Navigating a sustainable future
Prospects hinge on bolstering climate resilience, digital transformation, financial forum hears
Digital transformation and a focus on climate resilience will be the key drivers for the global economy as it slowly recovers from the pandemic, according to participants in an online finance forum this week.
At the Asian Financial Forum, or AFF, that was held Jan 10-11, government officials, business leaders and experts noted how COVID-19 has led to a paradigm shift, encouraging both the private and public sectors to invest in more pressing global issues such as climate change and enhancing digital technology to support postpandemic growth.
“We should refute the fallacy that economic growth and green transition are an issue of either-or,” Jin Liqun, president and chairman of the Asian Infrastructure Investment Bank, said in a video message delivered during the plenary session.
Jin was among the array of prominent figures from the world of business and finance who attended the AFF, an annual event organized by the Hong Kong Special Administrative Region government and the Hong Kong Trade Development Council, or HKTDC.
Discussions this year revolved around the theme “Navigating the Next Normal towards a Sustainable Future”.
“The distress and disruption caused by the pandemic over the past two years have taught us the importance of preparing for global crises. That certainly includes climate change,” Hong Kong’s Chief Executive Carrie Lam Cheng Yuet-ngor said in her opening remarks.
Lam, who delivered her speech via video link, said climate change is one of the “daunting global challenges” and that Hong Kong is facing this challenge through a climate action plan which aims to reduce the city’s carbon emissions by 50 percent before 2035 as compared to the 2005 level, and attain carbon neutrality before 2050.
At the same time, Hong Kong is promoting green and sustainable finance, Lam said, noting that since May 2019, the city has issued green bonds totaling the equivalent of more than $7 billion.
Hong Kong’s promotion of green bonds is in line with its role as an international financial hub. Experts said the city can also leverage this role to contribute to green and sustainable finance development in the Guangdong-Hong Kong-Macao Greater Bay Area, the Asia-Pacific region, and the world.
Laurence Li, chairman of Hong Kong’s Financial Services Development Council, said the SAR’s position as a financial hub can help in promoting sustainable infrastructure projects among Chinese and international investors.
Janet Li, Wealth Business Leader, Asia, at global asset management firm Mercer, said the launch of the
Wealth Management Connect project is expected to promote the adoption of common practices and frameworks in the GBA, starting from investment funds and investment practices.
Launched in September last year, Wealth Management Connect allows eligible Chinese mainland, Hong Kong and Macao residents in the GBA to invest in wealth management products distributed by banks in each other’s market through a closed-loop funds flow channel.
Hong Kong is just one of the many economies that are moving toward a low-carbon economic path. At the 26th United Nations Climate Change conference, or COP26, held in November in the Scottish city of Glasgow, participants presented their respective plans to cut emissions.
Mark Carney, UN Special Envoy on Climate Action and Finance, touched on these climate commitments during the keynote session at the AFF. Carney, who spoke through a video link, said the world has “moved from a situation two years ago where less than a third of countries had an explicit net-zero (carbon emission) objective, to the situation after Glasgow (COP26 summit), where 90 percent of global emissions are covered by country objectives of net zero”.
“If everybody does what they say (in their climate plans)… the world will limit temperature increases to 1.8 degrees. (But) there is a big gap between country policies and what their objectives are, and implementation is not always up to ambition,” he said.
But Carney said the private sector is “more engaged than ever before”.
The private sector’s focus on more climate-friendly growth is reflected in a survey of 105 senior executives of companies in the Chinese mainland and in Hong Kong. According to a joint research paper from HKTDC and accounting and consultancy firm
PwC, as many as 89 percent of the respondents in a survey said their organizations plan to increase investment in environmental, social and governance-related (ESG) programs and initiatives over the next five years.
Fifty-six percent of the respondents said their ESG investments will rise significantly or considerably, as per the report entitled “ESG Investing: Challenges and Opportunities for Hong Kong”.
“The strong financial commitment … highlights the fundamental belief in the importance of ESG to business strategy,” Elton Yeung, vice chairman of PwC China, said in his presentation at the AFF.
Zhang Wenlang, managing director and chief macro analyst at the research division of China International Capital Corporation, talked about the socioeconomic goals outlined in China’s 14th Five-Year Plan, which covers the period 2021-25. He said one of the features of the plan is the focus on green ecology and environmental protection.
Delivering his report on ‘Tapping into the Immense Opportunities of the 14th Five-Year Plan’ via video link, Zhang outlined some important elements in relation to promoting innovation and green transformation.
“First, the technology in energy infrastructure that will help expand the scale of wind and solar power. Second, industries with higher carbon emissions will need to be transformed, such as the steel industry. Second, green transport. Third, security development… We need to focus on the development of technologies such as integrated circuit, aero-engine and laser radar,” Zhang said.
Arkhom Termpittayapaisith, Thailand’s minister of finance, said the acceleration of digitalization can reduce the operational cost of businesses and governments.
Muhammad Sulaiman Al Jasser, president of the Jeddah-based Islamic
Development Bank Group, said the pandemic has “accelerated digital transformation which could continue soaring as governments and businesses increasingly trust technology”.
Al Jasser said his bank has developed a sustainable finance framework and that it has mobilized more than $5 billion for climate funding.
In Europe, Mihaly Varga, Hungary’s deputy prime minister and minister of finance, said his country is contributing to “green solution” by issuing green bonds “intensively in both domestic and foreign markets”.
“We were the first in the world to issue sovereign green bonds in China. We are dedicating these resources to investments that support the development of Hungary’s green economy,” Varga said via video link.
Vincent Van Peteghem, Belgium’s deputy prime minister and minister of finance, said the European Commission has estimated that 500 billion euros ($568 billion) in capital is needed each year by 2030 to reach its emissions reduction target.
“Even though governments are pouring a staggering amount of money to finance the green transition, we are aware that the flow of money is not endless, and it won’t be sufficient to fully finance the green transition,” Van Peteghem said.
He said a green economic system requires global standards.
The need to establish standards, especially in the area of green finance, was also tackled in a panel discussion at the AFF on policy responses to climate change and economic recovery.
One of the panelists, Teresa Ko, corporate partner and China chairperson of international law firm Freshfields Bruckhaus Deringer and co-vice chairperson of the International Financial Reporting Standards, or IFRS, Foundation, stressed the need for sustainability reporting disclosures that are “globally consistent, globally comparable,
complete and auditable”.
“In the context of facilitating a green recovery, we still don’t have … globally consistent matrices” and standardized and qualitative sustainability disclosures, she said.
She said the IFRS has created the International Sustainability Standards Board to develop a “comprehensive global baseline” and promote “high quality sustainability disclosure standards to meet investors’ information need”.
Bankers who participated in the panel dialogue discussed how their respective countries promote climate financing.
Ma Jun, chairman of China’s Green Finance Committee, the China Society for Finance and Banking and co-chairman of the G20 Sustainable Finance Study Group, said the People’s Bank of China has required banks to conduct climate risk analysis. The central bank has also refined the green bond taxonomy to make it more aligned with a carbon neutrality goal.
Benjamin Diokno, governor of the Philippines central bank, said his country has a sustainable finance framework which requires banks to integrate sustainability principles including ESG considerations in the corporate governance, risk management systems, business strategies and operations.
Klaas Knot, chairman of the Financial Stability Board and president of the Dutch central bank, said the Netherlands has integrated sustainability risks in its supervisory risk assessment tool and has trained supervisors to quantify these risks.
FSB is an international body that monitors and offers recommendations in relation to the global financial system.