Finance

Green finance, a paradigm shift

Eugene Wong (PIC) of the Institute for Sustainability Finance in Asia provides advisory services to various organizations keen on implementing sustainable finance. Here are excerpts from an interview with StarBizWeek:

STARBIZWEEK: Some argue that the green finance movement is something that affects Western or advanced economies and that there is no need to worry about these issues.

Wong: Sustainability is a global issue. Climate change is a global issue. They do not recognize any boundaries nor are they trends. They are paradigm shifts. The effects are very real. Just look at ASEAN. Four Asian countries were among the world’s top 10 countries worst affected by climate-related disasters from 1999 to 2018, according to the Global Climate Risk Index 2020.

The Asian Development Bank estimates that by 2100, the impact of climate change on ASEAN will be 11% of ASEAN’s GDP.

Climate change will affect everything from water supplies to rice production, to increasing cardiovascular and respiratory diseases. It is estimated that 185 million people will suffer from water stress by 2050.

The availability of capital and the cost of capital for companies globally, including in this part of the world, will be affected if they are not climate compatible.

Moreover, global action on climate change will move through the supply chain, affecting companies in this part of the world.

How important is it for companies to understand and implement sustainable practices within their organizations?

What happens if they decide to pay lip service to these principles only?

As I mentioned, this is a paradigm shift and there are multiple workforces at once.

Let’s first look at the direct impact of business. It was reported that so far, the parties that pledged net zero coverage have pledged 67 regions, 1,049 cities, 5,235 companies, 1,039 educational institutions, 441 investors and 52 health care institutions.

Customers are starting to take their suppliers’ carbon footprint seriously.

Non-climate companies face a real risk of being excluded from supply chains.

As ASEAN countries are export-driven, the supply chain and customers are also inducing transformation, with multinational corporations (MNCs) willing to spend more on zero-zero products and services.

A study by Standard Chartered revealed that multinationals will cut suppliers for failing to reduce carbon emissions, with 78% of multinationals planning to remove suppliers that put their carbon transition plan at risk by 2025.

About 45% said they would pay a premium, 7% on average, for a product or service from a zero net supplier.

We have to watch the disruption that a poorly planned green turn could cause the economy.

For example, SMEs are the backbone of the economies of ASEAN countries but the transformation will affect them in terms of competitiveness and affordability. See also the recent energy turmoil in Europe.

The community also grew more knowledgeable and enlightened. Customer boycotts and societal pressure, including on government policy, can affect a business. Availability of capital will be affected. In a PwC survey of European business managers it was discovered that 77% of those interviewed planned to stop buying non-Enverion SG products by 2022.

Climate-related financial losses can occur as a result of asset weakness, damage, or stranding.

Climate change is an economic, financial and social risk that financial institutions have to contend with.

Is there a concern of organizations indulging in the laundering of the environment?

Greenwashing and sustainability are among the biggest threats to the success of sustainable finance.

It can be described as representing the proceeds of a loan or investment being used in a way that is more environmentally friendly or sustainable than it actually is.

This can occur when parties take advantage of a lack of clear and credible definitions and objectives, a lack of verification and weak disclosure requirements.

We need to address this with reliable, shared definitions and with meaningful goals.

Disclosures must be independently verified, consistent, comprehensive and accurate.

For the corporate world, what are the challenges and opportunities under green finance developments?

The challenge is straightforward – how do you integrate this global paradigm shift into your business model? Regulations, supply chain requirements, availability and cost of financing and stakeholder demands all come into play.

Banks and investors, with a push from regulators and stakeholders, will begin to review the climate alignment of their borrowers and investors and increase their lending method accordingly.

So companies must start their green journey now.

Companies that are able to change their models faster and embrace the agenda will benefit from customer demand for green suppliers and for goods and services that are produced in an environmentally friendly manner, perhaps even filling in the gaps left by those who cannot keep up. .

There are opportunities to develop environmentally friendly technologies and processes that provide competitive advantages and new markets.

They can take advantage of green finance as well as transitional finance markets. But most importantly, by embracing a green agenda, they believe in their long-term survival.

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