The race to net zero will be won or lost in Asia
This article was licensed through Dow Jones Direct. The article was originally published on Business Times Singapore.
Home to more than half of the world's population, Asia is responsible for over 50 per cent of global primary energy consumption. It also holds a unique position on the global stage as the engine for international economic growth and supply chains. In the global race to net zero, there is significant opportunity for impact here and real progress is being made.
During a recent visit to Singapore and Malaysia, it was tremendously encouraging to see first-hand the progressive policy landscape in these two markets, and the collaborative approach regulators are taking in working with investors.
This consultative approach is resulting in a sustainable finance policy landscape at least in part informed by the market, which in turn helps ensure policy is fit for purpose for investors. This will help these markets move the needle on net zero, as well as on other critical environmental, social and governance (ESG) thematics.
For example, the Monetary Authority of Singapore (MAS) -- alongside other stakeholders including the Institute of Banking and Finance Singapore -- has a strong focus on supporting the sustainable talent ecosystem. This endeavour will be critical to both foster talent specialising in responsible investment in the market, and to encourage talent from abroad.
In April this year, MAS also launched its Finance for Net Zero Action Plan, to support net-zero transition and decarbonisation activities in Singapore and the region. It expands the scope of MAS' Green Finance Action Plan -- which was launched in 2019 -- to include transition finance.
Together with the People's Bank of China, MAS also announced the establishment of the China-Singapore Green Finance Taskforce to deepen cooperation and facilitate greater public-private sector collaboration as Asia transitions to a low-carbon future.
In Malaysia, the recently launched Sustainable Investing Standards provide guidance for government-linked investment companies to incorporate sustainability considerations into the investment process. The Standards by default provide examples of best practice across the market and apply to some of Malaysia's largest and most influential institutional investors -- including the Employees Provident Fund, Khazanah Nasional and Kumpulan Wang Persaraan (Diperbadankan).
Broadening the pool
Just as the policy landscape is broadening, the types of investors engaged in sustainable finance both in the region and beyond are diversifying too. At PRI, we have nearly 5,500 signatories, who collectively represent more than half the world's institutional capital.
Within this signatory base, we are now seeing more traditional asset owners joined by insurance companies too. Indeed, we were very pleased to welcome Singlife as our first insurance company signatory in Singapore just a few weeks ago.
We're seeing signatory growth in other areas too, from the private markets to state-owned organisations and sovereign wealth funds. In Malaysia, the government-linked fund manager Permodalan Nasional Berhad (PNB) was confirmed as a signatory in recent weeks.
Why is this relevant to sustainable finance policymaking? It means the pool of investors engaged in responsible investment has broadened -- which in turn allows for more of the market to be engaged.
As addressing issues including net zero ultimately requires a whole-of-economy response, this broadening of the investor pool engaged in sustainable finance can only help us step closer to the broader level of action required.
And collaboration between these progressive investors is incredibly important too -- though in PRI's recent global consultation of our signatories, investors told us that this collaboration can only take us so far. They told us that systemic risks posed by issues such as climate change require systemic change, which must be facilitated by the policy sphere.
Unfortunately, collaboration like we're seeing in parts of Asia between policymakers and investors is not evident in all markets around the world.
As readers will be aware, ESG is becoming increasingly politicised in the United States, where a vocal minority has cast responsible investing as the result of "woke capitalism" that has no place in the economy.
The optics cast by this minority in America stands in stark contrast to Asia, much of Europe and other regions, where it's evident that alignment between the public and private sectors is driving progress.
Get more involved
To deliver net zero, investors will need to get even more involved in both real economy and financial policy work. And while the anti-ESG rhetoric is ramping up, my assertion in my earlier op-ed in The Business Times last July remains true: despite the backlash, ESG is here to stay.
Ultimately, collaboration will play a critical role in ESG's integration -- between investors, between policymakers and investors, across the investment chain and across markets. This cooperation and openness is critical to ensure we realise the whole-of-economy response to issues including net zero. This is something PRI is very focused on, and part of the upcoming PRI in Person Tokyo programme, where we will bring global policymakers and investors together to collaborate and engage.
Progress is being made, but it must still be moved up a gear. In doing so, the race to net zero can indeed be won in Asia.
The writer was appointed CEO of the Principles for Responsible Investment in December 2021. The PRI is a United Nations-supported organisation, with more than 5,500 signatories who collectively represent over US$121 trillion in assets under management.