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Asian finance executives renew call for ESG investment standards

Asian finance executives called for greater partnership and industrywide standards for environmental, social and governance investments amid a renewed focus on sustainable finance.

"I think banks and the financial sector are not going to single-handedly change the world. What we have to do is ensure necessary solutions get faster, better and more innovative funding," Amy Lo, chief executive of UBS Hong Kong, said at a session on ESG and sustainability at the Asian Financial Forum 2022 on Jan. 10.

As the global economy emerges from the COVID-19 pandemic, the increasing severity and frequency of extreme weather events, such as floods in India, China and Europe in 2021 and Hurricane Ida in the U.S., have prompted renewed efforts to counter climate change. Among major Asian economies, India surprised the United Nations climate change conference in October with its announcement to reach net-zero by 2070 and China reiterated its own climate goals as the nation struggled with a coal power crunch.

That will likely drive demand for ESG products in Asia, though the lack of standardized sustainability information remains a challenge. Experts at the panel said clear standards will help ensure both individual investors and companies make informed investment decisions.

"We need to get alignment amongst regulators around the world on what are common definitions and terms," said Andrew Erickson, chief productivity officer and head of international business at American financial services and bank holding company State Street.

The International Financial Reporting Standards Foundation in November announced the formation of the International Sustainability Standards Board, Erickson noted. The current fragmented approach in setting the guidelines for green financing, particularly the allocation of capital, prevents the industry from achieving the scale and size it needs to get to, Erickson added.

Asia's challenge

Asian economies each face unique hurdles in stepping up ESG investments, the panelists said. For example, the transition to becoming a more sustainable economy is the key challenge for China, while in Indonesia, companies are dealing with the lack of capital for ESG.

China made clear its intent to achieve its 2030 carbon peak and 2060 carbon neutrality goals and put in place measures to provide cheap financing for commercial banks if they, in turn, provide green financing to corporates, said Henry Shi, executive committee member at stock brokerage firm and investment bank Haitong International Securities Group. Lenders such as Bank of China Ltd. have decided to stop financial coal mining and coal power plants.

Shi added that even the Shanghai Stock Exchange has issued an ESG index for investors to refer to so that they can selectively invest in companies with sound governance practices. China has now become the largest green loan market with an outstanding green loan of 15 trillion yuan and in 2020, the country was ranked the second-largest green bond market.

Indonesia will need to step away from business-as-usual investment practices focused on short-term returns and instead divert financing to more long-term investment solutions that provide innovative approaches to scaling promising business models, according to Shinta Widjaja Kamdani, CEO of the Sintesa Group, an Indonesian investment company.

Other governments in Asia have put in place measures to ensure cooperation from both the private and public sectors. Regulators in Hong Kong have authorized the integration of ESG factors in the key investment focus of regulated funds. There are also moves to make ESG reporting mandatory in Australia, Singapore and India.

Saker Nusseibeh, CEO at investment manager Federated Hermes International, said there has to be a sense of partnership between investors and companies. "Together, we can meet this crisis that we see and we can use it and find the opportunities for the new industries, the new technologies, the new future and avert the crisis that is facing us as fellow members of the same race."

As of Jan. 7, US$1 was equivalent to 6.38 Chinese yuan.