Month: October 2024

Green Finance Engagement Team

On October 9, 2024, our Asia CESGA Alumni masterclass featured an insightful discussion between Mr. Henry Chan, Senior Portfolio Manager, and Chair Prof. Alexander Bassen, Academic Director of the CESGA Programme, on navigating the environmental, social and governance (ESG) frontier from an equity buy-side perspective. The masterclass provided an in-depth view of the challenges and opportunities in integrating ESG into the investment process.

A key focus was the current state of ESG integration. While asset owners increasingly consider sustainability in investment decisions, financial performance still takes precedence when trade-offs arise. Many asset owners are increasingly insourcing ESG investments to achieve greater impact, rather than relying solely on external managers.

Impact measurement emerged as another critical topic. Measuring the impact of ESG factors, especially social aspects, remains challenging. The speakers distinguished between impact-aligned investing, which considers ESG factors, and impact-generating investing, which creates a positive impact. Quantifying an aggregate “sustainability-adjusted return” is difficult, highlighting the need for further research and standardisation in this area.

The discussion also touched on the role of ESG scores and models. Henry emphasised that ESG scores could be a starting point for deeper analysis rather than an end result. Understanding the material ESG value drivers for each industry is key. Sound judgment by experienced analysts is still needed to assess ESG risks that quantitative models may miss.

Regulatory impact was another important theme. Regulators are pushing for greater corporate ESG disclosure and transparency, which may lead to restrictions on negative ESG activities in the future. Asset managers need to consider how ESG regulations could impact their investments and engage proactively with policymakers.

Looking ahead, while full ESG integration by generalist managers may be slow, Henry expects growth in specialist ESG and impact fund managers who can translate sustainability objectives into investment theses. More asset owners may also insource ESG investment decisions. As ESG investing evolves, judgment and specialisation will be key differentiators.

Our CESGA programme equips investment professionals with the skills to navigate this new frontier. We thank Henry and Chair Prof. Bassen for sharing their valuable perspectives and insights. As the ESG landscape continues to evolve, we remain committed to providing our alumni community with the knowledge and tools to succeed in responsible investment.

Mr. Bien Wong CESGA, Board Governor of Friends of the Earth (HK)

On the first day of Rethink HK 2024, I had the honor of moderating a panel titled “Integrating Biodiversity for Financial Decision Making.” We brought together a diverse group of experts, including:

• Prof. Amos Tai from The Chinese University of Hong Kong
• Ms. Jiaqi Xiong from Bova Technology (Beijing) Co., Ltd
• Mr. Carlos Serrano from International Finance Corporation, World Bank Group
• Mr. Felix von Eynern from FSC International

Key Insights:

The Growing Importance of Biodiversity

Our discussion highlighted the increasing recognition of biodiversity as a vital element of the global economy. The panellists emphasized its critical role in supporting economic growth, ecosystem resilience, and climate change mitigation. As investors become more aware of biodiversity’s impact on sustainability ratings and investment opportunities, companies that manage biodiversity risks effectively stand to gain. The call for a transformation in production and consumption patterns is urgent, as protecting biodiverse environments is essential for maintaining clean air and healthy watersheds.

Regulatory Landscape

We explored the evolving regulatory framework surrounding biodiversity, noting initiatives like the Convention on Biological Diversity and the EU taxonomy that are shaping sustainable finance. Financial institutions are stepping up, developing biodiversity risk assessments and innovative financial products that align economic growth with conservation efforts. Sustainability reporting frameworks are also expanding to meet the expectations of investors, ensuring that biodiversity considerations are integrated into financial strategies.

Technologies and Innovative Solutions

The panelists stressed the need for robust data collection and assessment tools in biodiversity monitoring. Traditional methods are often limited, but innovative technologies such as remote sensing and GIS are emerging as game-changers. These tools allow for comprehensive monitoring and integration of biodiversity data into financial decision-making processes. Transparency and third-party auditing are crucial to ensure the credibility of this data.

Cross-sectoral Partnerships

A recurring theme was the necessity of cross-sector collaboration to effectively incorporate biodiversity into financial decision-making. Regulators, financial institutions, businesses, and academia must work together to create standardized tools for identifying and managing biodiversity risks. By fostering these partnerships, we can ensure that biodiversity standards evolve meaningfully, driving innovation and promoting sustainable practices.

Overall, the panel reinforced that integrating biodiversity into financial decision-making is not just a regulatory necessity; it is essential for building a resilient and sustainable economy. Our discussions provided a wealth of insights that will undoubtedly guide future initiatives in this critical area.

Michele Leung, Green Finance Advisor of Friends of the Earth (HK)

Climate transition remains the key priority focus among institutional investors.  From the macro level, climate change affects growth outlook and financial stability. From the risk perspectives, there would be significant changes in portfolio value from re-pricing of assets and regulatory pressures, it is important to understand emission intensities and related policy risk. On the other hand, investors would like to be more well positioned for the climate opportunities, some of them are closely looking at green tech landscape and identifying opportunities, i.e. companies exposure to clean technology and green revenues. 

Financing the transition would mean different things and strategies for different investors.  Investors have options to drive high emitting companies to decarbonize or invest in transition solutions. They would decarbonize power generation by switching from coal powered generation to gas, then to renewables. They would also decarbonize the hard to abate sectors including Iron and steel, cement, chemicals. Yet, fundamentally, merely decarbonize the portfolio does not improve the real world risks nor impacts.  

One step further, they would enable the transition, electrify the economy by focusing low carbon electricity for transportation, heating and cooling of buildings, or invest in cross cutting segments like energy storage and green hydrogen. In essence, investors should not only consider divestment, but also actively support and make explicit commitment and align to transition pathway. 

Some of the transition is asset specific. In public fixed income markets, besides the labelled bond market like green and sustainable loan/bond, there are the newly structured impact bonds that provide direct, transparent and measurable impacts. For example, Japanese government issued Japan Climate Transition Bonds and set a target of providing 20-trillion-yen worth of support for Green Transformation efforts.  Private sectors should also be fully leveraged in fighting against climate change and financing opportunities for decarbonization, for example, there is growing importance of private assets in energy transition (from renewables to energy storage).

Climate transition is not an easy journey and it is not cheap neither, as decarbonization can put a firm’s balance sheet under negative pressure. While government intervention can be effective in accelerating the transition, geopolitical tensions put pressure on the development of strategies and create uncertainties on the climate policy. Other challenges like heightening physical risks would likely continue to be observed.

Nevertheless, investors shall continue to make climate commitment and develop transition plan, while also allocate incentives and promote capacity building.

Check out the above calendar for the fantastic green finance events for October 2024! Interested to join and know more about the events? Click the links below for details:

以上兩圖看清2024年10月精彩的綠色金融活動！如欲參加及了解活動詳情，歡迎瀏覽以下網址:

8-10 Oct [1] PRI in Person 2024

9 Oct [2] HKGFA Annual Forum 2024: Financing Asia’s Net Zero Transition

15 Oct [3] GRESB Global Results 2024 – The Future Comes Into Focus

16 Oct [4] Corporate Climate Policy Engagement in China

17 Oct [5] The Value of Nature: Biodiversity, stewardship, and thematic engagement in a connected financial landscape

22 Oct [6] Nurturing Nature: De-risking Nature-based Finance in Asia

25 Oct [7] 1.5 °C Summit – The Defining Decade for Impact with Tech

30 Oct [8] ASIFMA Sustainable Finance Conference 2024

31 Oct [9] Practising Governance 2024 Annual Conference