Singapore Green Finance Centre

Thank you, Professor Lily Kong, for delivering the welcome address at the 7th Annual GRASFI Conference. Your presence is pivotal in setting the stage for its success! Singapore Management University

Thank you, Deputy Prime Minister Heng Swee Keat, for delivering the keynote address at the 7th Annual GRASFI Conference at Singapore Management University. Your insights have been invaluable and are greatly appreciated by all participants!

Taking a short pause! We're taking a brief break from our summary postings, but we'll be back soon. In the meantime, enjoy these photos from our last dinner by the scenic Singapore River. We’d love to hear from you! Whether you’re a GRASFI participant, a speaker, a moderator, or simply someone who’s been following the discussions on advancing research in sustainable finance and investment, please share one key takeaway you’ve gained from the conference in the comments below!

GRASFI Conference Summary - Plenary on “Resilient Cities”.   Our final Plenary featured an expert lineup, including Eric Nietsch, CFA (Manulife Investment Management), Raffaele Della Croce (SGFC & Centre for Climate Finance & Investment), De Rui Wong (GIC), Saurabh Gaidhani (Resilient Cities Network), and moderated by Winston Chow (SMU). The session discussed the alarming level of exposure to climate and what frameworks and best practices are required to build, maintain, and strengthen cities in the Asian context. Beyond the toolkit for sustainable cities, the panel sought to answer how investors and networks can enable these approaches. Eric introduced Manulife’s approach to physical risk adaptation and resilience as an actively managed public equity and fixed-income investor, valuing the link between climate adaptation and mitigation. He believes it is important to address both adaptation and mitigation, where in current climate scenarios, there is an opportunity to not only bring mitigation levels down, but also increase resilience. De Rui shared GIC’s view on resilient cities, where he finds climate change to be financially material from both the macro and micro perspectives. His firm has implemented a top-down analysis of the impact of economic growth due to climate and found that three-quarters of the impact is attributable to physical risk. He highlighted that there are several physical effects on company assets, which relate to the curtailment of supply chains, emphasising the need to understand these risks and protect the value of investments. Saurabh shared the city-government perspective and his organisation's coverage of hundreds of smart-city projects worldwide. He found that climate adaptation and resilience are not just about management, but about pursuing interventions over time and adapting to changing needs. Raffaele, who has conducted research through SGFC, shared that the private sector's view of adaptation and resilience is about understanding what opportunities are present, whether in the maintenance or new markets of smart cities. He noted that beyond the financing and resource gap, there exists an implementation gap, calling for the initiation of education and knowledge-sharing in this field. The discussion concluded with considerations of social sustainability, with insights from Eric on how more resilient cities can protect against issues such as heat and how inexpensive interventions can be compelling. This also led to discussions on blue and green infrastructure, with Saurabh mentioning how cities can convene meaningfully for change. Raffaele added that these trends will only grow as infrastructure regulation continues to drive the market. De Rui highlighted the need to avoid being overly precise and instead start looking at the magnitude of impact, which presents opportunities for businesses to differentiate. He shared that creating smart and resilient cities involves both art and science.

