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Singapore Fintech Festival 2021: Scaling sustainable finance for a green recovery

Singapore Fintech Festival 2021: Scaling sustainable finance for a green recovery

Finextra joined Singapore Fintech Festival session, ‘Scaling Sustainable Finance for a Green Recovery’ today, to hear experts from Ecosystm, FIL Asia, HSBC, SDG Impact Japan and WWF Singapore discuss the financial products and technological tools needed to deliver social and environmental benefits, alongside attractive returns.

Amit Gupta, CEO of Ecosystm and moderator of the session, opened by stating that we have a limited time to achieve net-zero goals: “Climate financing will have to grow over the next three decades, by five to eight times its current volume,” he said.

The good news is that the volume of investment in sustainable finance is increasing rapidly. According to Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025 - representing over a third of the $140.5 trillion in projected total assets under management.

The net-zero ambition

HSBC, for its part, has publicly committed to dedicating $750 - $1 trillion dollars of financing over the next 8 years, said Zöe Knight, managing director and group head of the HSBC centre of sustainable finance, HSBC. “It’s all about looking at what our clients’ transition plans are - irrespective of sector and business line - and figuring out how to drive investment flows that are going to help them achieve their goals.”

Mobilisation will be key. Financial institutions need to work across the industry to get more people on board. To this end, HSBC is working on a public finance initiative called ‘Fast-Infra’, which looks at ways to accelerate a sustainable transition in infrastructure. “The key is to provide a labelling system that helps institutional investors cut through what sustainability really looks like,” Knight said.

What’s more, to serve the clutch of sustainable projects in Asia that are deemed only “marginally bankable”, HSBC has developed a $150 million seed funding platform. Over the longer term it will build a pipeline of projects to scale - dispensing over $1 billion in loans across 5 years.

Such commitments have a lot to live up to. Unfortunately, many sustainable investments of the last three to four years have not demonstrated a tangible change on the ground, noted Sasja Beslik, head of sustainability, SDG Impact Japan. It remains to be seen whether this comes down to delayed impact, or impotency of the projects themselves. Either way, questions around the validity of these investments as a tool have rightly been raised.

To address these concerns, Beslik suggested the engineering of “new next-generation funds” with clear targets and more of a “regional and industry character” - targeting transitions with tangible results. Interest in this space can be found not only in Asia, but also in Western Europe and the United States, he said.

Quality and quantity

The importance of quality as well as quantity was echoed by Marty Dropkin, head of Asian fixed Income & Hong Kong investment, FIL Asia Holding Pte Limited. “This comes down to measuring well,” he said. “We need to identify tangible activities that we can demonstrate in portfolios.”

FIL Asia, for its part, has committed to halving the carbon output of its investment portfolio by 2030, and reaching net zero by 2050. While these are admirable targets, they are just words if not put into action, Dropkin said. “Companies and issuers must be held to the right standards. Unfortunately, some of the targets attached to instruments like green bonds and sustainable-linked notes, for instance, are not aggressive enough.” Once again, there seems to be too great a focus on quantity, as opposed to quality.

According to Dropkin, we can’t just put these numbers on a page and be happy with ourselves. “When issuers don't meet standards, there must be a meaningful adjustment in the coupon, or in the cost of capital the company faces.”

One of the many persistent speedbumps here is the divergence of standards. R. Raghunathan, CEO, WWF Singapore, noted that different stakeholders have different assessment criteria of what is deemed sustainable - and typically, “money finds its way to projects it can most easily get to”. This lowers the quality and impact of many projects and may be one of the reasons we are not seeing strong results on the ground, yet.

Fortunately, Beslik threw the audience a lifeline and assured us that “in the next three to five years, we can expect a revolution in sustainable finance - at all levels and asset classes - which will finally align with the complexity of the world.”

Next-generation products and data

According to Beslik, next-generation ESG products need to deliver both strong financial results, as well as a clear planet impact, by making nature bankable. To tackle our global crisis, we need more regional focus, as well as seamless alignment between the European Union (EU), the US and Asia, he claimed. Transparency issues, metrics, and certainty of what is happening on the ground will also have to be nailed down. “All of these considerations must trickle down into the new product flora.”

As ever, data and technology have a role to play in helping us achieve transparency, by bringing consistent and compatible data sources together. “What we really need is alternative ESG data,” argued Dropkin. Indeed, the current datasets we currently have access to are insufficiently granular.

We need forward-looking datasets too, added Knight: “Current ESG investments are based on backward-looking information. Our data also needs to enable clear emissions comparisons between different sectors. To do this, we must know the lifecycle of the existing facility, whether it's short or long, whether it's carbon intensive or not, and so on.”

It’s all down to the timing

“The next 20, 30, 40 years are going to be really exciting for mankind,” said Raghunathan. “The scale of transformation we are likely to witness is going to be unprecedented - this is the start of the new industrial revolution.”

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