Technology companies with substantial cash reserves can fund their climate transition without waiting to issue labelled green financing, speakers at a Hong Kong sustainability forum said, pointing to investments in greener electricity and water-saving technologies as businesses expand their data centre operations.
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Speaking at the Unlocking Capital for Sustainability forum on 5 November, Elaine Ng, Associate Director for International Affairs and Sustainable Finance at Hong Kong’s Securities and Futures Commission, said forward-looking companies were moving faster on transition investments.
“Moving away from project financing to using working capital is an increasing trend that we are seeing,” Ng said during the opening plenary called Catalysing global capital for the future. “A lot of times [firms] use working capital to be able to do that rather than raising a label instrument funding.”
Ng pointed to large cloud computing companies, or hyperscalers, as examples of businesses with substantial cash available to invest.
“They don’t need new financing,” she said. “They [are] just sitting with tonnes of money coming out from their ears. They’re just looking to deploy them.”
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Moving away from project financing to using working capital is an increasing trend that we are seeing. A lot of times, [firms] use working capital to be able to do that rather than raising a label instrument funding.
Elaine Ng, Associate Director for International Affairs and Sustainable Finance, Hong Kong’s Securities and Futures Commission
These companies face the challenge of expanding their data centres – and the associated electricity and water consumption – while meeting their climate commitments, she said.
“They use working capital, they use their power and their ability, their vision for their long-term growth to build and invest in green infrastructure,” she said, pointing to investments in greener electricity and technologies that reduce water use.
Her remarks follow transition finance guidance released on 15 May by an industry working group under Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group. Using information and communications technology as its pilot sector, the guidance examines how general corporate-purpose financing can support companies’ overall climate transition strategies.
Technological advances could also change the type of financing infrastructure projects require, said Tracy Wong, Chief Investment Officer and Head of the Asia team at Green Accelerator.
She cited modular desalination technology from China that the accelerator was exploring for use in coastal Indonesia to produce drinking water, saying it could reduce construction time by 90 per cent.
“Before, if you want to build a water plant, desalination plants, you will need project financing. But if you can cut 90 per cent of the time, I would argue working capital would suffice for this, and that will save a lot of money,” Wong said.
For developers seeking external funding, however, securing suitable finance remains a challenge. Wong, also executive vice president of the Hong Kong Green Finance Association, said Asia needed better connections between projects and capital providers.
“We are not short of capital, and we are not short of good technology or good projects or good climate demand,” she said.
She identified inadequate project preparation, poorly allocated risks and opportunities too small or fragmented for institutional investors as obstacles.
Justin Wu, HSBC’s Managing Director and Head of Sustainability and Climate Change for Asia and the Middle East, agreed that commercial banks were not designed to absorb certain early-stage technology, policy, political and buyer-related risks.
Banks need to make projects financially predictable enough to lend to, assessing their risks and ability to generate sufficient cash flow to repay loans, Wu said.
“In some ways our role as a bank is to make something a bit boring so that it can be bankable and investable,” he said.
Data gaps complicate investment decisions
Beyond project preparation and financing structures, investors also face difficulties assessing the quality and comparability of sustainability information across markets, said Paul Moody, Managing Director for Global Partnerships and Client Solutions at CFA Institute.
“If you haven’t got good data, everything’s irrelevant, and if you can’t compare, that’s a problem,” Moody said.
He highlighted the need for interoperability between reporting frameworks, allowing investors to compare information when allocating capital.
HSBC’s Wu said the barriers to attracting investment were interconnected. Too few projects, inconsistent standards, policy uncertainty and a lack of expertise could contribute to higher risk profiles and returns that fall short of investors’ expectations, he added.
For Moody, addressing those information gaps means balancing approaches suited to domestic circumstances with investors’ need to compare opportunities across markets.
“Being able to compare that is essential when you’re trying to allocate capital,” he said.
