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The Big Conversation

Episode 120: Asia’s push towards net zero

This week Garett Lim talks to Helena Fung, LSEG’s Head of Sustainable Finance in the APAC region. They discuss the positive steps that Asia’s corporates have taken toward embracing the reporting criteria and ESG standards that have been set out by the Task Force on Climate-related Financial Disclosure. To accelerate the transition from here, however, will require coordination across the financial landscape of investors, banks, service providers, and regulators. Asia has often been seen as a laggard in the push toward transition, but this is no longer the case because policymakers and corporates are now embracing the change.

  • Garett [00:00:00] Decarbonising the whole global economy is critical to minimise the worst consequences of climate change. In this week's episode, I chat with Helena Fung London Stock Exchange's head of sustainable investment on the key drivers in the sustainable finance industry in Asia. The last two years have seen a big increase in sustainable investing globally, and major banks are committing trillions to facilitate this shift into a more sustainable economy. Could Asia be at the forefront in the sustainable finance industry globally? What would a sustainable finance industry need to accelerate to net zero? And more importantly, how is Asia going to lead the way? This is the Big Conversation.

    Garett [00:00:52] Helena, thank you very much for your time today. So happy to have you on this call. Sustainable finance has been a really, really topical discussion for a lot of people and especially markets right now. So Helena, maybe you can just maybe give us a quick intro and then we could get straight into it.

    Helena [00:01:07] So the start, I'm delighted to join you this afternoon, so I'm having a full I'm head of sustainable investments for FTSE Russell part of the London Stock Exchange Group. I've been in the business for about two years, but I've been in sustainable finance for, I think coming up i think, 15 years. And before that, and in finance for around 18 years, my background is in law. Essentially, my role here is to define and execute the strategy for sustainable investment across the number of propositions that we have in business. So the predominant one for FTSE Russell being of course index products, but very intrinsic to that, and I think important in particular to the APAC region is what we do on the data and the analytics side. So it's really about understanding the needs for APAC, making sure that we are responding to that demand, but at the same time that we're working across the ecosystem to really kind of help to drive forward the sustainable investment agenda within the region.

    Garett [00:02:04] Fantastic. That's great. Helena we're going to dive straight in, actually. I mean, one of the key things that I really wanted to ask you was, you know, what do we really need to see to accelerate the just transition to net zero in the next few years, especially, you know with the Asian angle and a global angle?

    Helena [00:02:18] Well, you know what a really critical point in that whole transition process. If we're going to meet the global climate goals that have been set out at a government level and in policy. And this is really, as people have said, the decade of climate, the 10-year period going up to 2030, what we really need to halve global emissions by around about 45 to 50 percent in order to meet our longer-term global goals around avoiding the worst impacts of global warming. So in that sense, accelerating the transition from this point onwards is really needs an urgent task. I think that involves coordination, coordination across every aspect of the capital and financial markets, from regulators to investors to banks to service providers like LSEG, and really kind of very collaboratively across the value chain capital markets. Now within that, there are a couple of core pieces - of course we need to move away from fossil fuel use, and that's particularly in the Asia region where we have some very carbon intensive power grids that need to be transitioned towards greener energy. But it's also important to make sure that at the same time as we're decarbonising, we're also scaling up the green solutions that are going to be needed across the whole range of different industries to make sure that we're accelerating towards electrification, towards some of the solutions that are going to be needed to really help to meet the climate mitigation and adaptation goals that we have in the region. Again, I think we need to, need to consider this really within an APAC context and the fact that we have a number of developing as well as developed markets here and that markets are not homogenous within APAC, they're at different points in that transition. And that's why that element that you mentioned, Garett of the just transition comes in. We need to make sure that we're really enabling all countries within APAC to be able to meet those goals and not leaving anybody behind in the transition. And this is really that whole social element as well comes into thinking about how do we transition to where we need to be in order to avert the worst, the worst impacts of climate change.