GRASFI Conference Summary – Research Presentations on "Credibility and Accountability". The session was moderated by Professor Peter TANKOV, Professor of Quantitative Finance at ENSAE Paris. The research papers presented covered a wide range of topics, from carbon offsets to assurance and emission targets, highlighting the important role of regulations in ensuring the legitimacy and quality of sustainability efforts among firms. “Carbon Offsets: Decarbonization or Transition-Washing?” by Sehoon Kim (University of Florida): As corporate efforts to directly reduce emissions fall short of decarbonisation goals, carbon offsetting allows firms to claim reductions achieved by others to lower their carbon footprints. However, there are concerns that carbon offsets might prevent firms from undertaking genuine decarbonising actions. The paper uses a novel dataset to analyse the global carbon offset market and study incentives for firms. Findings show that low-emission firms use offsets more to reduce their footprints, while high emitters tend to cut emissions directly. The study highlights the need for regulations on pricing and quality of carbon offsets to ensure transparency and effectiveness in corporate transitions. “On the Importance of Assurance in Carbon Accounting” by Florian Berg (Massachusetts Institute of Technology): The study shows that just because a firm sets a target, it does not mean it will reduce CO2 emissions. Firms that obtain assurance for their reported emissions have 13.7% higher absolute emissions and 9.5% higher carbon intensities compared to those that do not have assurance. In addition, only those firms that obtain assurance for their emission reporting experience a significant and economically meaningful decline in their carbon emissions (7.5% year-on-year decline in total emissions). Thus, firms obtain assurance as a signal to their stakeholders about their intention to reduce future carbon emissions. The paper calls for mandatory auditing when carbon disclosure is mandatory and when disclosed emissions are generally relied upon in regulation. “Accountability of Corporate Emissions Reduction Targets” by Shawn Kim (University of California, Berkeley): The paper reviews emission targets for 2020 to assess how firms disclose results and face consequences for missed targets. Using CDP data, it finds minimal accountability and low awareness, with only three of 88 firms failing their targets receiving media coverage. Although firms initially received great benefits in ESG ratings and media sentiment from announcing their targets, there were no significant repercussions when they missed them. These findings highlight the need for increased transparency and accountability, offering insights for potential regulations on emissions targets for 2030, 2040, and 2050. GRASFI - Global Research Alliance for Sustainable Finance and Investment

GRASFI Conference Summary – Research Presentations on "Investor Preferences II". This session is moderated by Qifei Zhu, an Assistant Professor of Finance at NUS Business School. “Do Financial Advisors Charge Sustainable Investors a Premium?” by Marten Laudi (University of Bremen): Marten’s study explores two hypotheses: that socially responsible investors are willing to pay higher fees and that professional money managers might exploit investors' preferences for financial gain. Using an experimental design, he tested how financial advisors set fees for sustainable fund selection across two groups: sustainable investors and conventional investors, varying in financial literacy. The results showed that financial advisors do not perceive sustainable investors as having lower financial literacy or less investment experience but that they are more willing to sacrifice returns to meet their social preferences. Consequently, SIs tend to be charged with higher fees. Interestingly, this premium is not applied when they demonstrate high financial literacy. “Do sustainable investors get what they ask for?” by Julia Eckert and Anne Kellers (University of Kassel): This study examines the alignment between investors' expressed preferences and the product recommendations made by investment advisors. The findings reveal that while around 90% of recommendations match the investors' risk preferences, sustainability preferences are often overlooked by advisors. Policymakers could encourage banks and financial institutions to offer a wider range of sustainable investment products. It is also important for investors to enhance their knowledge of sustainable finance in identifying unsuitable products and take a more active role in the investment process. “A Breath of Change: Can Personal Exposures Drive Green Preferences?” by Kasper Meisner Nielsen (Copenhagen Business School): This paper investigates whether idiosyncratic personal experiences influence individual investors' preferences, particularly their inclination towards "green" investments. The findings indicate that personal experiences do impact "green" preferences: investors whose children suffer from respiratory diseases tend to decrease their holdings in "brown" stocks and increase their investments in "green" stocks. However, this effect is specific to respiratory diseases, with no similar impact observed for other types of illnesses. The relevance of these experiences to the investor is crucial, as the effect is more pronounced for investors living with their affected children, with more severe conditions leading to stronger responses. Interestingly, investors' own respiratory issues do not have the same influence, but the effect extends to "extended family" members like uncles, aunts, and grandparents. Finally, the type of assets held also matters, as there was no observed effect on ESG fund holdings.

