Asia-Pacific

ICYMI, Progress Isn’t Linear

Whether building a framework for allocating capital toward sustainable economic growth or organising a bun fight in a bakery, events and objections will always require a response.

If last week felt like progress, with words turning into meaningful action, this week was more akin to swimming through treacle. Or cycling through snow. For every forward motion, there was a slipped gear and reversal. For every hydrogen-fuelled cement factory, there was a domestic heating transition scheme being defunded. That might be the trouble with living in a country bent on destroying its biggest industries, while also trying to coordinate efforts to save the planet.

Further afield, things looked a lot different. New taxonomies arose in the east and new initiatives were made in the west. Taking a wider perspective, things are moving at pace, especially when it comes to the development of frameworks that support sustainable investment across jurisdictions.

China’s central bank said it would accelerate development of its system of green financial standards, noting also a project to establish a China-EU Shared Classification Catalogue for Green Finance. In parallel, Chinese regulators are stepping up efforts to standardise mandatory environmental disclosure requirements and strengthen the supervision of financial institutions, notably in relation to stress testing climate-related risks. While doubts on the transparency of China’s regulatory frameworks have often been raised, these moves are explicitly designed to reassure foreign investors that they can invest in China sustainably.

The pace of Singapore’s progress as a green investment hub is also significant. To support global international coordination, and ensure investors feel comfortable buying green investment solutions from Singapore-based financial institutions, its proposed taxonomy is aligned with Europe’s. To this end, the Monetary Authority of Singapore has also launched a Green Finance Industry Taskforce and issued new guidance on environmental risk management to financial institutions.

Nowhere has progress been more rapid than in Washington, as the new Biden Administration gets down to work after a blizzard of appointments and executive orders since January 21. Yesterday saw further action with the announcement of a climate innovation working group and agenda, backed by new funding to support “transformational” low-carbon energy technologies. One can assume that the near simultaneous downgrade of US oil majors Exxon, Chevron and Conoco was a coincidence.

Progress isn’t necessarily linear of course, whether building a framework for allocating capital toward sustainable economic growth or organising a bun fight in a bakery. Events and objections will always require a response. The risks of being a global leader include being the first to endure the pain of implementation and revision, as Europe is experiencing with its further clarifications to impending rules on green investment vehicles and plans to update disclosure requirements for companies and financial institutions.

The trick is to build consensus and take your allies with you, through flexibility and resilience. The European Commission goes to great lengths to consult, even if it takes a while to share the outcomes. New ideas such as dual materiality and border taxes can cause division, even among friends. As UN Secretary General António Guterres noted this week, the solution is dialogue, the sooner the better, and virtually if necessary. “The stakes are too high to do otherwise,” he said.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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