The Monetary Authority of Singapore (MAS) will exclude from its portfolio equities and corporate bonds of companies that derive more than 10% of their revenues from thermal coal mining and oil sands activities.
“Such companies will be exposed to significant risks of asset stranding as the world increasingly shifts towards the use of cleaner or renewable sources of energy,” says MAS at the release of its second annual sustainability report on July 28.
According to managing director Ravi Menon, MAS should achieve this target “well in advance” of FY2030 and he does not expect a significant impact on returns. “We are looking at the long-term return. We think they will be stranded; there is a high chance that they will have much less value.”
These are expected to reduce weighted average carbon intensity (WACI) for equities investments by up to 50% by FY2030, compared to the base year of FY2018 ended March 2019.
WACI measures the equities portfolio’s exposure based on the carbon efficiency of the underlying companies. MAS’s equities portfolio WACI as at end-March 2019 was 268 tCO2e/US$ million for the emerging markets (EM) equities portfolio and 165 tCO2e/US$ million for the developed markets (DM) equities portfolio.
See also: Smart and sustainable buildings in 2025: Key drivers for a greener future
As at end-March 2022, the WACI for MAS’ EM equities portfolio remained lower than its benchmark by 19%.
The DM equities portfolio did not fare as well. According to the MAS, the effects of the “cyclical market movement and active allocation” caused the WACI for its DM equities portfolio to move 8% higher than its benchmark as at end-March 2022.
As at end-March 2022, the WACI of MAS’s corporate bonds portfolio — comprising mainly DM issuers — was 76% lower compared to the benchmark, at 147 tCO2e/US$ million.
See also: Singapore EV market getting crowded as government pushes sustainability agenda
MAS says corporate bonds are “relatively less impacted by transition risks than equities”, since bonds generally have fixed tenures and corporate bonds investors as creditors are higher up the capital structure relative to equity shareholders.
In measuring the carbon intensity of its equities and corporate bonds portfolio, MAS only considered Scope 1 and Scope 2 emissions, which are direct emissions controlled and produced by the company and the indirect emissions from electricity, heat or steam use by the company respectively. “We excluded Scope 3 emissions as the level of reporting of Scope 3 emissions by companies remains low today, therefore requiring a larger degree of estimation, and the inclusion of Scope 3 emissions would result in double counting when emissions statistics are aggregated at the portfolio level,” says MAS.
Infographic: Monetary Authority of Singapore
