SINGAPORE: Singapore’s central bank is working on a pilot scheme to help insurers make investments in sustainability-related infrastructure projects in Asia.

       The scheme aims to enhance insurers’ familiarity and comfort with infrastructure investments. It will test elements such as risk guard rails, risk-appropriate regulatory treatment and capability-building facilities, said Deputy Prime Minister and Finance Minister Lawrence Wong.

       Wong said the hope is that the initiative can motivate insurers to allocate some of their investment portfolio to infrastructure projects that have decarbonisation potential, and play a role in the region’s net-zero transition.

       “As underwriters, the industry can develop insurance solutions for renewable energy infrastructure and emerging technologies with promising decarbonisation potential.

       “These solutions can mitigate risk and help crowd in much-needed private capital,” said Wong, who is also chairman of the Monetary Authority of Singapore (MAS).

       Speaking at the Global Insurance Forum, he said renewable energy infrastructure such as solar and wind plants have variable returns as they rely on the weather.

       To mitigate this, some renewable plants can have parametric insurance covers that pay out when energy output falls below pre-agreed thresholds.

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       Insurance can also mitigate the risks of storing and transporting future fuels like hydrogen, which holds huge promise for decarbonisation.

       As investors, insurers can allocate more capital, which is a key challenge, to address the infrastructure needs of emerging Asia, particularly green infrastructure, Wong said.

       To this end, MAS has been closely monitoring international standards in the insurance industry and studying available data.

       Wong said MAS will soon issue a public consultation on the proposed capital treatment for insurers’ investments in infrastructure assets.

       Another area insurers can contribute to is transition financing, as it is expensive to decarbonise.

       In transition financing, financial services are provided to high carbon-emitting industries to help fund their decarbonisation.

       The industries include coal-fired power generation, steel, cement, chemical, paper making, aviation and construction.

       The need for transition financing is growing in Asia, which accounts for half of global greenhouse gas emissions.

       Asia relies on fossil fuels, such as coal, for most of its energy needs and the demand is increasing as it develops.

       At the same time, governments and companies have to adapt to higher-for-longer interest rates, making the transition more costly.

       Insurers can guide and incentivise firms to progressively decarbonise their business operations by integrating physical and transition risks as part of the underwriting process.

       Wong said MAS recently proposed guidelines on transition planning by banks, insurers and asset managers to facilitate credible and orderly decarbonisation efforts by their clients and investee companies.This would be achieved through engagement and the facilitation of transition activities, rather than indiscriminately cutting ties with clients or investee companies that have higher climate risks, noted Wong. — The Straits Times/ANN