    Garett [00:04:32] I also just want to just talk about the market. There's been a lot of high-profile announcements as you know by banks, increased investments to sustainable investments. A lot of people talk about targets for 2030, but you know, realistically, what, what do we need to see for this year to really see that they are actually serious about this?

    Helena [00:04:47] Well, I think what we need to see in particular, if you look at the corporate side of the equation is businesses being very serious about putting strategies in place that are going to move the needle towards low carbon and sustainable solutions in the long term. And I think in particular, when you look at financial institutions and their exposure to companies, this is where really the solutions are required across all actors within financial services. So from companies, we really need to see them putting in place a very credible transition plans, aligning themselves with science based targets and ensuring that they really have the right strategies and the right governance in place to make sure that they can meet those targets to decarbonise and in actuality, on a go forward basis. So that really needs to be happening from this point onwards. And as I said, as I said previously, you know, there isn't really a lot of time here to waste. It's really about making sure that that happens from now across the board. So I think when investors are looking at companies that need to be really understanding how companies are positioning themselves to meet the challenges of that, of that low carbon transition. What steps are they putting in place? How much is that critical feature of the way that the company is organising itself on a go forward basis? So I mean, certainly there are sort of practical elements that need to happen to make sure that we're scaling up the solutions for a green transition at the same time, you've got to make sure that the companies in your portfolio are sufficiently aligned with those goals in order to make sure that you're mitigating risk, but also positioning well to take advantage of the opportunities that are going to be really important in that low carbon transition.

    Garett [00:06:24] And Helena I just wanted to focus a little bit on the industry itself, the sustainable industry, there's been a lot of developments in the US and especially Europe as well, but I just really wanted to give our viewers a much, much better idea in terms of what's happening in Asia, specifically on sustainable finance investments. I certainly think we're a lot more advanced than what maybe the market's giving us credit for. I mean could you, could you elaborate a little bit on that?

    Helena [00:06:48] Yeah very happy to, and I think I think you make a great point. I mean, I think in the last couple of years, certainly the pandemic has been a really interesting driver of this. We've seen a great deal of focus in particular on environmental issues. And I think what's happened over the course of the COVID 19 pandemic is really that people have become very aware of the, I guess, the fragile nature of markets and the fact that what we've seen in terms of the disruption and the disarray in markets certainly at the beginning of 2020 in the early part of the pandemic is very sort of resonant of what could happen if you have a disorderly transition to a low carbon environment if we don't put those steps in place that I was just looking through in advance. So, you know, essentially, I think that has really set to kind of underscore the need for policymakers as much as for investors and for financial institutions to make sure that they are well-positioned, that they are taking account of the risks that are inherent in environmental issues, as well as in the full range of ESG and social challenges. So I think what we've seen is, as I said, policymakers really kind of start to double down on making sure that the financial institutions in their regions are accounting for climate risk, taking that into account in their capital allocation provisions, for example. So you've got the regulatory driver at the same time, I think we're seeing increased leadership from asset owners in the region, and having spent quite a previous part of my career in sustainable finance in Europe, I can certainly attest to the fact that asset owners and the investment community as a whole have been a very important driver and catalyst for that pivot towards sustainability. So it's really encouraging to see that happening here. As much as we're seeing a focus on the policy instruments like carbon markets like taxonomies, for example, a renewed focus on disclosure, a focus on TCFD as a reporting standard for climate metrics and climate strategies. So I think it's really the pulling together of kind of all of those different elements that are going to be a very important in meeting the goals that we have in this part of the world and APAC as I said before, very exposed to a lot of the risks of climate change, and it's an area where we actually need to really scale up investment on climate and make sure that we are orienting capital flows in the right way to be able to fund the transition. But at the same time, it's really also about making sure that investors understand and are factoring this into their portfolios, and that's the bit that we're beginning to see happening. You know, it's been a kind of a top-down transition. I would say in Asia, but given the need for Asia to transition, how important that is on a global scale to meeting climate goals. It's very encouraging to see that happen at pace in the last couple of years.

