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ESG Investing / Asset Management / Wealth Management
As Europe steps back, Asia can step forward
The energy crisis in Europe is casting a shadow on efforts to deal with climate change. It is also an opportunity for Asia to raise its voice on the transition pathway to net zero
Daniel Yu 25 Jul 2022

As the global energy crisis intensifies, ignited by a war in Europe, one thing has become perfectly clear: the urgency of the climate crisis takes a backseat when national interest is at stake.

With Netherlands joining Germany, Austria and Italy in removing caps or restarting coal-powered power plants - some older than 35 years and less efficient - Europe’s fighting words in the battle against climate change rings hollow, especially in how they sound in the rest of the developing world.

Jakarta, capital of Indonesia, one of the world’s largest coal exporters, these days is buzzing with energy. Coal price has nearly tripled from what it was a year ago. One banker shares a conversation on a recent visit to the city. “Not too long ago, non-governmental organizations call us to complain; now governments call us to ensure a steady coal supply,” chuckles one exporter.

But the reality confronting Europe as it deals with its energy crisis is no excuse for Asia to slow its progress in addressing climate change. After all, as the most vulnerable region in the world – and likely to remain the most promising region for economic growth in the decades ahead – it has the most compelling reason to lead the charge to safeguard the future.

The opportunity is for Asia to leapfrog the rest especially in energy transition. It would need industrial policies that create the right set of incentives such as on carbon pricing or around direct emission standards. Governments or regulations will need to play the part to create the frameworks for the finance industry to operate within in order to direct capital in a way that rewards companies that have better transition plans than others.

A panel of experts at The Asset Events in Singapore on ESG regulations and frameworks: Implications for asset owners and managers, organized in association with BNP Paribas, shared this view and in how Asia can take a leadership role in defining the transition pathway to net zero.

One speaker believes Asia is already leading the discussion on the transition framework – what it means for moving companies that are not low carbon today and applying environmental and social issues into the mix. “A lot of the thinking, the frameworks, the regulation and the taxonomies are developing in Europe. It's very binary; it's very green or not,” shares Eric Nietsch, head of ESG, Asia, Manulife Investment Management. “The taxonomy [developing in Asia] establishes this idea of a yellow category in the traffic light; it doesn’t need to be binary.”

Another speaker stresses the importance of ambition. “Policymakers and regulators [need] to have more ambition and to move faster. Carbon tax needs to be a lot higher; needs to be a lot sooner. As long as carbon is not priced, capital end up being misallocated,” believes David Smith, senior investment director, abrdn. He also would like investors and other stakeholders to be more ambitious and to move faster allocating capital to solutions providers. “And we need our clients and customers to come with us and to have those conversations around what's under the hood in the way that we're really trying to move the needle on transition.”

Data mining is another area Asia can take the lead. “Data is abundant; it is out there to be captured, and to be utilized,” points out Sylvia Chen, senior sustainability officer at Amundi. “We do have the resources and human capital to capture and utilize it. Alternative data and AI (artificial intelligence) solutions can also be a great help.”

Agrees Jenn-Hui Tan, global head of stewardship and sustainable investing at Fidelity International. “The talent in Asia around this space is amazing and how quickly the ESG community has grown. Some of the best hires that I make in my team are Asian investment professionals. That ability to learn very quickly, to apply and to contribute that is what will propel Asia forward.”

Having the transition pathway defined is vitally important for Asia to achieve its goal. “It would be a big help when we can start creating that for sectors and countries with goals so we all know what we’re working towards and that we are looking at the same thing,” hopes Thu Ha Chow, head of fixed income, Asia, at Robeco. “Then we can benchmark companies on the right path, whether they are higher or lower because we are dealing with transition [and] not black and white.”

Learning from the mistakes of other countries and regions will benefit Asia too, adds Min Axthelm, director of investment research at Endowus. “Watching what others have done, watch and learn. That’s the draft before the masterpiece – so we can create a masterpiece.”

It doesn't always have to be transition in Asia, suggests Nietsch of Manulife. Countries with low per capita emissions can go directly to green. “They don’t have to follow the expensive transition that’s happened in other parts of the world. They can just have cleaner, better infrastructure today.”

Stephen Beng, head of ESG strategy, Phillip Capital Management cites not just Asia’s decarbonization objectives but also nature conservation. “These are not competition points. It’s all hands-on-deck moment. We need to work together at all levels and different stakeholders will need to come together.”

“Asset growth for the next ten years is going to be here in Asia. Everybody knows this,” says Nadim Jouhid, head of investment solutions, Asia-Pacific, BNP Paribas Securities Services. “Let's make sure that the asset growth goes into the right bucket; let's make sure that goes into ESG.”

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