Looking East: will the race to net zero be won or lost in Asia?

Home to more than half of the world’s population, Asia is responsible for over 50 per cent of global primary energy consumption. 

The region also holds a unique position on the global stage as the engine for international economic growth and supply chains. 

In the global race to net zero, there is significant opportunity for impact here and real progress is being made.

That is the message from David Atkin, CEO of Principles for Responsible Investment, the United Nations-supported international network of financial institutions with nearly 5,500 signatories, collectively representing more than half of the world’s institutional capital.

"During a recent visit to Singapore and Malaysia, it was tremendously encouraging to see first-hand the progressive policy landscape in these two markets, and the collaborative approach regulators are taking in working with investors," Atkin said.

He stressed that "this consultative approach" is resulting in a sustainable finance policy landscape, at least in part informed by the market, which in turn helps ensure policy is "fit for purpose" for investors. 

"This will help these markets move the needle on net zero, as well as on other critical environmental, social and governance thematics," Atkin noted.

For example, the Monetary Authority of Singapore (MAS) – alongside other stakeholders, including the Institute of Banking and Finance Singapore – has a strong focus on supporting the sustainable talent ecosystem, he pointed out. 

"This endeavour will be critical to both foster talent specialising in responsible investment in the market, and to encourage talent from abroad."

Recent net zero efforts

In April this year, MAS launched its Finance for Net Zero Action Plan, to support net-zero transition and decarbonisation activities in Singapore and the region. It expands the scope of MAS’ Green Finance Action Plan – which was launched in 2019 – to include transition finance.

Together with the People’s Bank of China, MAS also announced the establishment of the China-Singapore Green Finance Taskforce to deepen cooperation and facilitate greater public-private sector collaboration as Asia transitions to a low-carbon future.

Meanwhile in Malaysia, the recently launched Sustainable Investing Standards provide guidance for government-linked investment companies to incorporate sustainability considerations into the investment process. 

The Standards by default provide examples of best practice across the market and apply to some of Malaysia’s largest and most influential institutional investors, including the pension funds Employees Provident Fund, Khazanah Nasional and Kumpulan Wang Persaraan (Diperbadankan).

Broadening the pool

Just as the policy landscape is broadening, the types of investors engaged in sustainable finance both in the region and beyond are diversifying too, Atkin stressed.

"Within this signatory base, we are now seeing more traditional asset owners joined by insurance companies too. Indeed, we were very pleased to welcome Singlife as our first insurance company signatory in Singapore just a few weeks ago," he added.

"We’re seeing signatory growth in other areas too, from the private markets to state-owned organisations and sovereign wealth funds."

In Malaysia, the government-linked fund manager Permodalan Nasional Berhad (PNB) was confirmed as a RPI signatory only last month.

So why is this relevant to sustainable finance policymaking? Atkin argued that this means the pool of investors engaged in responsible investment and net zero efforts is broadening fast, which in turn allows for more of the market to be engaged.

"As addressing issues including net zero ultimately requires a whole-of-economy response, this broadening of the investor pool engaged in sustainable finance can only help us step closer to the broader level of action required," he said.

"And collaboration between these progressive investors is incredibly important too, investors told us that this collaboration can only take us so far. They told us that systemic risks posed by issues such as climate change require systemic change, which must be facilitated by the policy sphere."

However, collaboration like Atkin is seeing in parts of Asia between policymakers and investors is not evident in many other markets around the world, he said.

"ESG is becoming increasingly politicised in the United States, where a vocal minority has cast responsible investing as the result of 'woke capitalism' that has no place in the economy."

He noted that "the optics cast by this minority in America stands in stark contrast to Asia, much of Europe and other regions, where it’s evident that alignment between the public and private sectors is driving progress."

Finally, Atkin warned that collaboration will play a critical role in the net zero transition, namely between investors and policymakers, across the investment chain and across markets.

"This cooperation and openness is critical to ensure we realise the whole-of-economy response to issues including net zero," he said.

"Progress is being made, but it must still be moved up a gear. In doing so, the race to net zero can indeed be won, or lost, in Asia."

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