Visible carbon price, harmonised laws needed to drive sustainable finance: panel

Singapore

AS the world charges towards the various goals and pledges that have been set to effect climate change, what's sorely needed is harmonised regulation and commonly accepted market measures to make such efforts comparable and credible.

These include having a visible carbon price in a liquid carbon market and a greater harmonisation of the standards and regulations governing climate change.

Such were the key points of a virtual panel discussion on "Scaling and Incentivising Climate Aligned Finance", held on Friday, as part of the ASIFMA ESG & Sustainable Finance Week.

ASIFMA or the Asia Securities Industry & Financial Markets Association is an independent, regional trade association with over 150 members, comprising financial institutions from both the buy and sell sides.

"I've been looking at emissions market for basically two decades, and I don't think I've seen a more active and vibrant development of carbon markets until now," said Anthony Yuen, managing director and head of Commodities Strategy, Pan-Asia, at Citi, who was a panellist in the discussion.

But, he noted that "the carbon price now, within carbon markets, is still very fragmented".

Carbon pricing refers to efforts to put a cost on carbon pollution, in an effort to reduce emissions and propel investment into cleaner options.

The World Bank has identified two main types of carbon pricing: emissions trading systems, which cap the total level of greenhouse gas emissions and allows those industries with low emissions to sell their extra allowances to larger emitters, creating supply and demand for emissions allowances and a market price for emissions; and carbon taxes, which set a price by defining a tax rate on greenhouse gas emissions or on the carbon content of fossil fuels.

Gates Moss, senior research analyst and portfolio manager for Australian Equities at Alliance Bernstein, said that a visible carbon price in a liquid market would be "really powerful", in terms of being able to direct sustainable financing towards green targets.

"Traditional institutional owners of equities often struggle with the balance between wanting to maximise returns for their clients and their stakeholders versus wanting to do something that they're targeting in the long term in terms of climate change and climate action.

"At the end of the day, if you have a really strong and liquid carbon price in a carbon market, then firms like ours can take that carbon price and embed it in our investment processes, and make decisions in our portfolios that can help us get to a point where we can get excess returns, but also have lower emissions and reduce emissions within our portfolios."

John Goldstein, head of Sustainable Finance Group, Goldman Sachs, added: "I think there is a fundamental need to have a vibrant, legitimate and effective carbon market ... it needs to have legitimacy and clarity in terms of the impact it's achieving, and a functionality as a real market."

But what's also needed, on a broader scale, to impel sustainable finance towards its targets, is a greater harmonisation of standards and regulations around the world.

Herry Cho, head of Sustainability and Sustainable Finance at the Singapore Exchange (SGX), referred to the "web of languages and standards out there", which can cause much confusion for those not in the field of sustainability and climate change, as well as for those within.

"That's why, at the Singapore Exchange, we've been focusing on how can we help steer the eco-system and support and provide capacity building and training; we've also been (looking to put out) a guidance on what it means to have effective decarbonisation and transition strategies."

To the companies involved, Ms Cho had this message: "You have to mean what you say and say what you mean. If you're claiming to be green, if you're claiming to be impactful on the social side, you have to be able to substantiate that, especially for the investors who are looking for those capital allocation choices, so they can know what's actually within the instrument they're buying.

"And therein lies overall a very important role that SGX plays around disclosure ... we can create more order and comparability between what the companies preach; and we've been putting in an incredible amount of work to see how can we support and help the market to ensure that there is comparability."

Liu Tingting, senior director Government and Industrial Affairs at the London Stock Exchange Group, said: "Climate finance is a hugely complex initiative. We're aware of the differences in jurisdictions, but we need to see greater global and regional alignment of the regulatory framework. (There's also a need for) more aligned taxonomy for (climate) transition finance - that would really serve the purpose of incentivising issuers and borrowers to embrace climate finance."

Mr Goldstein concluded, "My caveat is that, in the focus and enthusiasm about pledges and commitment and reporting and data and assurance, let's not lose sight that this is about transforming the real economy. Let's have the tools, data and metrics support that, and not substitute that."