GRASFI Conference Summary – Plenary on "Nature and Biodiversity Finance". The second Plenary featured a distinguished panel including Valerie Lau, CFA (UBS), Jurgita Balaisyte (MSCI Inc.), Ben Caldecott (Transition Plan Taskforce (TPT)), and Jane Ho (BNP Paribas Asset Management), moderated by Nikki Kemp (SGFC). The session discussed the activation of funding for environmental conservation activities and the opportunities in nature and biodiversity finance. Valerie highlighted how a large part of GDP is highly linked or dependent on nature, and how there is strong interest not only among financial institutions but also from corporates—Asia being just as large a signatory for the TNFD as other regions. Jane shared how nature and biodiversity relate to systemic, physical, and transition risks. For her firm, a precondition to sustainable returns is a healthy ecosystem and energy transition, integrating nature with their proprietary model that takes ESG risks into account in portfolio construction. The Plenary also covered the present pulse of the nature financing movement. Valerie highlighted that a major roadblock is in the knowledge and skills-capacity aspect. There is a growing need to determine the quality of investable projects and to flag measurement approaches for the use of natural capital. Global frameworks such as the TNFD can help set investor expectations to support the ecosystem. When asked how natural capital’s growing needs can be supported from an academic perspective, Ben brought up the point about the multi-disciplinary needs for research into natural capital, with natural sciences informing the work of ecologists and biologists, and the need for these datasets to be properly used by financial institutions. For social scientists, he believes that the litmus test is impact—by pursuing multidisciplinary approaches on an international scale and conducting such tests in Asia, where environmental effects are most prevalent. He believes that perfect should not be the enemy of good; a bankable and investable project does not always solve every social and environmental problem. Lastly, Jurgita discussed the Network for Greening the Financial System (NGFS) and several studies on a national level in the Philippines and Malaysia, which recognise the importance of nature even when there are no mandatory regulations. She believes that there are many perspectives on nature financing, with examples such as footprinting metrics on forestation that can be used. In terms of the collection of data and technology, she notes that many rely on asset allocations, indexes, and the use of geospatial tools—location of assets is meaningful depending on the region and geography, but there is a big shortage of companies’ disclosure and quality of data. The session concluded with questions on the quantification of natural capital, takeaways from existing climate-based systems of measurement, and approaches towards the study of nature and climate.

GRASFI Conference Summary – Research Presentations on "Investor Preferences I" Chris Durack, Head of APAC at Schroders (one of SGFC’s founding partners), expertly moderated the morning session on Investor Preferences I. “Decoding Sustainable Investment Strategies: Bridging Intentions and Actions” by Ayako Yasuda (University of California, Davis): Ayako employs a novel machine-learning approach (BERT model) to uncover the underlying intentions of sustainable funds, which include financial value, morality, and impact. The results revealed that sustainable funds (SFs) constitute 6% of total AUM in 2023, where 70% of SFs were financial funds. Financial funds held higher ESG-rated stocks and prioritised environmental risks, while moral funds were indifferent to ratings and underweighted sin industries. Capital allocated for impact funds represented only 0.6% of total MF AUM. Results also indicated that impact funds were positively correlated to engagement and support for E&S proposals and were consistent with favouring E-opportunities. The study concluded that if implemented, the methodology can enhance investor welfare by facilitating informed decision-making tailored to individual preferences. “Renaming with Purpose: Investor Response and Fund Manager Behaviour After Fund ESG-Renaming” by Kayshani G. (Utrecht University): Kayshani examines the widespread phenomenon of mutual funds changing their names to ESG-related appellations. The results found mixed and weak evidence on the response of mutual fund flows after renaming. There was also consistent evidence that mutual funds improve their ESG performance after renaming, with US funds showing larger score gains than EU funds, possibly because EU funds (on average) start with higher scores, leaving less room for improvement. “Rich and Responsible: Is ESG a Luxury Good?” by Steffen Andersen (Copenhagen Business School): Steffen investigates whether investors perceive responsible investments (investments in assets with environmental or social benefits) as a luxury good. He also assesses whether windfall wealth from unexpected inheritance supports his study. The results found that responsible investing in Denmark increased significantly in the last decade, largely driven by wealthy investors. There was also a positive and statistically significant effect of windfall wealth (inheritance) on responsible investments. Lastly, such inheritors with a history of charitable donations exhibited a stronger response to the effect, which emphasises the influence of a ‘warm glow’ effect on portfolio formation.

