Catalyst for Change: Sustainable finance developments across Asia Pacific

Catalyst for Change: Sustainable finance developments across Asia Pacific

Friday, July 24, 2020
Public information and advocacy materials

Leaders worldwide are increasingly looking for actions that can help them make progress towards the United Nations Sustainable Development Goals and address the growing threat of climate change. The Paris Agreement under the United Nations Framework Convention on Climate Change, agreed to in 2015, outlines a clear objective to limit the rise in global average temperatures to below 2 degrees Celsius above pre-industrial levels, with an ultimate goal of containing the temperature rise to within 1.5 degrees Celsius or less. One avenue of clear importance to achieve this goal is how governments and institutional investors can best utilise their massive influence, and the trillions of dollars they invest each year, to guide businesses to adopt sustainable practices. The good news is that today, nearly five years after the signing of the Paris Agreement, progress in the shift towards sustainable finance is occurring, as we report in this paper. Globally, the volume of assets invested in sustainable projects is rising, with growth accelerating significantly in the last three years. Approximately onefifth of all assets worldwide are now in funds that use some form of environmental, social and governance (ESG) criteria. Asia, however, continues to lag behind, especially outside Japan. According to the Global Sustainable Investment Alliance, Asia ex-Japan accounted for less than 1 percent of the world’s sustainable investment assets in 2016.

However, there is a growing realisation within the investment community that sustainable investments are ones that make the most sense from a business as well as an environmental perspective. This is particularly acute in Asia, which contains a significant proportion of the world’s most densely populated megacities that are increasingly threatened by natural disasters and rising sea levels. Governments across Asia, especially through their central banks, are starting to require greater disclosure of climate-related and other environmental risks of financial institutions and listed companies, with Japan, Singapore and Hong Kong SAR (China) leading the way. Multilateral initiatives, notably the Task Force on Climate-related Financial Disclosures (TCFD) launched by the G20’s Financial Stability Board in 2015 and the Principles for Responsible Banking unveiled by the UN Environmental Programme’s Finance Initiative in September 2019, have also been a major force encouraging moves in the right direction. Change, however, is not yet taking place at the necessary rate to meet the 2 degrees Celsius climate change containment target, let alone its more ambitious 1.5 degrees goal. For lasting change to take place, governments, institutional investors, and other asset owners need to show greater ambition and make sustainable investment part of the financial mainstream, especially with regards to long-term investments.

For that to happen, governments and investors across the region need to step up their commitments to sustainable investing – including in infrastructure spending and how sovereign wealth funds and pension funds make investment decisions. A big step they could take in this direction would be to mandate that these investment institutions are fully committed to only funding sustainable projects. Through regulation and incentives, they must also do more to create a business environment that rewards companies and the investors who fund them to put sustainability at the top of their agenda. With the money and influence they can bring to bear, governments and institutional investors can help to create a domino effect for private and retail investors to channel their money into sustainable enterprises. This would help set Asia on a course to help the world meet its development goals and help ensure a sustainable future for the next generation.

In this report, we provide a snapshot of the current sustainable finance landscape across the Asia Pacific region - including data indicators, recent regional, country-level and local policy developments, and multilateral initiatives. We also include points of view from industry and NGO players on how to best facilitate positive change.