Investor interest in climate finance set to grow in Asia

Climate-finance experts said that while investor appetite in Asia for products related to environmental, social and governance factors was cool, they expect that it will accelerate.
Climate-finance experts said that while investor appetite in Asia for products related to environmental, social and governance factors was cool, they expect that it will accelerate.PHOTO: REUTERS

Recent reports, experts indicate appetite for environment-related products will speed up

The financial industry in Asia has a long way to go to address climate change but there are signs that this is changing, said two recent reports and climate-finance experts.

A report by the Asia Investor Group released last week reviewed 88 Asian financial institutions and found mixed responses in addressing climate-change risks.

Only 31 per cent said they factored climate change into their financial operations, while 61 per cent of the 36 banks polled stated that they had green finance solutions, and 28 per cent referred to climate-change factors as a reason to limit financing.

Singapore banks upgraded their levels of disclosure this year, adding statements on environmental, social and governance (ESG), following guidelines on responsible lending from the Association of Banks in Singapore, said the report.

But it noted that none of the three Singaporean banks mentioned provision of green finance, which represented "missed opportunities".

LARGELY IGNORED

We believe climate risk factors have been underappreciated and underpriced because they are perceived to be distant.

MR EWEN CAMERON WATT, senior director of BlackRock Investment Institute.

The report praised Chinese banks for leading the region in disclosures of sustainable finance. This is due to green credit guidelines from the China Banking Regulatory Commission, which limits exposure to high-carbon industries.

Asian investors were not much more active in addressing the risks of climate change. Half of the 30 investors reviewed provided a statement on ESG factors, but only 27 per cent outlined steps taken to mitigate climate-change risks.

The report noted that these steps are still vague.

BlackRock Investment Institute, the think-tank arm of the world's largest asset manager, said investors can no longer ignore climate change.

In its report released last Thursday, senior director Ewen Cameron Watt said: "We believe climate risk factors have been underappreciated and underpriced because they are perceived to be distant."

That is set to change, the report said, as there is a growing number of climate-related investment tools and data available to investors.

Experts attending the Principles of Responsible Investment forum in Singapore last week told The Straits Times that while Asian appetite for ESG-related products was cool, they expect that it will accelerate.

Mr Frederic Samama, Amundi Asset Management's deputy head of institutional and sovereign clients, said that Asian investor appetite for products like low-carbon indices was "starting", adding that global demand for such products had skyrocketed only in the past two years.

Mr Samama, who has written several academic papers on investor response to climate change, put it down to five factors, including the availability of mainstream business products.

"As a money manager, you hear about financial products, about what your peers are doing. You hear that the Pope is advocating climate change and you hear that your government is asking you to do something. Can you keep your head in the sand? To hide is less of an option," he noted.

Mr Philippe Zaouati, chief executive of Mirova, the responsible-investment solution arm of Natixis Global Asset Management, said that he is hopeful that Asian investor appetite will "accelerate" rapidly, as it has in the United States.

He said that there could be a "leapfrog" for Asian investors, "going from not much towards new thinking such as investing in green bonds and skipping traditional products".

A version of this article appeared in the print edition of The Straits Times on September 13, 2016, with the headline 'Investor interest in climate finance set to grow in Asia'. Print Edition | Subscribe