November 13, 2024
SINGAPORE – With climate finance weighing heavily at the UN Climate Change Conference (COP29) in Azerbaijan, Singapore announced on Nov 12 that it will commit up to US$500 million (S$669 million) to a national initiative to channel financing to decarbonise Asia.
The US$500 million from the Government will come in the form of concessional funding, such as grants and loans provided at more favourable terms and below market rates.
This funding will match, dollar for dollar, concessional capital from other partners, including other governments, multilateral development banks and philanthropic institutions. Funding from these bodies can help to soften investors’ risks in financing green projects, which can often be deemed too risky or unprofitable.
The US$500 million will be a major component of the national blended finance initiative, which aims to raise up to US$5 billion to finance green projects in Asia or reduce their risk. The Financing Asia’s Transition Partnership (Fast-P) was launched by the Monetary Authority of Singapore (MAS) in 2023 at COP28 in Dubai.
The update to Fast-P was announced by Minister for Sustainability and the Environment Grace Fu in a pre-recorded speech at the Singapore Pavilion at COP29. The summit is scheduled to run until Nov 22.
“This combined pool of concessional capital will be used to crowd in commercial capital and other sources of finance to accelerate capital flows to support Asia’s green transition,” said Ms Fu.
Speaking at the pavilion on Nov 12, Singapore’s Ambassador for Climate Action, Mr Ravi Menon, said Asia faces significant challenges in attracting private capital for decarbonisation.
This is due to insufficient expertise in green project development, high upfront capital costs and long payback periods, as well as regulatory and technological risks, he said.
Mr Menon, who is also senior adviser to the National Climate Change Secretariat, added that the combined pool of concessional capital will be used to crowd in up to US$4 billion of commercial capital to support transition projects in Asia.
Projects that can be financed under Fast-P include the early phase-out of coal power plants, the upgrading of electricity grid infrastructure and industrial decarbonisation efforts that are only marginally bankable.
A major aim of the ongoing UN climate summit is for parties to land a global climate finance goal by the end of the two weeks.
Under this New Collective Quantified Goal (NCQG) on Climate Finance, developed countries are required to contribute financial resources to developing countries to help them meet their climate targets and adapt to climate change impacts.
Classified as a developing country, Singapore’s position on the NCQG is to contribute to climate finance voluntarily, Ms Fu said in a recent interview with The Straits Times. Singapore is not required by the Paris Agreement to provide financial resources to the least developed and developing nations.
Ms Fu added that Singapore’s role in global climate finance includes unlocking funds through innovative ways, of which Fast-P is an example.
Fast-P’s initial partners include the Asian Development Bank, Global Energy Alliance for People and Planet, and Singapore’s Temasek. Now, the initiative has expanded its network of partners to prepare for capital raising and deployment in 2025, said MAS.
Fast-P comprises three funding pillars – accelerating energy transition, green investments and debt financing for industrial transformation. The third pillar was announced on Nov 12, alongside asset managers for all three.
The energy pillar, or the Energy Transition Acceleration Finance partnership, will focus on the early phase-out of coal plants, grid infrastructure and battery storage. MAS is in discussions with Clifford Capital, which has extensive experience with infrastructure financing in Asia, to manage this pillar.
The second Green Investments partnership will focus on renewable energy plants and storage, electric vehicles, transport, and water and waste management projects. These are projects that are not readily supported by commercial lenders due to low investor familiarity, for instance, said Mr Menon.
Debt financing platform Pentagreen Capital, backed by Temasek and HSBC, will manage this pillar.
The third pillar, the Industrial Transformation programme, will focus on hard-to-abate sectors like cement and steel, and decarbonisation technology like carbon removal.
“These are areas where Asia’s ongoing urbanisation and development have been a growing source of emissions,” said Mr Menon.
The International Finance Corporation and investment firm BlackRock are among the players intending to collaborate with Fast-P on the third pillar.
Mr Menon said Fast-P aims to commence commercial fund raising early in 2025, and make its first investments by the next COP.