Asia making encouraging progress in building a sustainable future

THE upcoming 26th United Nations Climate Change Conference of the Parties (COP26) is a crucial milestone in the global fight against climate change as countries gradually recover from the Covid-19 pandemic.

This year's summit in Glasgow is anchored by 4 overarching goals:

• Securing global net-zero by mid-century and keeping 1.5 deg C within reach;
• Adapting to protect communities and natural habitats;
• Mobilising finance; and
• Working together to deliver on these goals.

In the lead-up to COP26, experts have called for decisive climate action amid shifting macroeconomic and geopolitical dynamics to achieve the Paris Agreement target of limiting global warming to 1.5 deg C. How Asia responds to the climate challenge will have significant implications for the long-term trajectory of economic growth in the world's most populous and increasingly affluent continent.

Asia is on the frontline of the climate crisis. The region has experienced a dramatic rise in climate shocks latey: Floods have devastated parts of China, India, Bangladesh and South-east Asia; tropical cyclones have swept across East Asian nations. The Intergovernmental Panel on Climate Change (IPCC) report published this year was sobering in its scientific projections of continued and accelerating effects from climate change if radical changes are not made in the way we consume.

McKinsey Global Institute's 2020 report shows the economic impact of climate change is greater in Asia than elsewhere. The region stands out as being more exposed to physical climate risk than other parts of the world in the absence of adaptation and mitigation. The Asian GDP at risk from climate events accounts for more than two-thirds of the total annual global GDP affected, which underscores the pertinent need to invest more in climate adaptation and mitigation before we reach the tipping point where action could come too little, too late.

SwissRe's report earlier this year noted that the top five countries least prepared for the economic shock of climate change are all in Asia.

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Nevertheless, there has been encouraging progress in environmental, social and governance (ESG) action across the region over the past year. Several Asian economies have made carbon-neutrality commitments, most notably China; Asian governments are also increasingly integrating sustainability into their long-term growth agendas by catalysing the development of regional sustainable finance eco-systems, expanding the market for green bonds, or championing innovative green finance and ESG-themed products.

A report by the Global Financial Markets and Boston Consulting Group found that the largest regional climate finance investment needed is in Asia, estimated at US$66.4 trillion over the next three decades, which is over half the investment required globally to transition to a low-carbon economy.

SIGNIFICANT MOMENTUM

Sustainable financing has gained significant momentum over the course of this year. Refinitiv data shows that sustainable finance bonds hit an all-time first-half record of US$551.6 billion in the first half of the year. Of that sum, the Asia-Pacific (ex-Japan) accounted for 17 per cent of the market share, with US$94.9 billion issued, as compared to US$31.9 billion a year ago. In April, Malaysia introduced the world's first sovereign dollar sustainability sukuk to fund ESG projects aligned to the UN's Sustainable Development Goals agenda. This drew strong investor interest and was 6.4 times oversubscribed.

In addition to bonds, Refinitiv's H1 2021 Sustainable Finance Review indicates that equity capital markets activity for sustainable companies hit a record of US$23.2 billion in the first half of 2021, more than triple the activity level than the previous year. The Asia-Pacific was the second largest market globally, accounting for 38 per cent of overall equity capital markets activity during the first half of 2021, just behind the Americas with 41 per cent market share.

Policymakers across Asia have also strengthened commitments to scale green finance and support the region's transition to a sustainable future. For instance, the Monetary Authority of Singapore (MAS) committed to deploying US$1.8 billion under its Green Investments Programme to catalyse funding towards environmentally sustainable projects in Asia and beyond; Malaysia launched its national climate change taxonomy in April to facilitate transparency among investors and financial institutions.

The Future of Sustainable Data Alliance has mapped global initiatives at creating green or sustainable taxonomies to add transparency and rigour to defining sustainable finance. This work shows clearly Asia's engagement in driving the green-finance agenda, with most Asian nations having a taxonomy in some stage of development.

In Japan, the Government Pension Investment Fund (GPIF), the world's largest single pension fund, has allocated funds to ESG investments since 2017, with an initial US$27 billion allocated to shares with good ESG scores and into three ESG indices. The following year, low-carbon indices were funded to the tune of US$10 billion, which further highlights a marked shift to ESG as a measure of asset quality in Japan. Additionally, GPIF has asked external asset managers it uses in Japan to "take ESG into consideration" as a fundamental measure of investment strategies.

Policy-makers in Asia are increasingly focused on limiting greenhouse gas emissions. The recent pledges to carbon neutrality by 2050 (Japan and South Korea) and 2060 (China) represent a pivotal step towards net-zero and have a snowball effect that can catalyse further climate action across the region.

Across Asia, we are seeing evidence of prioritising adaptation measures to boost climate resilience. In Vietnam for instance, the country has been experiencing a remarkable solar boom to reduce its reliance on coal. Through increased renewable energy investments in recent years, Vietnam is currently leading the solar market in South-east Asia, with the highest installed solar power capacity in the region.

Many of these climate adaptation initiatives will require digital technologies, data and analytics to effectively predict, analyse and model various climate scenarios. Not only will investing in data and technology help to strengthen early-warning systems, it can also speed up disaster recovery and response efforts during a crisis to minimise the impact of extreme climate-related events. There is a huge opportunity in Asia to increase adoption of digital tools to strengthen the region's capacity to adapt to climate change and lead the global response to climate risk.

To drive lasting improvements in sustainable practices in Asia, greater collaboration among policy-makers, businesses, investors and other industry stakeholders is needed to address climate risks holistically and keep up this positive momentum for the long-term.

Ahead of the COP26 conference, the 15th meeting of the Conference of the Parties to the Convention on Biological Diversity (COP15) in the Chinese city of Kunming this month is an equally important global environmental summit aimed at halting biodiversity loss. Although the face-to-face portion of COP15 will be delayed until April 2022, it is critical to ensure that progress towards a solid road map for biodiversity action is not stalled.

TOP 5 RISKS

Biodiversity loss/ecosystem collapse has been named as one of the top five risks in the next 10 years, says a report by the World Economic Forum. Paulson Institute estimates that the cost of reversing the decline in biodiversity requires an average of US$711 billion a year until 2030. However, financial institutions and companies have a low understanding of how their operations or investments impact or depend on nature, and there is a pressing need for better data to integrate nature-related risks in their decision-making processes.

To address this challenge, the Taskforce on Nature-related Financial Disclosures (TNFD), a new global initiative endorsed by the Group of Seven (G7), aims to standardise nature-related disclosures and give companies a complete picture of their environmental risks and opportunities, and support a shift in global financial flows toward nature-positive outcomes.

Asia has recorded tremendous growth in the last 20 years and will continue to grow rapidly in decades ahead. The world now needs strong commitment and collaboration across the region to increase the pace of decarbonisation, build resilient infrastructure and mitigate the negative consequences of climate change.

Ultimately, Asia has the tools, capabilities and investor interest to support decisive climate action that could help lead the world towards a greener and more sustainable future. With the deadline for effective climate action looming, there is an urgent need to accelerate the region's transition towards a net-zero future. Asia will be one of the most impacted regions in the world if we drag our feet on this. With much to lose, Asia has the incentive to be a leader in global sustainability. Early evidence suggests it is taking this ambition seriously.

• The writer is chief industry and government affairs officer, London Stock Exchange Group, and chair of the Future of Sustainable Data Alliance.