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The clock is ticking — time for tougher measures to green the finance system?

Stronger measures are needed to transform the finance system and rein in corporate carbon emissions, experts said at the Unlocking capital for sustainability event in Singapore.

Unlocking Capital for Sustainability panel
Left to right: Gillian Parker, assistant editor, Eco-Business, Elena Philipova, director of sustainable finance, Refinitiv (on screen), Gerry Mattios, partner at Bain & Company, Perpetua George, general manager, group sustainability, Wilmar International (on screen), and Assaad Razzouk, CEO of renewables firm Gurīn Energy, talk about ESG risks and opportunities at the Unlocking capital for sustainability event in Singapore. Image: Eco-Business

As calls for urgent climate action grow louder in the run-up to the COP26 climate change negotiations in November, experts are proposing more extreme measures to accelerate the shift away from a fossil fuels-based economy.

Speaking at the Unlocking capital for sustainability event in Singapore on Thursday, Eric Lim, the newly appointed chief sustainability officer of United Overseas Bank (UOB), Southeast Asia’s third largest finance group, warned delegates that “the cost of being off the [sustainability] bandwagon is an existential threat” for business and finance, and regulation to green the finance system is coming.

Organised by Eco-Business in partnership with the United Nations Environment Programme, the forum discussed how to scale sustainable finance, greenwashing and the future of sustainable investing in a series of discussions led by leaders from business, government and finance. 

The world needs to cut greenhouse gas emissions by half by 2030 if it is to align with the Paris climate accord and avoid the most severe consequences of climate change — but almost all countries are off the pace, particularly in Asia Pacific, according to a sobering study released on Tuesday.

While several countries have implemented some policies to support a green recovery, efforts are currently insufficient to meet climate targets, particularly in Asia Pacific, according to the Asian Development Bank. 

Assaad Razzouk, chief executive of newly formed Singapore-based renewables firm Gurīn Energy, proposed that public and private companies should be legally required to disclose their carbon footprint, balance sheets, and investment decisions. Executive pay should be reconfigured according to their carbon exposure, Razzouk said.

“It’s not much more complicated than that,” said Razzouk, who noted that almost two decades of collecting corporate emissions data and sustainability reporting had accomplished “less than nothing”, as emissions continue to rise, even with the Covid-induced economic slump.

ESG has a branding problem in Asia.

Daniel Klier, president of Arabesque, CEO, Arabesque S-Ray

“We need to take the legislative route. Companies need to be sued [if they do not stick to emissions reduction targets]. Or companies need to take responsibility and stop passing the buck,” he said. “We have to price carbon emissions.”

While the business sector has been talking more about sustainability since the Covid-19 pandemic, Razzouk said there has been greenwashing “on an epic scale” in the finance industry, with investments given environmental, social and governance (ESG) labels without justification.

He said the investigation into the potential fraudulent use of sustainable investing criteria by Deutsche Bank AG’s asset-management arm, DWS Group, in the United States is the beginning of a much-needed shake-up of the finance sector. “We need regulators to turn it into a stampede [to clean up misleading claims],” Razzouk said.

Georg Kell, founder of the United Nations Global Compact, and chairman of asset manager Arabesque, said that while there are “data deficiences” in the finance system, debate about greenwashing was driving much-needed scrutiny of corporate sustainability credentials.

Frameworks such as the European Union’s sustainable finance taxonomy will set minimum standards for ESG data, and companies will eventually be mandated to disclose their sustainability performance, Kell predicted. “Sustainability information should be a public good,” he said.

Regulations to bring greater transparency to ESG data are taking root in Asia too. Singapore announced in January it was setting up a green finance taxonomy, and the Association of Southeast Asian Nations aims to establish its own by the end of the year. Daniel Klier, president of Arabesque, said that setting up different taxonomies would be “dangerous”, and proposed a common global taxonomy to “let the capital markets do their work.”

Klier also warned that while global investors want to allocate capital to ESG, they are currently leaning towards developed markets “because that’s where the real data and transparency is.” ESG has a branding problem in Asia, he said.

The threat of shareholder activism will help push corporates still lukewarm on ESG, Klier added, pointing to the recent action by a small hedge fund to force oil giant Exxon Mobil‘s leadership to take climate action. “Investors taking their opinions into the next AGM [annual general meeting] and voting down boards… If you’re a CEO that’s the worst thing that could happen to you,” he said.

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