How can Asia bridge the gap between finance and sustainability?

In Asia, there are plentiful opportunities for green investing in infrastructure, food, waste, and energy. But challenges abound, including the gap between financiers and business owners, and a market that rarely rewards a focus on sustainability.

It is critical that low-carbon solutions in Asia are supported and scaled to enable the region to achieve sustainable development. Yet, investor funds are not being matched to bankable projects, and where there is activity, it is too slow.

That was a key challenge debated at the second annual Unlocking Capital for Sustainability forum organised by Eco-Business in partnership with United Nations Environment in January.

Caroline McLaughlin, director of partnerships at Asian Venture Philanthropy Network (AVPN), a network that matches philanthropy with finance in Asia, noted that there was is a gap between financiers and businesses in the region. “Businesses tell me there’s no funding. And funders say there’s no pipeline,” she said in a panel discussion with fianciers and startups.

David Ward, founder of The Nurturing Co, which recently introduced packaging-free bamboo toilet roll Bambooloo in Singapore, said he found it surprising that financiers say there is a dearth of investible ideas.

“Green financing is moving way too slowly. But this is more about ideas of a certain size or success rate that finance bodies are seeking,” he told Eco-Business on the sidelines of the forum.

Ward flagged that ventures of his size were experiencing challenges in raising capital. “We are too young for banks, yet too small for venture capitalists. So where should we go?” he said.

Businesses tell me there’s no funding. Funders say there’s no pipeline.

Caroline McLaughlin, director of partnerships, Asian Venture Philanthropy Network

The trust factor

Besides matching funds with projects, Kang Jen Wee, founder and chief executive of T-Recs.ai, a renewable energy certificates (REC) marketplace, said that trust between mature and developing economies is one of the major hurdles for green investment in the region.

“There are a lot of green projects available, but they don’t match with investors because of trust issues. Most investors come from mature economies and go to frontier countries, which are 40-50 years behind,” he said.

But not everyone is facing the same challenges. Brian Reilly is founder and chief executive of Revolv, a new service that enables consumers to rent containers for food and drink deliveries and cut out single-use plastics in the process. Revolv raised US$500,000 from Hong Kong-based hedge fund Sylebra and is looking to secure more funding to aid the company’s launch in Singapore.

He shared how he was able to raise funds. “I engaged with the investment community in Hong Kong, which led me to the leader of a tech hedge fund, who had a passion for the issue we were trying to solve. We were lucky, but at the same time I think we all make our own luck.”

The growth of access [to green bonds] has been significant, but they still only account for 1 per cent of global bond issuance. If we think we can solve our problems with this 1 per cent, we can all go home.

Michael Boardman, chief financial officer, Sindicatum Sustainable Resources

Are green bonds the best way to grow green finance?

In a report by the Climate Bonds Initiative, 2018 saw a record US$389 billion in green bonds globally from 498 issuers. Asia Pacific recorded the second highest volume of outstanding climate-aligned bonds, with China by far the largest both for issuance from strongly-aligned issuers (US$189 billion) and green bonds (US$55 billion). India, South Korea, Japan and Australia were the next largest markets, followed by US$14 billion from Asean.

Although the uptake of green bonds has started slowly in developing Asia, an International Finance Corporation (IFC) report revealed that East Asian cities could attract up to US$17.5 trillion in climate-related investments over the next decade. Among the developing countries in the region, only Indonesia and the Philippines have issued green bonds, while Vietnam, Cambodia, and Laos have no bond market yet.

Michael Tang, head of listing policy at the Singapore Exchange, said he believed the market should be incentivising green bonds in Singapore. “There are possibilities for regulators to create incentives and we expect it will take some time to put that in place. If the market could self-regulate, things would move much quicker,” he said.

Dave Chen, principal and chairman of Equilibrium, an impact investment firm, pointed to the speed of green bond growth. “In 10 years, green bonds have grown to a US$500 billion marketplace. The only example that has grown faster is renewable energy infrastructure, which is now in excess of US$1 trillion.”

But not everyone believes green bonds are the best way to grow sustainable finance. Michael Boardman, chief financial officer of renewable energy company Sindicatum, argued that the design of green bonds is flawed. 

“The growth of access [to green bonds] has been significant, but they still only account for 1 per cent of global bond issuance. If we think we can solve our problems with this 1 per cent, we can all go home,” he said.

Why aren’t green bonds being more actively issued? One reason is that there isn’t a standard universal system from a legal perspective, Boardman said. “Interestingly, green bonds have not been issued in the US largely because of this legal uncertainty.”

Boardman said an incentive scheme was needed. “We need to move away from green and non-green, and we need a tax system with an incentive for issuers to do green deals and for investors to apply green deals.”

Creating the right environment

Despite the challenges, Joris Dierckx, chief executive officer, Southeast Asia, for BNP Paribas said he was optimistic about the future of sustainable finance in Asia. “We are evolving towards a financial system that takes sustainability increasingly into account,” he said. “There is still some way to go, but we are heading in the right direction.”

UN Environment’s regional director for Asia and the Pacific, Dechen Tsering, agreed, pointing to the fast growth of India and China’s green bond markets and financial regulatory manoeuvres made in Indonesia and Singapore.

“This region has the potential to become the world’s sustainable engine of economic growth,” she said, but added that there was a funding gap for the Sustainable Development Goals of $2.5 trillion a year in developing countries alone.

“We will not achieve our sustainable development goals without the private sector’s innovation, technologies and investment,” she told her audience of 130 finance leaders, investors and entrepreneurs at the St Regis Hotel.

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