Cop: Singapore sets financing rules to cut greenwashing

  • Market: Coal
  • 04/12/23

Singapore has set out a financial framework that defines green and transition activities to reduce the risk of greenwashing, along with criteria for financing the phasing out of coal-fired power plants.

The Singapore-Asia taxonomy, launched by the Monetary Authority of Singapore (MAS) on 3 December, provides clarity on what constitutes transition financing and sets out thresholds for activities that contribute to climate change mitigation across eight sectors such as energy, transportation, agriculture and forestry/land use, industrial, waste/circular economy, and carbon capture and sequestration.

A "traffic light system" defines green, transition and ineligible activities across the eight sectors. "Transition" refers to activities that do not meet the green thresholds now but are on a pathway to net zero or contributing to net zero outcomes. Transition thresholds do not last indefinitely and have a sunset date.

The Singapore-Asia taxonomy is the first globally that sets out credible definitions for transition activities, according to MAS managing director Ravi Menon. "Most taxonomies define what is green and what is brown, leaving out the bulk of economic activities that are in between," Menon said at the COP 28 UN climate conference in Dubai on 3 December. "This new taxonomy will enable financing to flow to climate-friendly transition activities while minimising the risk of greenwashing."

The taxonomy also has extensive coverage, Menon said. "It covers sectors making up 90pc of the region's greenhouse gas emissions. It will serve as a guide to allocate capital into green and transition activities for the region," he said

The framework for financing the phase-out of coal plants is a critical part of energy transition in the Asia-Pacific, where coal accounts for almost 60pc of power generation, MAS said. The taxonomy sets out entity and facility-level criteria, which include making sure a coal plant has a just transition plan and the electricity generated from the phased-out coal-fired power plant has to be replaced with clean energy within the same electricity grid.

"It enables financial institutions to participate in the financing of coal phase-out projects with clearly defined exit milestones that achieve real reductions in emissions," Menon said.

Defining credible transition thresholds is especially key for sectors that find it hard to cut emissions and meet the 1.5°C temperature limit set out in the Paris agreement, MAS said, giving the shipping sector as an example. Zero or low-carbon fuels are still at a nascent stage, and it is challenging for ships to "achieve the zero emissions required to meet ‘green' thresholds".

Bridging climate finance gaps

MAS will separately partner with Singapore state investor Temasek, the Allied Climate Partners and International Finance to address climate finance gaps and raise the bankability of green and sustainable projects in Asia, with an initial focus on southeast Asia.

The firms signed an initial agreement at the COP 28 UN climate conference on 3 December. The partnership aims to identify and develop a pipeline of investments in sectors such as renewable energy and storage development, electric vehicle infrastructure, sustainable transport, water and waste management.

"Developing Asia needs $1.7 trillion/yr in infrastructure investments till 2030 to maintain growth momentum while meeting its climate goals," MAS said, citing a report from the Asian Development Bank. "However, many green infrastructure projects are only marginally bankable, and unable to attract commercial financing on their own merits. These gaps are most acute in the project development and construction phases."


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