Singapore monetary authority to decarbonise reserve fund

August 10, 2022|Written by |Hong Kong Monetary Authority, Monetary Authority of Singapore, Banco Central do Brasil, Riksbank, Swiss National Bank

The Monetary Authority of Singapore (MAS) has announced a plan to decarbonise its US$300bn reserve fund, amid increasing global interest in the climate footprint of central banks’ foreign exchange (forex) portfolios.

In a speech in late July, managing director Ravi Menon revealed that the MAS will instruct external fund managers to integrate climate change considerations into their investment process, and work with other shareholders to ensure portfolio companies have robust transition plans.

In measures due to take effect next year, the MAS will also tilt its equities investments towards climate-friendly companies, and exclude equities and bonds from companies deriving more than 10% of their revenues from thermal coal mining and oil sands. Menon said that as a result of its actions, the central bank expects to reduce the weighted average carbon intensity of its equities portfolio by up to 50% by 2030 against a 2018 baseline.

The forex reserves of central banks are increasingly being scrutinised over their climate impact and potential role in the net-zero transition. A recent paper from the Inspire research network stresses the important example that central banks can set through their reserves management for other actors in the financial sector.

The report argues that sustainability can be added to reserve managers’ current goals either explicitly, implicitly – by recognising the ways in which sustainability affects existing objectives such as maximising returns – or through a combination of both approaches.

Pierre Monin, an economist at the Zurich-based Council of Economic Policies, contrasted the approach taken by the MAS with the lack of action taken by the Swiss National Bank (SNB). The SNB’s foreign currency portfolio is one of the largest in the world, totalling over US$1tn.

While the MAS has said it will ensure its reserves portfolio is well-positioned to protect against physical and transition risks and benefit from opportunities during the transition, Monin noted that the SNB has set no such objectives to its own fund.

Although some central banks are already using their reserve funds to invest in green assets, the MAS appears to be unusual in tilting away from carbon-intensive sectors and making climate-related exclusions. The Central Bank of Brazil and the Hong Kong Monetary Authority both invest in green bonds, while the Bank of England’s forex holdings are included in its annual climate-related financial disclosure.

Sweden’s Riksbank was an early pioneer in adopting sustainability goals in the management of its forex reserves in 2019. In the same year, it sold off bonds issued by the Canadian province of Alberta and parts of Australia, judging that greenhouse gas emissions in both areas were too high.

This page was last updated August 10, 2022

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