Mapping Out Sustainable Finance Strategies for the Next Five Years

There has been a big push for sustainability in recent years, a shift from what was once considered a box-ticking PR effort. It is now seen as an avenue where Environmental, Social, and Governance (ESG) assets can be issued and traded in an ethical manner. We also observed an increase in those seeking to raise capital unequivocally listing ESG criteria in their Information Memoranda.

At Plug and Play, we aim to be the bridge for technology and innovation to work together and scale green finance.

We explored sustainable finance strategies for financial services companies with Charles Yonts, Head of ESG Research at Macquarie Group; Kristina Anguelova, who leads the Asia Sustainable Finance Initiative at WWF-Singapore; and Andrew Pal, CEO of GSX Asia at GSX Group. The panel, moderated by Kent Lin, Corporate Partnerships Manager at Plug and Play APAC, exchanged their perspectives and trends in the sustainability space.

Here are the key takeaways:

#1: There needs to be transparency and reliability of data for ESG.

There are different corporate frameworks and various means of reporting involved currently. Consolidation and authenticity of data have been a challenge to comprehend and compare. However, one trend that we are seeing are small steps towards the harmonisation of standards with the announcement of the merger between the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC).

Another such example is The World Economic Forum and Big Four accounting firms which have also been working on their stakeholder capitalism metrics. They piloted a study based on numerous organisations to evaluate what they use to report and the metrics that overlap. As a result, they have created a set of core and extended metrics, intended to be incorporated into mainstream corporate reporting. They are now at the stage of implementation with several successful buy-ins from big corporations and are speaking to local organisations in expectation for this to be globally adopted.

#2: We will see an imperative for sustainable development in the region.

Besides climate, biodiversity and nature are on the top of the Agenda, with the launch of the Task Force on Nature-related Financial Disclosures (TNFD). After climate finance, biodiversity finance is rapidly developing as a concept.

In addition, the increase of internal push coming from asset owners in Asia is evident from the impact of a sustainability commitment from the world’s largest pension fund like the Government Pension Investment Fund (GPIF), for example. The Monetary Authority of Singapore (MAS) is also trying to pivot with the announcement of Project Greenprint.

#3: Public and private sectors need to work together. In Singapore, the government is the driving force for sustainability initiatives, as seen on platforms like the Singapore Fintech Festival. Initiatives like the Green Finance Industry Taskforce (GFIT), convened by the MAS, is industry-led with a mandate to accelerate green finance in Singapore through four key areas: (i) develop a taxonomy, (ii) enhance environmental risk management practices of financial institutions, (iii) improve disclosures, and (iv) foster green finance solutions.

GFIT has recently issued a handbook to provide financial institutions with practical implementation guidance and best practices in environmental risk management to support the financial industry’s efforts to implement MAS’ Guidelines on Environmental Risk Management.

Over in Europe, the European Commission has adopted a package of measures to help improve the flow of money towards sustainable activities across the European Union. Known as the EU Taxonomy, the tool is to help investors understand whether an economic activity is environmentally sustainable, and to navigate the transition to a low-carbon economy. Setting a common language between investors, issuers, project promoters and policy makers, it helps investors to assess whether investments are meeting robust environmental standards and are consistent with high-level policy commitments such as the Paris Agreement on Climate Change.

With the Biden administration in the United States rejoining the Paris Climate Agreement and the United Nations Climate Change Conference of the Parties (COP 26), it is expected that the public narrative is going to help steer the direction of the private sector.

Because of the systemic material and physical risks that companies are beginning to face, they are adopting more mitigation and adaptation policies. Transition bonds will be a new hot topic to factor in planning for the transition, especially in regard to the net-zero commitments that are currently being made.

#4: Carbon as an emerging asset class.

With some of the policies coming through in terms of disclosure around sustainable funds in Hong Kong, Europe, and in Singapore, like the recent announcement of positioning Singapore as a regional carbon trading hub with Climate Impact X, supply is going to be the biggest issue due to the equity that is available and the amount of capital that wants to go in.

Carbon credits are a voluntary paradigm right now. However, the European Union is coming up with a mandatory carbon permit from next year onwards. Therefore, analysts predict that the demand for mandatory carbon trading will increase in value over the long term, which may encoura