Bridging the gap in sustainable finance
Asset manager Amundi guides investors to capture energy transition opportunities
Lee Kim Siang
HE first-ever global stocktake, released by the United Nations in October 2023, revealed that global carbon emissions have exceeded interim targets required to meet the 2050 objective of the Paris Agreement.
This lag represents both a risk for investors as well as an opportunity they can seize, said Sylvia Chen, Amundi’s head of environmental, social and corporate governance (ESG) for South Asia.
To achieve the global objective of net zero, annual global clean energy spending has to rise from US$1.8 trillion in 2023 to US$4.5 trillion by 2030, according to a study by the International Energy Agency (IEA).
This spending will create demand for products, services and financing, which Amundi is helping its investors meet.
As the largest European asset manager, Amundi sees its role in “not only financing the world as it is today, but also, helping finance the world as it should be”, said Albert Tse, chief executive of Amundi for South Asia.
Chen highlighted five green tech trends to watch in 2024: sodium batteries, artificial intelligence for smart emissions management, green steel, carbon capture and storage, and alternative marine fuels.
Asia’s potential and dual challenge
Asia, led by China, is at the forefront of the global movement towards sustainable development, heavily investing in green technologies.
Governments, too, are playing a key role in promoting green technology, through policies, subsidies and tax incentives.
According to the IEA, Asian countries account for approximately 70 per cent of the US$470 billion global investment committed in clean energy technologies necessary to meet the 2030 net zero emissions scenario.
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In its Asia Responsible Investment Views 2024 report, the asset manager said “technological advantages, coupled with Asia’s manufacturing prowess, not only fuel the region’s progress but also engender a growing dependency from European and American green technology supply chains”.
The region’s needs are huge. Amundi expects China to be among the major generators of demand for battery energy storage systems such as sodium-ion batteries.
“We expect global usage, with the biggest investment in manufacturing to come from China,” said Chen.
In the area of green steel, meanwhile, Chen said there is also “huge potential” because the vast majority of the world’s existing steel is produced in China.
Tse noted that Amundi has already moved to seize on opportunities presented by the region, positioning itself to serve its clients with market intelligence and boots on the ground.
The asset manager established an ESG research team in China in December 2022. Since then, it has been actively participating in ESG industry associations.
One example is the Capacity-building Alliance of Sustainable Investment established by over 40 Chinese and international institutions.
Amundi is a knowledge-sharing partner in this alliance, and contributes expertise through research and webinars.
In addition to a presence in Hong Kong, Taiwan and Beijing, Amundi has launched two fund management joint ventures: with the Agricultural Bank of China in 2008 in Shanghai and with the Bank of China in 2020.
Asia, and especially South-east Asia, faces the dual challenge of transitioning to low-carbon economies while fostering inclusive growth.
Tse said this means the region needs innovative financing to support essential infrastructure and energy projects.
“The situation emphasises the urgency of allocating resources towards sustainable development,” he added.
Chen also stressed that “tail risks stemming from both physical risks of climate change and transition risks should not be underestimated by investors”.
To mitigate broader sustainability risks and create long-term value for clients, Amundi actively engages with its investee companies with constructive dialogues, working with companies in two key ways.
First, Amundi works to improve how companies integrate environmental and social dimensions into their processes and enhance the quality of their governance to limit sustainability risks.
Second, Amundi strives to improve its investee companies’ impact on environmental, social, and human rights matters that are significant to society and the global economy.
Bridging the financing gap
One of the main barriers to expanding sustainable finance in Asia is the ambiguity surrounding its definitions.
“Without universally accepted criteria, market players set their own benchmarks, resulting in inconsistencies, diminished trust, and potentially higher transaction costs,” said Chen.
A positive development is that a growing number of Asian markets have started developing national green taxonomies.
Singapore launched the final version of the Singapore-Asia Taxonomy in December 2023, the world’s first multi-sector transition taxonomy.
Work on the regional Asean Taxonomy for Sustainable Finance is well underway.
“The momentum we are seeing will support investors to have clear and standardised frameworks for what constitutes ‘green’ or ‘sustainable’ investments,” said Chen.
Private sector financing in Asia, especially in developing countries, is limited, according to the United Nations’ Intergovernmental Panel on Climate Change.
The good news is the private sector is showing more and more recognition of climate-related risks: Innovations in adaptation and resilience finance, such as forecast-based financing systems and regional risk insurance pools, have been piloted and are growing at scale.
“Scaling up transitional finance is particularly important for emerging markets as they are the most affected by climate change,” said Chen.
“To quickly ramp up clean energy investment in emerging markets, public capital will not be sufficient on its own. Private capital needs to be leveraged and crowded in,” she added.
Another major challenge to scale up transitional finance is gaining credibility. There is little data available on net zero transition plans and how they articulate with macro level developmental objectives, which makes it difficult for financial institutions to rely upon them.
To gain credibility, financial institutions need to be able to identify companies’ climate strategies. Credible corporate climate transition plans and increased transparency by corporates, issuers and project developers can help address this critical challenge.
Said Tse: “We have an active role to play in supporting and driving the energy transition while addressing important issues of social cohesion.”
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