Sustainable finance regulators should stop chasing trophy deals: ADB specialist

REGULATORS who are guiding the direction of sustainable finance must move beyond “first” and “biggest” prizes and give higher priority to the inclusion of marginalised groups, a panellist said on Wednesday (Aug 24) at Maybank’s Invest Asean 2022 conference.

Chasing those trophies for visibility might not be the most productive way to harness finance for net-zero goals, said Mohd Sani Mohd Ismail, the principal financial sector specialist at the Asian Development Bank’s South-east Asia department.

Urging stakeholders to think “holistically” about what is needed to drive the transition to greener and more sustainable economies, he advocated for looking more closely at what can be done to use the sustainable finance route to provide funding for groups that are unable to accessing capital markets. Help can come in the manner of the issuance of municipal bonds, for instance, he noted. 

“Often we forget about municipalities and provincial-level financing, because everyone talks about big corporates and sovereign finance, but we forget about the province and what they need in order to achieve their own targets in terms of NDCs,” he said. 

NDCs, short for nationally determined contributions, refer to the commitments of each country to reduce greenhouse-gas emissions and adapt to climate change, agreed upon in 2015 under the Paris Agreement. “I think that realisation of moving together, not just looking at the limelight, but also how we can bring everyone onto the transition journey, how we can bring everyone into the boat is important,” he added.

Adding SMEs into the picture

Moving past the limelight would also mean solving the issues that small and medium-sized enterprises (SMEs) will have in contributing to the NDCs. 

While there is no doubt that SMEs, being the backbone of many Asean economies, are an important part of the net-zero transition, the panellists agreed that a major hurdle now is cost. Among them is Poonsit Wongthawatchai, executive vice-president of the ESG division at Thailand’s Bank of Ayudhya, who believes Thailand cannot accomplish its NDC without SMEs, but acknowledges that the transformation required of them is “super expensive”.

Sani also recognised that SMEs are “not your typical corporates who can afford the high cost”, especially when many of them are still recovering from pandemic woes, as he said this is where the government can come in to play a larger role. When asked if he foresees a crossover point wherein sustainable finance options become cheaper than plain vanilla financing, Sani said there is no running away from the additional costs tied to green bonds, given the need for additional verification and procedures.

Eugene Wong, CEO of the Sustainable Finance Institute Asia, was of the view that banks should look into how they can intermediate, while there is also the option for SMEs to turn to crowdfunding avenues. “If policy lending institutions like development banks can actually raise money using these bonds and lend to the smaller companies, that will be very useful,” he said. Nevertheless, he noted that “regulatory discipline” needs to come in to provide the impetus and push into the direction officially agreed upon, where self action and market discipline fail.  After all, “private sector initiatives tend to be very fragmented”, he added.

Timothy Tan, a senior associate in the Singapore Exchange’s (SGX) sustainability and sustainable finance team, said data underpins green transition financing. The market operator had been working on simplifying environmental, social and governance (ESG) reporting processes and providing guidance to companies, he noted. These same efforts would benefit SMEs, he said. They include SGX’s recommended list of 27 core ESG metrics meant for issuers to use as a starting point for sustainability reporting, as well as the ESG disclosure portal which the exchange is developing at this point.

The “ESGenome disclosure portal” in the works followed the frontline regulator’s consultation on a proposed digital data portal for investors to access ESG data in a structured format.

Revealing more on this effort last month, Singapore Exchange Regulation CEO Tan Boon Gin had said the portal is built with an aim to guide companies to enter the necessary information to meet its disclosure requirements and auto-generating sustainability reports. This platform, according to Timothy Tan, could prepare SMEs, not just for the equities market, but also for the data requirements that would likely be required of them when they eventually tap green financing solutions.