A push for climate finance to be mainstreamed and more guidance expected before the end of the year from the Chinese central bank and MAS in Singapore are signs that global disruptions have not derailed sustainable finance in the region. This is the view from Maitri.

Edris Boey, ESG practice lead at Singapore-based Maitri Asset Management, looks at green finance in Asia-Pacific where regulators are continuing to make the right noises to grow the market. She draws comparisons with progress being made in Europe and the US where some of those billions in state aid have come with sustainability strings attached. Coronavirus has resulted in setbacks for China’s green bond market but the central bank is taking an “evolving” view on coal, she says. We welcome regional perspectives, with the usual disclaimers. Email feedback to tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com.

In these unprecedented times of social and economic crisis, many calls have been made for fiscal stimulus packages in Europe and the US to incorporate climate-related conditions. However, these have had muted success. Governments in Asia appear to be catching up and are favouring a longer-term view as regulators show no signs of stepping back from pushing the sustainable finance agenda.

For example, the People’s Bank of China (PBOC) and the Monetary Authority of Singapore (MAS) have made strides in green financing in the previous quarter, in spite of the global daily number of COVID-19 cases hitting new highs. Notably, both the PBOC and MAS are also the only Asian founding members of the Network for Greening the Financial System (NGFS), established in December 2017, with the objective of developing and sharing best practices to enable mainstream finance to support the transition to a sustainable economy.

China’s green bond issuance and evolving approach towards coal
Having issued its first green bond in 2015, China has since been one of the top green bond issuers, second only to the US. However, China has drawn criticism from global green bond investors due to its perception that “clean utilisation of coal” could constitute an eligible criterion for a green bond project, as this does not align with international standards and expectations.

A hint at a step in the right direction occurred in May 2020 when, in its periodic five-year review of green bond eligible projects, the PBOC issued an updated proposed list of eligible green bond projects in which any mention of coal was omitted entirely.

At the same time, China’s green bond issuance fell from US$21.8 billion in H1 2019 to $14.3 billion in the same period this year. Other than the COVID-19 factor, this could be partially due to responsible investor preferences shifting from green bonds to social and sustainability bonds, which saw at least $65 billion in global investment in H1 2020, following a total of $85 billion for the year 2019. If and when the PBOC eligible green bonds project list without coal is confirmed, China will be well-positioned to take a strong lead in the international green bond space.

Singapore aligns itself with global sustainable finance requirements
Turning from East to Southeast Asia, the MAS promised the financial market an environmental risk management guideline at the last Singapore FinTech Festival back in November 2019. At the end of June 2020, the MAS released consultation papers on Proposed Guidelines on Environmental Risk Management for asset managers, banks, and insurers. This came one day after the NGFS released its recommended research priorities on the macroeconomic and financial stability impacts of climate change.

There is a significant overlap between the NGFS’ financial stability research priorities and the MAS’ proposed guidelines as both documents closely follow the requirements of the globally recognised Taskforce for Climate-related Financial Disclosures (TCFD). This is a key indicator of what is to come in Singapore. The city-state has set itself up well by aligning with global trends and publishing the MAS proposed guidelines, which are a good starting point for investors looking to begin their responsible investment journey.

Addressing COVID-19 and climate risks through an ESG lens
Every sector of society has a role to play in addressing the pandemic at hand, as well as climate change risks which are ever-more pressing. As a long-term investor, Maitri is undertaking this endeavour by integrating environmental, social and governance (ESG) considerations into its investment decisions for its flagship sustainable fund. Pre-COVID-19, applying an ESG lens helped us investigate the material environmental and social issues that a company and its sector faces which, if not properly addressed by the company’s board and management, can potentially cause financially material implications.

After COVID-19 was officially declared a pandemic, Maitri added a five-point criteria to its ESG lens, allowing the firm to evaluate more positively companies that maintain employment; provide paid leave to employees affected by COVID-19; keep up good relationships with customers and suppliers; prioritise the health and safety of their key stakeholders; and practise financial prudence.

A Harvard Business Review study on companies that thrived following the Global Financial Crisis, shows that businesses that were decentralised and prioritised keeping jobs during the downtime were better positioned to bounce back post-crisis. This is largely because they were able to make critical decisions quickly and did not have to rehire and retrain new staff, with existing employees ready to push operations back to normal.