Singapore’s Green Bond Framework: Focus on financing a sustainable future

Phillip Bond Desk  |   06 Jul 2022  |    44 views

Singapore announced in Budget 2022 that the public sector will be issuing up to $35 billion worth of green bonds by 2030 to fund public sector green infrastructure projects, in a bid to support the country’s move towards decarbonization and deepen its green finance market. The bonds will include bonds issued by the Government as well as Statutory Boards.

 

What is a green bond?

A green bond has the specific purpose of raising money for   climate and environmental projects. These bonds are typically asset-linked and backed by the issuing entity’s balance sheet, and usually carry a credit rating similar to that its issuer’s other debt obligation.

An example would be the bonds issued for the “Tuas Nexus” project which its Phase One is expected to be completed in 2025. Tuas Nexus is an integrated waste treatment facility in Tuas and is financed through green bonds issued by the National Environment Agency (NEA).

 

Bond framework

On 9th June 2022, the Ministry of Finance released the SG Green bond framework, which sets out the guidelines for sovereign green bond issuance under the Significant Infrastructure Government Loan Act 2021 (SINGA) as announced during the Budget 2022 in February.

This framework ensures that the green bond issuance is in alignment with international guidelines and market best practices. The framework is developed and structured according to the International Capital Market Association (ICMA) Green Bond Principles 2021 and ASEAN Capital Markets Forum ASEAN GREEN Bond Standards 2018.

 

According to this framework, the proceeds of the green bonds must be used to finance the expenditure in one of 8 green project categories:

  • Renewable Energy
  • Energy Efficiency
  • Green Buildings
  • Clean Transportation
  • Sustainable Water and Waste Management
  • Pollution Prevention, Control and Circular Economy
  • Climate Change Adaptation
  • Biodiversity Conservation and Sustainable Management of Natural Resources and Land Use

 

Additionally, the issuer has to clearly state the environmental sustainability objectives of the eligible green expenditures. This is the process by which the issuer determines how the expenditure fits within the eligible expenditure categories, and provides complementary information on processes by which it identifies and manages social and environmental risks associated with the relevant expenditure.

 

The framework also suggests that the issuer should track the net proceeds of the green bond issuance and update its investors annually regarding the use of the proceeds, including allocation and expected impact from the proceeds until the whole issuance is fully allocated, or if there are any material changes.

 

To provide transparency and accountability for investors and other interested parties, Second Minister of Finance Ms Indranee Rajah will chair the Green Bond Steering Committee, which assumes overall responsibility for proper governance of the Framework.

 

The eligibility criteria for the Green Categories have also been developed with reference to existing market standards and principles, such as the ICMA Green Bond Principles and the Climate Bond Initiative (CBI) Taxonomy and Sector Criteria.

 

The Singapore Government will align the framework with regional and global taxonomies as they develop.

 

In terms of external reviews of the framework, Morningstar Sustainalytics an independent ESG research, ratings and analytics firm, has provided a Second-Party Opinion on the Framework which they have assessed to be aligned with the ICMA Green Bond Principles 2021 and the ASEAN Green Bond Standards 2018.

 

The Singapore Government has also said that in the coming months they will be issuing sovereign green bonds, also known as Green SGS (infrastructure) bonds under the SINGA, which will be used to finance nationally significant infrastructure while meeting green criteria under the framework. These infrastructure projects are expected to provide long-term environmental benefits.

 

The Green SGS (infrastructure) bonds are fully backed by the MAS as they will undertake issuance and management of SGS on behalf of the Government. The MAS will provide more details about the upcoming issuance of the Green SGS (Infrastructure) bond closer to its issuance date.

 

With Environment, Social and Governance (ESG) issues gaining more attention, the upcoming green bonds issuance is expected to appeal to investors who are more environmentally conscious and have a lower risk appetite.

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