Corporates and investors both need to work towards sustainable development. Singapore is one of a number of Asian countries that is bringing multiple stakeholders together to reach this important goal.
The fight against climate change involves a diverse range of agents. The Paris Agreement shows that governments are cooperating to tackle environmental issues on a global scale, while businesses and financial institutions play a key role in the transition towards a sustainable economy. The general public, both as citizens and consumers, actively support green initiatives.
“How did these interests become so aligned in Asia and the rest of the world?” asks Tony Cripps, Group General Manager and Chief Executive Officer, Singapore, HSBC. “The answer is simple: we are in a world of finite resources, which we are consuming at an unsustainable rate. We have to drastically change our behaviour and steer ourselves down the path of sustainability.”
Greater focus on sustainability
Mr. Cripps was speaking as a HSBC’s Sustainable Financing Forum, held in Singapore, where he addressed the way in which banks, corporates and investors can all benefit from taking a proactive approach to environmental concerns. For many companies, doing nothing is no longer an option.
So-called “aspirational” consumers account for 40% of the global public, according to research by GlobeScan1. Mr. Cripps highlighted how these consumers not only define themselves according to the goods they purchase, they also expect the brand to align with their own values. Since concerns about the environment are becoming more mainstream, companies face greater scrutiny from consumers over their plans to decarbonise, and to explain unsustainable business practices.
There is a parallel development in the financial world, as specialist green funds are no longer the only funds that focus on a company’s sustainable record. Mainstream funds – including pension funds, sovereign wealth funds, and other institutional investors – are increasingly concerned about portfolio exposure to environmental risks. A 2017 study commissioned by HSBC found that 68% of global investors plan to increase their climate-related investments2.
A company’s management might consider the growing focus on sustainability a challenge. However, Mr. Cripps suggests that corporates should consider the long-term advantages that can come from taking climate change seriously. Sustainable financing channels, he said, such as green bonds, provide several long-term material benefits.
One key benefit is that investors that are mandates to invest in ESG assets are likely to hold onto a security for a long period of time. Furthermore, the company is required to disclose a wide range of new information that demonstrates its commitment to the environment.
“This brings a new level of attention to a business,” said Mr. Cripps. “If you are a corporate and you issue a green bond or loan, your stakeholders and investors immediately know that they are supporting a business values sustainability.” By showing it is prepared for long-term global challenges, a company will likely perform more favourably than its less well-prepared competitors according to measures like valuation and pricing.
Action from policymakers
The end goal is to have deep markets that have enough bonds to satisfy the growing demand from the investment community. Policymakers in several Asian economies are promoting sustainable finance. Singapore for example is taking a collaborative approach that brings together banks, insurers, and fund managers, as well as the local stock exchange, said Roy Teo, Executive Director and Head, Financial Centre Development Department, Monetary Authority of Singapore. He highlighted three focus areas that could help increase the momentum for green finance.
It is important to incentivise corporates to meet their financing needs by issuing green bonds, he said. In order to do this, the MAS introduced a Green Bond Grant Scheme that helps an issuer meet costs associated with the external review that is required to determine that bonds meet green criteria. Launched last year, Mr. Teo said that the results were already encouraging, with several major corporates already issuing bonds via the scheme.
The second issue relates to technology, which Mr. Teo said can be a key enabler for the development of green finance, citing initiatives that use big data and artificial intelligence to amalgamate data from different sectors. Going digital also allows banks to review lending practices more efficiently than traditional manual techniques.
The final issue relates to talent, which is a resource that is essential to the continued growth of green finance. Training professionals is therefore of paramount importance, and Mr. Teo highlighted Singapore Management University’s programme on sustainable finance, as well as workshops organised by local industry associations. Taken together, these initiatives “help to groom a broad base of talent that can help them to become change agents within their organisation,” he said.
The key takeaway from Singapore’s efforts is that the development of sustainable finance is a cooperative endeavour, which requires input from multiple parties. “The journey towards sustainable development will only be successful if we all play our own part,” said Mr. Teo. “All the stakeholders within the corporate and the financial systems need to be aligned to collectively advance the agenda for green finance.”