Singapore regulator deploys AI-powered tool for ESG assessments

Rick Steves

“This will better enable financial institutions to direct financing towards sustainable projects and companies that meet sustainability performance targets.”

The Monetary Authority of Singapore (MAS) is deploying API-powered NovA! to help financial institutions (FIs) assess the sustainability performance of Singapore’s real estate sector.

NovA! is part of the National Artificial Intelligence (AI) Programme in Finance and is aimed at helping FIs harness AI to generate insights on financial risk.

Leveraging the AI-powered programme, financial institutions in Singapore can perform Environmental, Social, Governance (ESG) risk assessment for originating, underwriting and servicing of sustainability linked loans.

ESG assessment in origination, underwriting, and servicing of loans

Singapore’s financial watchdog explained the use case for financial institutions, from origination, underwriting, and servicing of loans:

  • At loan origination, FIs can use NovA! to identify real estate corporate borrowers whose sustainability metrics can be improved, by comparing their historical environmental performance to that of their peers;
  • During underwriting, NovA! will assist FIs to set appropriate sustainability performance targets (SPTs) for the borrowers, by comparing borrowers’ SPTs with the SPT Industry Benchmark generated by NovA!;
  • For servicing of loans, NovA! will compare the actual sustainability performance indicators (through direct use of meters or sensors) against the borrower’s self-declaration to detect greenwashing.

Sopnendu Mohanty, Chief FinTech Officer, MAS, commented: “NovA! will provide a valuable tool to help FIs generate prompt and actionable insights using structured and unstructured datasets and advanced computing. This will better enable financial institutions to direct financing towards sustainable projects and companies that meet sustainability performance targets.”

The solution also leverages natural language processing (NLP) to automatically extract relevant information from documents. This will reduce the overall cost of operations and the amount of time it takes for to collect, process, and analyse data.

Since the announcement of NovA! in November 2021, 16 members have joined the NovA! consortium, which is now comprised of:

Bank of China Limited
Citi Singapore
DBS Bank Ltd
Deutsche Bank Aktiengesellschaft
The Hongkong and Shanghai Banking Corporation, Singapore Branch
Jones Lang Lasalle (Singapore) Property Consultants Pte Ltd
MUFG Bank, Ltd
National University of Singapore – Asian Institute of Digital Finance
Oversea-Chinese Banking Corporation Limited
Reluvate Technologies Private Limited
Shanghai Pudong Development Bank Co., Ltd. Singapore Branch
Standard Chartered Bank (Singapore) Limited
Sumitomo Mitsui Banking Corporation
United Overseas Bank Limited

In addition to ESG efforts, the Monetary Authority of Singapore (MAS) has been leading the way in preparation for a future that includes tokenization and decentralized finance.

To that effect, the regulator launched a collaborative initiative dubbed ‘Project Guardian,’ in partnership with DBS, JPMorgan (JPM) and Marketnode. The collbration aims to research use cases of open and interoperable networks within the blockchain ecosystem.

Not many details were revealed about the matter, but MAS is actively working on regulations that might one day permit so-called tokenization, which allows a crypto token to represent a traditional asset like stocks. On top of that, Singapore’s central bank will look into issues related to trading digital assets, as well as DeFi applications in wholesale funding markets through existing financial infrastructure.

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