    Garett [00:09:48] It's an interesting point, you say, but can we just focus a little bit on the quality of the data? I mean, how do you see the quality of data in Asia? I mean are companies in Asia embracing the disclosure of their data? Do you see that in a, you know, are we seeing a more advanced disclosure of data here in Asia compared to other parts of the world or are we still lagging somewhat?

    Helena [00:10:11] Well, look, I mean, I think you made the point before that in some ways, Asia has traditionally been regarded as a bit of a laggard in this in this space. And I think the data and the lack of a homogenised disclosure framework has been certainly a part of that. Having said that, given the focus by policymakers, given the focus by investors and the questions that companies are regularly being asked about their ESG practises and policies, I think there's now greater familiarity with the kind of sustainability data points that investors need to see and are asking for. We're also seeing, which I think is is equally encouraging, is more of a convergence and alignment around what the key standards are, and that's also been an issue in the past, not only for companies in Asia and a global basis. One of the frameworks that investors are supporting and what do companies need to disclose, there's been this sort of alphabet soup approach to different disclosure initiatives. What we're seeing convergence around things like I mentioned before, TCFT is sort of a gold standard of climate, climate related reporting. So that certainly makes things makes things easier. I think what you're seeing is that there's a focus really on the larger companies. So those larger companies that maybe have deeper pockets or better resources for spending on sustainability, personnel and reporting are probably the ones that are most familiar with being scrutinised. So those are the ones that we're seeing, I think, really upping their game. What we need to see now and this becomes even more interesting when you think about the exposure of the banks, is a requirement for companies across all market cap sizes, but also private and unlisted companies to begin disclosing the same kind of data. And I think this is where the data providers like LSEG it becomes very interesting in terms of understanding how we can help to to facilitate that, not just for the larger companies, the larger listed companies in the main markets, but really across all of those companies. So, yeah, I mean, definitely the quality and the amounts of disclosed information is improving. There's always, there's always farther to go, and I think it is really back to the unlisted space now that's going to be challenged to disclose the main data points.

    Garett [00:12:32] It's interesting, I mean, just in terms of industry is evolving very rapidly, and we, as we mentioned, Europe seems to be leading the way, but could you see Asia being at the forefront of the industry itself? And if so, I mean, can you give us some examples of what perhaps some, you know, some some banks or some some practitioners are doing to really get ahead of the curve?

    Helena [00:12:50] Yeah, I mean, that's a that's a great question. I do think that from a sustainability perspective, Asia is a really exciting part of the world for a number of reasons. Now, you know, in many ways, Asia is very exposed to the risk of climate change. From a physical perspective, we have a lot of, you know, sea level areas that are at risk from rising sea levels. So that and then of course, we have some pretty significant weather events here in Asia, so there is a great deal of exposure to the physical impact of climate. And as I've said before, there's also an increased need to really finance that transition as well, particularly in the more emerging markets. So from an investment standpoint, there should be a lot of opportunity within Asia to make sure that we're orienting capital flows in the right and the right way. So there is that increased need. There is the fact that you've got very fragmented markets at different stages of development, but at the same time, it's the response of policymakers. But also, I think the response of industry is very exciting. And if you look at what's happening in China with blockchain, with the digital economy, with looking at NLP and AI as a way of uncovering insights where the data doesn't currently exist on sustainability practises and issues. I think there's a lot of creativity and entrepreneurial spirit going on here in terms of thinking through how can we factor sustainability into different elements of industry, but also to gain different insights. So I think both from that kind of that need perspective and the requirement to invest, I mean the SDGs is another great way of looking at this. The amount of capital that's needed to meet the SDG the 17 Sustainable Development Goals by 2030, I think is estimated at something like 1.5 trillion dollars on an annual basis. So that's, that's a massive opportunity to really have an impact, but also from an investment standpoint as well, so to your question Garett I would say absolutely, I find this a really exciting part of the world.