Greening Asia Through Data and Regulation

Effective and efficient ESG risk management and reporting practices can be enabled through better data and technology, says Steven Yankelson.

Over the next two years, Asia’s gross domestic product (GDP) is forecast to be the fastest-growing economic region in the world, increasing from USD 33 trillion in 2021 to USD 39 trillion in 2023. While it leads the way in economic growth, some say Asia lags behind other regions in investment into and adoption of sustainability-focused practices. However, COVID-19 has been a wake-up call to strengthen global efforts to reorient capital flows towards a more sustainable future.

The Hong Kong Monetary Authority (HKMA) recently shared the results of its first climate risks related stress test and found that intense climate hazards could cause banks to suffer an annual operational loss of USD 282 million. The Asia Investor Group on Climate Change (AIGCC) estimates that the Asia-Pacific region will need USD 26 trillion to USD 37 trillion worth of investment in energy infrastructure alone by 2050 to meet its decarbonisation goals.

The Asia-Pacific region – which is yet to standardise industry guidelines and ESG-related regulations – needs to move faster to implement sustainability practices.

This is sure to be a hot topic when buy-side leaders and asset managers gather virtually this week for a conference co-organised by Investment Management Association of Singapore (IMAS) and Bloomberg to discuss ESG and how the sector can be stewards of capital and invest for a greener future.

Global regulation to affect Asia

All that said, Asia can catch-up if its markets view it as an opportunity to be seized. The good news is that the IFRS Foundation announced at COP26 that it has formed a committee to prepare a single international green standard, and this is likely to be a driver of change in Asia.

The European Union is arguably leading the charge in ESG as the first region to develop a sustainable finance plan focusing largely on disclosures and reporting. Companies use the EU Taxonomy – which defines what activities are considered sustainable – to report their activities as the EU’s sustainable-finance framework reshapes the market for sustainable investment. Their lead has already had far-reaching impacts around the world. The EU is also making concerted efforts to improve data quality, consistency and availability through regulations such as the Sustainable Finance Disclosures Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD).

Every market is understandably at a different stage of its sustainability journey so there needs to be flexibility in applying blanket global standards on all countries.

Slow and uneven progress in Asia

Countries in Asia-Pacific are looking to strengthen their sustainable finance regulations, particularly in Singapore and Hong Kong.

The Monetary Authority of Singapore (MAS) launched the Green and Sustainability-Linked Loan Grant Scheme (GSLS), to support corporates in obtaining green and sustainable financing by defraying up to SGD 100,000 (USD 75,000) of the expenses of engaging independent service providers to validate the green and sustainability credentials of the loan.

The HKMA launched the Green and Sustainable Finance Grant Scheme (GSF) in its 2021-22 budget to provide subsidies for eligible bond issuers and loan borrowers to cover their expenses on bond issuance up to HKD 2.5 million (USD 320,000) and external review services up to HKD 800,000 (USD 100,000).

To support net-zero goals, the Bank of Japan (BOJ) introduced a new fund-provisioning measure in 2021 providing funds for investments or loans made by financial institutions that contribute to addressing climate change at a zero interest rate.

Beyond sustainable financing, banks in Hong Kong are also expected to start making disclosures in line with guidelines from the international Task Force on Climate-related Financial Disclosures (TCFD) from mid-2023 and this will become mandatory in 2025. In December 2021, the Singapore Exchange (SGX) mandated climate and board diversity disclosures.

While these countries are moving decisively to formulate ESG regulatory frameworks, Asia’s developing economies are moving more slowly as they seek to balance advances in sustainability with economic and social development imperatives to ensure a just transition to a lower carbon future.

Data strategy necessary to accelerate ESG transition

Despite Asia’s meteoric tech rise and its emergence as a technology leader, companies and banks are not fully leveraging data and digitalisation as an accelerator for their ESG journeys. There were over USD 35 trillion in ESG assets under management in 2020, a number estimated by Bloomberg to hit USD 53 trillion by 2025, a third of global AUM. Firms are therefore looking to technology to not just differentiate their offering, but to manage the increasing complexity in managing ESG related data, reporting and research.

Climate risk reporting in Asia is still evolving, which brings additional complexities. The TCFD is working to help bridge the gap between investor expectations and investment fund promises, providing clear standards around definitions, metrics and disclosure. In the region, Japan, Hong Kong, New Zealand and Singapore have already incorporated the TCFD standard in their recommended disclosure items and it now spans 89 countries and jurisdictions and nearly all sectors of the economy, with a combined market capitalization of over USD 25 trillion.

Workflows around managing and reporting data must first be optimised through the use of technology. Today, effective and efficient ESG risk management and reporting practices can already be enabled through advanced tools that can ingest sustainability data from multiple sources, integrate it with a firm’s own ESG scores and other proprietary data, and perform advanced analytics to facilitate decision-making.

An important part of the solution to building climate resilience is already before us –  leveraging data and technology to build a greener future.

To find out more, join the IMAS-Bloomberg Conference, taking place on 9 March 2022.

This article was contributed by Steven Yankelson, Head of ASEAN at Bloomberg.

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