SINGAPORE – To promote green finance, central banks should focus on improving the quality and availability of emissions data, developing a compatible taxonomy to determine which activities are considered sustainable, and implementing a set of disclosure standards.

Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), told a panel discussion hosted virtually by the International Monetary Fund on Thursday (September 30) that climate change poses very significant risks to the system financial and presents important opportunities at the same time.

“We believe that the financial sector plays a very important role, not only in financing the important but difficult transition of countries to low carbon economies, but also in managing their physical risks of climate change and transition risks. climate change for the financial sector. system, ”he said.

However, for green finance to work, regulators, financial institutions and businesses need access to reliable and granular data to monitor and manage environmental risks, and improve the quality of disclosure and decision-making. financial.

He said technology has the potential to be a game-changer in addressing some of the challenges of getting data.

On taxonomy, a classification system identifying activities, assets and projects that achieve key climate, ecological, social or sustainable goals, Mr. Menon said there were efforts underway, for example, to the International Platform on Sustainable Finance, to develop a common global set of principles to promote best practices in environmentally sustainable finance.

“I don’t think there will be a single global taxonomy. Each country has its own peculiarities. But we should all try to work on a set of common coherent global principles,” he added.

When it comes to disclosure, however, Menon thinks there’s a good chance that a comprehensive understanding will be achieved on a benchmark standard for sustainability reporting.

He said the International Financial Reporting Standards Foundation’s work on sustainability reporting is gaining momentum and success over the past year, and will help facilitate consistent and compatible disclosures of climate risks and to help channel investments and funding to ensure effective results.

Mr. Menon also stressed that to address climate risks, financial regulators must continue to better understand how climate can potentially impact financial institutions and financial systems.

He said central banks need to work closely with the financial sector to build resilience and tackle climate risk on the micro and macroprudential fronts.

Microprudential regulation examines an individual bank’s responses to exogenous risks, while macroprudential rules deal with risks to an operation or structure of financial institutions or markets.

Mr Menon said that Singapore, as an international financial center, is keen to play its role in financing Asia’s transition to a sustainable future.

He added that MAS is working closely with its counterparts in central banks and finance ministries in Asia and beyond to create a more conducive environment for sustainable financing opportunities and also to hedge against financial stability risks, which sometimes are not well appreciated.

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