GRASFI Conference Summary – Research Presentations on “Debt Pricing of Climate Transition” This session was moderated by Luca Taschini, Professor and Chair of Climate Change Finance at The University of Edinburgh. “Funding de Fittest? Pricing of Climate Transition Risk in the Corporate Bond Market” by Yasmine Van der Straten (University of Amsterdam): Yasmine explores how corporate bond investors price climate transition risk using firm-level data on emissions and bond-level holdings data. To assess the transition risk premium, the dataset was augmented with firm-level green patent holdings classified under the cooperative patent classification, where it was found that emission intensity and green patents significantly affect bond yield spreads. She finds that investors reward emission-intensive companies engaging in green innovation, as spreads are reduced for these companies, even at more stringent classifications. These results reveal that European institutional investors have a higher demand for bonds from emission-intensive firms that engage in green innovation, providing insights for policymakers, investors, and businesses. “Pricing the Priceless: The Financial Cost of Biodiversity Conservation” by Haoyu Gao (Renmin University of China): Haoyu discusses how exogenous shocks to conservation public financing, such as the Green Shield Action (GSA), can affect financing for local governments. After the implementation of the GSA, it was found that the cost of borrowing increased for national nature reserves (NNR), which was more pronounced for shorter maturities and municipalities with weaker financial positions. These effects were attributed to several potential activities as required by the GSA, such as eliminating illegal activities and expanding local public spending in NNRs. Hence, policy measures suggest implementing considerations beyond direct investments needed for transition, but also for additional financial market costs. “Do ESG Investors Care About Carbon Emissions? Evidence from Securitized Auto Loans” by Christian Kontz (Stanford University Graduate School of Business): Christian presents a thought-provoking analysis on ESG convenience yields in the auto loans industry, and how loan-level data can test if the greenness of securitization influences the cost of capital. Through his research, it was observed that ESG investing lowers the cost of capital for auto asset-backed security (ABS) issuers with high ESG scores, which for captive lenders resulted in economically significant changes in demand. However, Christian found that firm-level ESG scores compared to CO2 emissions lower the cost for high-emission auto ABS as ESG scores positively correlate with emissions. This inadvertently subsidises CO2 emissions, as ESG mutual funds drive these results based on ESG scores even if these finance high-emission vehicles. Hence, project-level ESG metrics that reflect environmental impacts are necessary.

GRASFI Conference Summary – Research Presentations on "Governance and Activism". “Corporate Social Responsibility Committee: International Evidence” by Yuxia Zou (Nanyang Technological University Singapore): Yuxia’s presentation revealed that the voluntary adoption of CSR committees by firms is influenced by external demands, internal monitoring needs, and the search costs associated with forming a separate CSR committee. Firms that choose to establish these committees voluntarily tend to enhance their CSR management practices and subsequently see improvements in environmental and social outcomes. In contrast, firms with mandatory CSR committees do not experience similar improvements. Mandatory committees often serve more as a compliance mechanism rather than a substantive governance change. This suggests that voluntary CSR committees are not merely a cosmetic gesture but represent a genuine commitment to aligning business operations with long-term sustainability. “Institutional Investors’ Behind-the-Scene Monitoring and ESG Disclosure” by Yue Zhang (Sun Yat-sen University): Yue Zhang examined how the lack of ESG disclosure can be attributed to the inherent challenges of reporting non-financial information, which suffers from a lack of standardised reporting formats and incurs considerable costs. She considers an example of the Shenzhen Stock Exchange's mandatory disclosure of investor relationship activities since 2009. This requirement has led to a spillover effect, showing that increased ESG disclosure is associated with reduced divergence in ESG ratings. Institutional investors are known to make significant efforts behind the scenes, such as conducting costly corporate visits and engaging in discussions about ESG issues, to encourage improved ESG disclosure practices among corporations. The pressures and demands from market participants, especially institutional investors, appear to be a key driver in stimulating ESG disclosure, particularly in China. “Financial Market Structure for ESG Integration” by Keeyoung Rhee (Sungkyunkwan University): Keeyoung’s analysis explores market conditions that support ESG integration, focusing on situations where corporate borrowers struggle to commit to ESG practices. The study suggests that competition among lenders in ESG markets might not always be beneficial. Borrowers tend to invest in green projects only when borrowing rates are high, but competitive bidding among profit-driven lenders can drive rates down, discouraging green investments. Restricting non-ESG-compliant lenders from these markets could promote better ESG integration. Additionally, when green lenders bid first, they can help ensure that remaining borrowers are also green, and giving these verified green lenders a competitive edge may be the best approach. This session was moderated by Weikai Li, Ph.D., CFA, Assistant Professor of Finance at SMU and an SGFC-affiliated researcher, who also offered valuable feedback to the presenters.