing concerns
As green bonds grow in popularity, the risk of greenwashing — where companies overstate or misrepresent their environmental impact — has also increased. To address this, the financial sector has placed a stronger emphasis on transparency and accountability.
“One of the best ways to combat greenwashing is to keep improving transparency and disclosure, and developing innovative solutions that can accurately measure sustainability metrics and data,” says Ng.
Fok adds that continuous monitoring and external assurance are vital to maintaining credibility in the green bond space. “External assurance on green bond frameworks and impact reports further bolsters alignment with international standards and supports global net-zero ambitions,” she explains.
The role of regulation and innovation
Regulatory changes on a global scale are playing an increasingly important role in shaping the growth of green bonds and sustainable finance. Governments around the world are recognising the need for standardised criteria to ensure that green finance is deployed effectively and consistently across markets. Singapore is leading the way in Asia with its Singapore-Asia Taxonomy for Sustainable Finance, which offers clear guidelines to help businesses in their sustainability efforts.
“Clear taxonomies, coupled with regulatory policies on disclosures, product and transaction labelling, as well as other tools or mechanisms, will encourage the sustainable finance market to continue growing,” Lim explains.
Looking ahead, innovations in technology are also set to reshape the sustainable finance landscape. Advances in data analytics and measurement tools are providing new opportunities for businesses to track and report their sustainability performance more accurately. These tools are particularly valuable for SMEs, which may not have the resources to develop comprehensive sustainability strategies on their own.
Another emerging area is natural capital and biodiversity, which are becoming central themes in sustainable finance. “Natural capital and biodiversity is a key trend to watch. There is a common dichotomy that we should first solve the climate crisis before moving on to nature, but…the two issues are interdependent,” notes Lim.
Lee predicts that the standards and benchmarks for green finance will continue to evolve, placing a greater emphasis on quality and transparency. “The decarbonisation methods and technologies available to accelerate transformative efforts will be a real game changer in the next few years. The challenge will always be for regulations to keep pace,” he says.
The rise of green bonds and sustainable finance marks a significant step in the global effort to combat climate change and move towards a low-carbon future. As the market continues to evolve, the focus on transparency, rigorous standards, and innovative solutions will be key to ensuring that green finance delivers its promised environmental and social impact.
This series is brought to you by CPA Australia as it marks 70 years in Singapore, sharing strategic insights on business, finance and accounting
