Sustainable financing must make commercial sense for investors, market players say

WHEN financing green or other sustainability-related projects, financial institutions still prioritise the commercial viability of such investments, with a view that there could also be positive environmental or social benefits.

Besides showcasing the green or social impact of their products or business models to investors, corporates need to also show how they can generate continued financial returns, said Srikanya Yathip, secretary-general of Thailand’s Government Pension Fund on Tuesday (Feb 7).

Yathip, who was a panellist at a sustainability conference organised by The Economist, said “we cannot, sorry to say, sacrifice financial returns for social returns” because of the fiduciary responsibility, but “we can compromise short-term returns” for long-term social, green and financial returns.

She explained that this compromise would involve delaying a good amount of returns, but it is worthwhile if the fund is convinced that the investment could contribute to both society and climate.

Thailand’s Government Pension Fund fiduciary duties, coupled with regulations set by the Thai government, also mean that the investor is constrained on the type of companies into which it can inject capital.

Yathip said that it can mainly invest in large, listed companies, thought it can invest indirectly in small- and medium-sized enterprises by packaging these investments into funds.

Echoing a similar position, Eric Lim, chief sustainability officer of UOB, said that the bank is firm on being realistic on commerciality, and looks at regulatory stability, the availability of mature technologies and the corporates’ track record as the main criteria when it assesses the bankability of sustainability-related projects.

“So it really does come back to a hard-nosed lens on commerciality, but commerciality with a view of generating and financing positive environment and social impact,” said Lim, who was also a speaker at the same panel.

The prioritisation of commercial viability of these projects also means that financiers need to hunt for “very boring” sustainable solutions instead of technological breakthroughs, he added.

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While research and development is important, projects that do not have to overcome regulatory hurdles, and which can be adopted on a large scale and easily commercialised, can be as financially viable as the next breakthrough, Lim said. “The game is to scale what we have, not hunt the holy grail or latest technology.”