Special reporter Hu Tianjiao reports from Shenzhen
Multiple initiatives have called for capital to participate in sustainable transformation, but the funds invested are still far from sufficient to cover the gap.
According to data released by the Organization for Economic Cooperation and Development (OECD) in 2022, the difference between current expenditures and expenditures required to achieve the United Nations Sustainable Development Goals is $3.9 trillion. According to PRI calculations, in order to fulfill the commitments of the Paris Agreement, public and private funding for climate action (currently around $632 billion per year) needs to increase fourfold by 2030 and more than sixfold by 2050.
Mobilizing private sector resources for sustainable development goals and climate financing is an important issue, and the Asia Pacific region is accelerating the promotion of innovative financing options, such as hybrid financing, to mobilize private capital to provide opportunities for climate transformation, especially in industries that are difficult to reduce emissions.
Hybrid financing is a structured approach that allows organizations with different goals (whether it is financial returns, social impact, or a combination of the two) to invest in each other. It aims to attract private investment from developing countries and reduce risks by strategically utilizing public or charitable funding sources to achieve sustainable development goals.
Emerging markets cannot obtain sufficient capital, and mixed financing is not an easy task, "Matt Christensen, Global Sustainability and Impact Investment Director at Allianz GI, recently told reporters that there have been considerable attempts to overcome the financial challenges facing emerging markets. Multilateral development banks/organizations are promoting the entry of public capital into emerging markets, and Allianz, as a private capital participant, is collaborating with them to develop more hybrid financial instruments.
In addition to the urgent need for funding, transparency and ESG disclosure/reporting are also important driving forces for climate change.
Transparent, comparable, and high-quality data with standardized standards is beneficial for enterprise transformation while providing investors with more information.
ESG data can currently maintain a tracking record of 15 to 20 years, rather than 50 years. Matt Christensen reminds that ESG's pace of change is very fast, and investors need to pay attention to how it will be presented as a tool in high-frequency time periods.
He stated that the data itself is not perfect, and when it truly enters very delicate decision-making, institutional investment should categorize the company's ESG activities in the correct way, which requires collaboration between teams and the redevelopment of methods and standards. A consistent and powerful data platform is crucial for the data itself, investment portfolio, and disclosure/reporting, "it added. Allianz has internally developed the ESG data platform, Sustainability Insights Engine (SusIE), which helps investors introduce new data, remove redundant data, and align with products to incorporate data into investment decisions.
Driven by investor interest and regulation, ESG information disclosure has grown rapidly in recent decades, and most large companies worldwide are now conducting various forms of sustainability reporting.
The European Council recently passed the Corporate Sustainability Reporting Directive (CSRD). CSRD will be conducted in four stages, with the first batch of ESG disclosures coming into effect in January 2024, and over 11000 listed companies must comply; From 2025 to 2026, the disclosure scope will be expanded to include large non listed companies and listed small and medium-sized enterprises, expected to include approximately 50000 entities. Meanwhile, the EU is reviewing the Sustainable Financial Information Disclosure Regulations (SFDR).
But different regulatory agencies have put forward different requirements for companies to disclose sustainability information, and investors argue that the regulatory ecosystem faces fragmentation risks. This may be a challenge for global asset management companies, as the latter require additional layers to meet the subtle regulatory requirements of different regions.
The global ESG regulations currently highly focus on how financial institutions define ESG funds and which can be defined as sustainable investments. Holly So, sustainable investment strategist at Allianz Investment, told reporters that the EU SFDR was released as a disclosure regulation, but is often misunderstood as a label template for a "sustainable fund".
Holly So has seen the differentiation of regulation in this field, with regulatory agencies in the UK (SDR), Hong Kong Securities Regulatory Commission, Singapore Monetary Authority, and other regions having different regulations and requirements for ESG and sustainable funds, posing challenges for global asset management companies that distribute sustainable funds in different jurisdictions. This also means that not all sustainability funds in the market follow the same sustainability standards or methods, making it impossible to directly compare them in terms of sustainability. It is expected that the next few years will still be in the process of clarifying ESG and sustainable funds.
On the positive side, corporate ESG reporting regulations may be integrated after the International Sustainable Standards Board (ISSB) releases IFRS S1 and S2 standards. Asian regulatory agencies such as Singapore and Japan hope to provide support to align local ESG disclosure standards with international social responsibility standards.
Good policies and green classification have driven the momentum of sustainable investment in Asia, making it a highlight in the field of sustainable development. Holly So emphasized that the socio-economic conditions across Asia are very diverse, and the challenges and scale faced in achieving net zero emissions are daunting. Allianz's sustainable development work in Asia is not limited to promoting clean energy, but also includes interactive participation and collaboration with companies.
According to sustainable development priorities, Allianz Investment predicts that sustainable investment in 2024 will revolve around five themes: influence, ESG 2.0, transformation, rising climate costs, and the role of sovereign states.
Due to the continuous evolution of customer needs and regulatory regulations, "transformational finance" has been included in the official agenda. Matt Christensen said that in addition, compared to enterprises, sovereign countries have slightly less ambition and actions in reducing carbon emissions. But investors may increasingly focus on this area, which will become the focus of the United Nations Climate Change Conference (COP28) and the next round of National Independent Contributions (NDCs) to be submitted in 2025. Sovereign countries will be placed in the spotlight of journalists and stakeholders, with answers including how to persist and push more towards achieving substantive low-carbon agreements, "he said. This requires a commitment to sovereignty and is not easy.