Date: October 10, 2022
Ms Ho Hern Shin, Deputy Managing Director, Financial Supervision, Monetary Authority of Singapore
Ladies and gentlemen
Good morning and welcome to SIAS’s Corporate Governance Week 2022, the theme of which is “Advancing Corporate Governance in an Age of Disruptions’’.
Before going any further, I am sure you share with me my delight in being able to host this event in a physical, face-to-face setting. After two years of virtual meetings, I am sure you are just as relieved as I am to be able to return to some semblance of normality and not have to observe all the restrictions which we had to during the past two years of Covid-19.
The dictionary definition of “disruption’’ is “the action of preventing something, especially a system, process, or event, from continuing as usual or as expected’’. While Covid-19 was a major disruption that fundamentally changed the way we think about work, how we do business, and the way we lead our lives, climate change is the next big agenda on how we live and invest moving forward.
Addressing climate change
Climate change is an existential challenge for Singapore. We need to protect Singapore against the impacts of climate change and contribute to global efforts to mitigate carbon emissions. However, climate change is not just a Singapore issue but a global challenge.
Banks to play a bigger role in climate change
Singapore financial sector is well-poised to effect this change. Singapore has established itself as a leading global financial services centre. According to the Global Financial Centres Index (GFCI), Singapore ranks among the top 5 most competitive financial centres in the world, punching above its weight in the global arena. Therefore, financial institutions are very well suited to help advance the climate change agenda, specifically here in Asia.
In July this year, the European Central Bank (ECB) announced the results of its climate stress test, indicating that banks urgently need to accelerate the incorporation of climate risk into their risk management frameworks and that banks remain heavily exposed to emissions-intensive industries.
The ECB launched the stress test early this year, aiming to assess banks’ preparedness for dealing with financial and economic shocks stemming from climate risk. The study reviewed the information provided by 104 participating banks, assessing their own climate stress-testing capabilities, and their reliance on carbon-emitting sectors. For a subset of the banks, the ECB also asked for information on the impact on their performance under various transition scenarios, taking into account factors including increases in carbon prices, and from physical risks such as flood and severe heat.
The report indicated that while banks have made progress in recent years to incorporate climate risk, significant work remains by most banks to sufficiently measure and manage climate-related risks. Nearly 60% of the banks examined do not yet include climate risk considerations in their stress testing frameworks, and only one-in-five currently consider climate risk when granting loans. The ECB said that banks need to work on improving the governance structures of their stress test frameworks, data availability, and on their modelling techniques.
Greenwashing is a concern for investors
Concurrently, DPM Heng Swee Keat, in June 2022 highlighted the rise of greenwashing as becoming the bane of global financial systems and could affect financial stability.
He noted how Morningstar recently removed ESG tags from roughly 1 in 5 funds – over 1,200 funds managing over US$1 trillion in assets. What is the impact on investor funds?
Further, fashion retailer H&M and sporting goods chain Decathlon were required to remove sustainability-related labels from their products and websites and were fined by the Dutch regulator following an investigation. The announcement comes as regulators worldwide are increasingly focusing on potentially misleading sustainability claims made by companies.
Greenwashing: Singapore’s next frontier of investor protection
Greenwashing of ESG investment products is now an issue of concern and various organisations, including SIAS, are working on disclosure standards to combat it. While COP26 did not offer much in terms of progress on the sustainable finance landscape, it warrants our attention due to the numerous recent greenwashing scandals.
Given the prevalence of greenwashing in the finance sector, the various initiatives by Singapore regulators are a key step forward. However, as Singapore investors increasingly demand more ESG investment products, there is also a fear that the needs of investors will not be met, and their interests may not be protected.
Enhancing the SIAS Q&A on Annual Reports with questions on Sustainability
In this respect, SIAS intends to enhance its Q&A on Annual Reports to extend to more questions on sustainability.
While SIAS has already begun including questions on the companies’ sustainability disclosures, there will be an increased effort moving forward. Eventually, we intend to expand to review all listed companies’ Sustainability Reports and ask questions to raise accountability and improve investor protection.
Fundamentally, companies should be aware of the pressure posed by both shareholders and stakeholders regarding sustainability practices, as well as the increased gender diversity may have an intermediate role between corporate governance, sustainability, and financial performance.
However, implementing a sustainability strategy is not without its challenges. For example, how should businesses and investors reconcile their views towards sustainability, i.e. the bifurcation of investment horizon between short-termism of the markets and the long gestation period of meaningful sustainability efforts?
Other problems are starting to surface and manifest as well. The issue of inequality, though long-standing, has been exacerbated on many fronts and is now brought to the attentions of governments and leaders globally. Income inequality between citizens and/or countries – while an issue by itself – is further complicated by other forms of inequalities, such as the unequal distribution of vaccines worldwide, and the asymmetrical social pressures placed on working-from-home mothers.
I am sure today’s discussion on “ESG and Stakeholder Capitalism – How are Investors driving the ESG agenda and what should boards do?’’ will provide valuable insights and help senior managers navigate this complex landscape.
Against this backdrop, the OECD and G20 decided to review their Principles with a view to strengthening them. Our session will see experts discuss how these revisions can help improve governance and capital market policies and how they can help achieve broader economic objectives such as improving financial market stability and investor confidence.
We have curated a series of panel discussions and topics for the conference to expand on the many facets of corporate governance and its importance to stakeholders.
The panellists for each session are experts drawn from academia and industry, both local and foreign. They will share their knowledge and advice which I sincerely hope will prove beneficial as we all seek to answer the question of how to raise the standard of corporate governance in the turbulent times that we live in.
All that remains is for me to thank our GOH and all of you for your attendance and to wish you an informative and illuminating week ahead.