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Welcome back. A new Rhodium Group analysis on the US energy outlook has just dropped, estimating that the Trump administration’s policies could cut the pace of national decarbonisation by as much as half over the next 15 years.
Amid the blizzard of negative headlines around green finance in the US, it can be easy to lose track of very different moves by governments elsewhere, who still see low-carbon investment as a strategic opportunity . . .
Singapore’s green finance push
When the tiny, fragile nation of Singapore was born 60 years ago, few would have bet on its rapid transformation into one of the world’s wealthiest economies.
Founding father Lee Kuan Yew highlighted three key factors behind Singapore’s success. First, a keen sensitivity to shifts in the world economy, and nimble movement to take advantage of them. Second, a willingness to take risks and experiment with new ideas and approaches. Third, assiduous attention to building friendly, mutually beneficial relations with countries in Asia and beyond.
A decade after Lee’s death, his successors in government are putting his principles into practice with a national green finance drive.
This week, the Monetary Authority of Singapore — the country’s central bank — announced an initial capital raise of $510mn for a new investment fund that will provide debt finance for green energy and related projects in south-east Asia. The Green Investments Partnership fund aims to raise a total of $1bn from a mix of commercial investors and development finance institutions, which will be deployed to finance “marginally bankable” projects that would be deemed too risky by conventional financiers.
The GIP is part of a larger drive by the Singaporean government to profit from the vast clean energy investment that it expects to see in its region over the coming decades.
With a land area half the size of Puerto Rico’s main island, the opportunities for such investment in Singapore itself are limited. Renewable energy currently accounts for just 2.6 per cent of the country’s power generation. But Prime Minister Lawrence Wong — who took that role last year after eight years as finance minister — has been pushing for Singapore to nail down a position as the key financial hub for green investment in its region.
The annual Global Green Finance Index names Singapore as the most active green finance hub in Asia, and third in the world. The economic pie on offer looks appetising. The Asian Development Bank estimates south-east Asia’s annual needs for “climate-resilient infrastructure” at $210bn.
The strategy would probably have appealed to Lee, who said that “Singapore has survived and prospered by making ourselves relevant to the world . . . As the world economy changed, so did we.”
If it doesn’t work, toss it out
The growth of green finance in Singapore has been driven in part by supportive policy and regulation — notably the development of a green investment taxonomy, and a framework for green bond issuances. But the authorities have also shown a striking appetite for unorthodox, innovative approaches.
The new GIP fund is structured in a form that has been little used to date. It’s a “blended finance” model, using concessional capital to catalyse commercial investment. The government of Singapore, along with development finance institutions including British International Investment, FMO of the Netherlands, Export Finance Australia and the International Finance Corporation, have invested in two subordinated “tranches” which will take the first hit from any losses. The idea is to improve the risk-return profile for commercial investors in the senior tranche.
It’s one of several initiatives under Singapore’s Fast-P initiative, announced in late 2023, which aims to use $1bn of concessional funds to “crowd in” $4bn of commercial capital for green investment.
The manager for the GIP is a green investment company called Pentagreen Capital, jointly owned by UK bank HSBC and Singaporean national fund Temasek — the only joint venture of its kind between a commercial bank and a sovereign wealth fund.
Another plank of the FAST-P scheme is a fund that will finance the accelerated shutdown of coal-fired power plants. Still another is a financing programme being developed with BlackRock, supporting emission cuts in “hard to abate” sectors like steel and cement. Singapore has separate strategies to become a major hub for carbon credits, and is spearheading work in the related field of transition credits.
It’s not clear that any of these initiatives will work as planned. So far, only two private-sector investors — HSBC and the Bank of the Philippine Islands — have committed funds to the GIP, and the other parts of the Fast-P initiative are at an even earlier stage. Critics of such blended finance schemes have argued that they can simply end up using taxpayer funds to juice big investors’ returns, or distort markets by supporting investments that are not truly commercially viable.
But the experimental approach fits with the Lee playbook.
“We are pragmatists,” he said in 2007. “Let’s try it and if it does work, fine, let’s continue it. If it doesn’t work, toss it out, try another one.”
As finance minister, speaking at the launch of a new green finance institute in 2023, Wong warned that “because we are just tiny, we need to know our place in the world”. His point was not that Singapore can have no impact, but that it can prosper only through constructive relations with other countries.
Since becoming prime minister, Wong has put green finance at the centre of this agenda, stressing collaboration in this area on every one of his major trips over the past year, including in India, China, Thailand and Indonesia. Singapore’s green finance initiatives are also offering new ways for developed economies elsewhere to strengthen their economic and diplomatic ties with the region, as highlighted by the UK, Dutch and Australian support for the GIP.
“We must make ourselves relevant so that other countries have an interest in our continued survival and prosperity,” Lee once said. For now, Singapore has decided that green finance is a useful tool in that mission.
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