From negligible origins frequented by niche operators, the concepts of Environmental, Social and Governance (ESG), green, and sustainable investment have burst into the mainstream of investment management as the likes of investors, regulators, policy makers and managers all rush to harness the opportunities and benefits they promise.
Singapore is one such jurisdiction jockeying to be a regional leader, with the global asset and wealth management centre seeing an increasingly coordinated response from policy makers, institutions, and industry players in formulating a cohesive approach to this popular market development.
This digest will examine the role of Singapore as an asset management centre, delve into to the ESG and sustainable fund landscape within Singapore, review relevant regulations and regulatory developments, inspect the sustainability centres being established within Singapore and explore the opportunities investment managers stand to benefit from establishing a sustainability centre within its ecosystem. Key areas we will be covering include:
Singapore as an asset management hub
Arguably, Singapore began its journey to become the global asset management powerhouse it is today nearly 30 years ago. In 1998, as the world was experiencing the tumult of the Asian Financial Crisis, the MAS took several steps to see the wider investment management industry flourish in future years. These initiatives provided substantial incentives for foreign and domestic fund managers to establish or expand their operations in Singapore and set the scene for the tremendous growth the industry has since experienced.
ESG in Singapore
ESG across APAC has seen substantial growth in a relatively short period, with ESG AUM in the region forecasted to rise to between USD2.1 trillion and USD5 trillion by 2026, up from USD1 trillion in 2021. This projected growth, even at the low end of the spectrum, places APAC as the third largest region for ESG AUM after Europe and North America. Within Singapore, the AUM of domiciled sustainable products, excluding Exchange-traded funds (ETFs) and Fund of Funds (FoFs), is circa SGD200 million as of the end of 2022, though sustainable funds have seen outsized outflows over the year compared to their non-sustainable peers. With massive increased demand from investors, ESG and sustainability considerations are increasingly on the minds of investment managers. Regulators and stakeholders in Singapore have seen a hive of activity in initiatives, policies, and actions in order to accommodate and direct this interest.
ESG and sustainability centres in Singapore
The ESG and sustainability space in Singapore already boasts several Centres of Excellence (COEs) and other centres outside of the asset management industry which are focussed on promoting aspects of ESG and sustainability. MAS has backed several of these, in partnership with other local and international institutions and organisations.
Sustainability centres for asset managers
Several global investment managers, as well as local investment firms, have established or announced the establishment of their own sustainability centres in Singapore, with the creation occurring across late 2020 and mid-2022. The establishment of these centres in Singapore is supported by a multitude of factors. These include the substantial backing and support of policy-makers and institutions, as well as the well-established fund management industry residing within Singapore. A developed and innovative economy, deep pools of capital primed for deployment in green and sustainable projects, and Singapore’s location within APAC and ASEAN as well appear to contribute to the decision.
Why Singapore and what should we expect to see going forward?
Whilst the development of sustainability centres by investment managers in Singapore is a recent phenomenon, the reasons and rationale behind their establishment in the city-state draw on the well-established strengths and benefits it offers. These centres have been established to take advantage of the favourable business environment, allowing them to better meet the sustainability goals of their local and international clients. Singapore is an ideal location for such centres, as the country boasts a stable political environment, a strong legal system, well-developed infrastructure, and a competitive tax regime with simplified tax compliance, aspects which are attractive to a range of enterprises, institutions, and individuals.
Key highlights
Asia-Pacific projecting accelerated growth in ESG AuM
Asia-Pacific projecting accelerated growth in ESG AuM
Asia-Pacific, whilst starting from a lower base than other regions, is projected to have the fastest growth in ESG assets under management (AUM) in percentage terms, forecast to rise to between USD2.1 trillion and USD5 trillion by 2026, up from USD1 trillion in 2021.
Key challenges impeding establishment of sustainability centres
Key challenges impeding establishment of sustainability centres
Despite the clear direction and initiatives in play, challenges remain, with fund managers in Singapore noting that a lack of data standardisation, multiple ESG standards, and changing regulations are their top three challenges.
Regulatory impetus driving ESG boom
Regulatory impetus driving ESG boom
Strong support from regulators and policymakers such as the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX), along with a clearly-communicated and forward-looking plan, provides the entire ecosystem with a clear direction as to where ESG and sustainability space is heading and what Singapore’s ambitions in the space are.
Value creation from the set up of sustainability centres
Value creation from the set up of sustainability centres
The establishment of sustainability centres, as some asset managers have done so in Singapore, could address these challenges and further growth and development of the ESG and sustainable finance industry, as sustainability centres assist with the integration of ESG into investment product portfolios, mitigation of ESG risks, expansion of the range and selection of ESG products, engagement with policymakers, and raising awareness; knowledge; and expertise in the industry.
Conclusion
Asset managers looking to establish an ESG or sustainability centre would be well advised to give strong consideration to basing such a centre of excellence (COE) in Singapore. Combining the key factors of an open and permissive regulatory environment, a well-developed and international fund management industry, strong government policies regarding green and sustainable finance and a cluster of existing COEs nurtured from the asset management industry and other key institutions, the overall impact on the ESG and sustainable finance space is likely to be significant.
Singapore stands to benefit as well, with increased competition among investment managers leading to more innovative products, greater awareness and deepening of the ESG and sustainability industry within asset management, and overall increases in quality and transparency of data and standards.
As seen in many other instances, success begets success, and Singapore, positioned at the confluence of so many positive factors and developments, stands ready to seize upon it. Asset managers seeking their own success in the space would be wise to take note.
