Background

Green financing is the increase in the flow of financing from public, private, and non-profit organizations to sustainable development priorities. UN Environment currently aligns the financial system with sustainable development through three approaches: to support the public sector in creating an enabling environment for green financing, promote public-private partnerships on financing mechanisms such as green bonds and green issuance, and to build community enterprises for sustainable development.

With the growth of ESG (Environment, Sustainability, and Governance), green financing has become the talk of the town in the past year or so. As such, one of the major concerns raised by the AEYN is the lack of climate financing in Asia, particularly in Southeast Asia, where financing flows mainly to heavy industries.

“Climate financing is about how much funding goes into projects and where the money flows to. Unlike in the US, public financing here is not targeted at setting green guidelines. Nonetheless, the root causes of climate change stem from 30 corporations, not from individuals.” - Ariane Desrosiers, Co-founder of AEYN.

Despite being a few steps behind, the past year showed signs of Southeast Asian countries catching up slowly.

Malaysia and Singapore

In the ASEAN Sustainable Finance State of the Market 2020 launched recently by the HSBC-supported Climate Bonds Initiative, it is revealed that Malaysia and Singapore’s sustainable finance market maintained rapid growth despite the pandemic. The Malaysian sustainability bond and Sukuk market particularly stood at US$2.6 billion. While the cumulative Asean Green, Social, and Sustainability (GSS) issuance, now standing at US$29.1 billion, met with a record high of US$12.1 billion in 2020, with Singapore taking the lead representing 53% of the total issuance.

In terms of developments, Singapore and Vietnam have announced the expansion of planned sovereign green bonds issuance. Malaysia’s Joint Committee on Climate Change, led by Bank Negara Malaysia and Securities Commission Malaysia expects to prioritize climate risk management as one of its key policy developments in 2021.

Philippines

Among all Philippine lenders, The Bank of Philippine Islands (BPI), which is also Southeast Asia’s oldest lender of 170 years, was declared the lender with the highest coal exposure. Hence, in June 2021, its CEO, TG Limcaoco, declared the bank’s aim to halve its outstanding coal loans within five years and cut them to zero by 2032. The bank is transitioning its focus on borrowers’ sustainable behaviour by lowering interests, to encourage more development on green buildings and buying of clean energy. Furthermore, the Governor of the Philippine Central Bank stated that nearly US$3 billion worth of green, social, and sustainability bonds have been issued by Philippine banks since 2017 with an expectancy of more lenders on that path.

En route to recovery, BPI aims to reduce physical outlets from 35% currently to 20% in the next 1.5 years. The bank’s transactions would also maintain its 90% digital rate that sprung from 60% pre-pandemic. Furthermore, it foresees the investment in technology accounting for as much as 10% of revenue starting this year, which previously stood at 7% to 9% annually.

Investment trends

“Data analytics is a great way to determine the most effective or high impact parts of climate solutions we should focus on. Time left is so limited, and we should optimize opportunities as they come along. Technology even provides an efficient application to all, in reducing carbon footprint.” - Josephine Koay, core team member of AEYN

UN Environment validates the concerns raised. And banks should revise their decisions on investments by considering investing in more green and clean technologies to further the Sustainable Development Goals. Somewhere down the lines, AEYN is also considering setting up its climate finance to educate people on the awareness of green financing.

“The capital allocated today will shape ecosystems and the production and consumption patterns of tomorrow.” - UNEP

As the market gradually returns to normal, the market anticipates shifts in mindset and campaigns for sustainable financing habits.

This article is inspired by the interview with the co-founder, Ariane Desrosiers, and core team member, Josephine Koay of the Asian Environmental Youth Network.

By Ottilie Cheung

Sustainable Finance - The New Normal in Asia