The desire to support transition comes from the top. Speaking at the International Capital Market Association (ICMA) conference, Indranee Rajah, minister in the Singapore prime minister’s office and second minister for finance and national development, said: “Pure green activities make up only about 8 per cent of the global economy. We need to do more, and we need to speed up… To get there, we will need transition finance.”

Rajah noted that most global taxonomies focus on green assets, leaving the market without standardised definitions of what can be credibly considered transition – an important step to further lowering the barriers to entry for private capital.

Singapore’s Green and Transition Taxonomy is organised according to a traffic light system similar to colour coding in the ASEAN taxonomy. Under this system, an economic activity can be classified as green, amber or red.

Green activities “contribute substantially to climate change mitigation that is consistent with a net zero outcome, or are on a pathway to net zero by 2050”. Amber denotes transition activities “including those that are either transitioning toward green within a certain time frame, or enabling significant emissions reductions in the short term”. Red activities are harmful ones that are not compatible with a net zero trajectory.

Tze Khai Poh, deputy director at the Monetary Authority of Singapore (MAS), shared that the Singapore taxonomy lays out detailed thresholds and criteria for green and transition activities covering eight sectors, which represent close to 90 per cent of greenhouse gas emissions in South East Asia. A key objective of the taxonomy, he adds, is to be as consistent as possible with other international taxonomies, with a particular focus on the EU taxonomy.

However, the challenges of defining ambitious transition in a comparable manner are acknowledged by Singapore policymakers. “Unlike green finance, capital raised from transition finance is intended to help brown industries become greener. There is an inherent risk of being seen as transition-washing if there isn’t an accepted understanding of what constitutes a credible transition,” Rajah admitted.

Loh Boon-Chye, chief executive at Singapore Exchange (SGX), highlighted the role of market infrastructure. “Disclosure and data will have to be at the heart of transition financing, because investors are increasingly focused on issuer-level strategies,” he said.

With this in mind, SGX and MAS have introduced a number of initiatives. In 2022, SGX debuted an updated approach to climate reporting based on the Task Force on Climate-Related Financial Disclosures and also plans to explore International Sustainability Standards Board compliance. “We are seeking a smooth and practical adoption for our market,” Loh revealed.

Together with MAS, the exchange has also introduced SGS ESGenome, a software solution portal for sustainability reporting, provided to companies at no cost, which Loh calls “a significant step toward mobilising public and private capital for transition”.

Additionally, when MAS extended its sustainable bond and loan grant scheme – which offers to cover issuers’ costs of bringing such products to market if the instruments are listed in Singapore – in April this year, it added securities used to raise funds for transition to the eligible list.