Asia, home to two of the world's top three polluting nations, needs to play a bigger role in sustainable finance, industry leaders said at Hong Kong's biggest banking summit since the start of the pandemic.
Asia is catching up fast in sustainable finance as major countries in the region announce plans for net-zero emissions, panelists said Nov. 2 at the Global Financial Leaders' Investment Summit organized by the Hong Kong Monetary Authority. With the world's biggest populations in China and India, both the requirement and demand for sustainable finance is growing, they said at the conference, which featured some of the world's biggest finance industry leaders and was attended by more than 200 top bankers and finance professionals.
"For the world to really make progress around decarbonization, you need Asia to be a leading force in that," said Joseph Bae, co-chief executive of KKR & Co. Inc. "Given the presence of China and the growing energy consumption, given the demographics, given the populations, this is going to be both an enormous challenge for Asia, but also a tremendous opportunity for investment," Bae added.
KKR has invested more than $5 billion in projects under the United Nations Sustainable Development Goals since 2019, according to the private equity firm's sustainability report released Oct. 11.
Pressure from high rates
The sustainable finance market is facing pressures from both the global market downturn and challenges in energy security. Rising U.S. interest rates, inflation and recessionary pressures in most parts of the world have resulted in higher borrowing costs, slowing the pace of investments needed for renewable energy development. The global power crunch from Russia's invasion of Ukraine has also caused economies such as China to prioritize coal production until its renewable energy capacity can fulfill the country's needs.
In 2021, China pledged to achieve net-zero emissions by 2060, and India announced a 2070 target later that year after both the No. 1 and No. 3 biggest global polluters resisted tying the world's largest populations to climate goals over fears they would hamper economic development. The region, home to some of the world's fastest-growing economies, also offers tremendous opportunities for green finance, the panelists said.
"From an investment required perspective, as well as what we're seeing from our clients, is an increased desire and need for sustainable investment objectives to be integrated into portfolios," said Hanneke Smits, CEO of BNY Mellon Investment Management.
Net-zero efforts should not sideline polluting sectors such as energy, utilities and airlines, Smits said. "But we also, as an investor community, I think have a responsibility and duty to consider allocating capital to invest in those companies that needs to align to net-zero," Smits added.
Next-gen focused on sustainability
Clients with an increasing focus on an environmentally sustainable future are the wealthy next generation, said Anand Selvakesari, personal banking and wealth management CEO at Citigroup Inc.
"Wealth clients are more and more now focused on [environmental, social and governance] as they are investing for themselves, and that's never happened before," Selvakesari said. In Asia, the next generation of the region's wealthiest families are leaning on sustainability to stamp their mark on their businesses and to grow returns in the post-COVID-19 world.
"The next generation that's getting the wealth transfers are even more ESG conscious," Selvakesari added.
Citigroup Inc. itself has set 2030 targets for a 29% reduction in absolute emissions in its lending portfolio and a 63% reduction in emissions intensity in power from 2020 baseline levels, according to its sustainability report.
The quality of investments is also crucial for sustainable finance, said Jin Liqun, president of the Beijing-headquartered Asian Infrastructure Investment Bank.
"Gone are the days when the private sector could come to certain investments, make quick wins, and leave," Jin said. "I think times have changed and even private sector investors will have to comply with quite a number of very tough standards."
Developing the financial system to suit large investment needs during the transition period to net-zero will be a challenge for global decarbonization, according to an Oct. 27 report by the multilateral development bank.
