Towards an Enabling Environment for Sustainable Finance

5 min read

“In many ways, COVID-19 has really been seen as a test run for a major climate event. The pandemic has reflected interdependencies of people, planet and prosperity. Therefore, without a healthy environment, we cannot have a healthy economy. ” – En Lee, Head of Sustainable and impact investments Asia, LGT.

Designed around dedicated impact themes to mobilize capital where it is most needed, AVPN’s 8th Annual Conference and its first carbon-neutral, virtual convening brought together more than 7000 people amidst the unsettling backdrop of the “Great Lockdown”. The well moderated discussions galvanized a clarion call for collaborative action by governments and businesses to prioritise climate action and sustainable investments as an imperative for building economic and social resilience to meet the Sustainable Development Goals (SDG).

Insights from two integral policy sessions  highlighted how effective regulatory reforms and tangible partnerships across governments, private sectors and development financial institutions foster enabling environments for increasing sustainable finance uptake, broadening ESG adoption  among businesses as well as nudge countries to utilize innovative green financing instruments effectively to address targeted climate-related issues and meet their financial demand for achieving sustainable economic development.

Aligning sustainable finance for climate action

Articulating the current trends in the global sustainable finance markets, En Lee, Head of sustainable and impact investments Asia, LGT and Joseph Pepping, Director, Global Capital Markets, Bank of America, reflected on the growing salience of  ESG funds, green bonds and impact investments in sustainability linked themes. Returns-wise, these ESG backed portfolios remained pandemic-resilient outperforming their global counterparts.

Lee stated that, “climate change remains a persistent threat alongside social challenges such as health care, education and inequality “. Citing from the Global Risks Report 2020, he cautioned that with the top ten global risks (including climate change, biodiversity loss, extreme weather, natural disasters, water crisis and infectious diseases) being inherently ESG related, the significance of embedding environmental degradation related material costs and financial risks to businesses and investment portfolios could not be over-emphasized.

Regulatory reforms, in the form of various climate neutrality policies, therefore, play an important role in encouraging investors to adopt ESG-backed portfolios and inciting value for climate related financial disclosures (for eg Task force on Climate-related Financial Disclosures-TCFD) among businesses globally. A surge in emerging taxonomies, stewardship codes, and industry principles has resulted in creating a favourable environment for developing sustainable finance pathways to achieve socio-economic resilience.

In the most vulnerable, disaster-prone  communities, however, economic policies embedding climate risk and green financing initiatives incentivizing sustainable investments, remain largely sporadic.

With just “0.2% of  all global pandemic stimulus spending,  in the world’s largest 50 economies,  allocated to green policies”, Niall O’Connor, Director of the Stockholm Environmental Institute (SEI) expressed the urgency for government stimulus packages to integrate gender and social equity issues in order to address challenges of access to capital by marginal and vulnerable communities. He noted that building demand for investible sustainable financial products necessitates simplifying complex financial jargons, supported through research and capacity development  across various stakeholders. He added that it required conscious initiative from the government to deploy public capital effectively to attract institutional investors who will scale up investments that support the marginal and the vulnerable communities.

Here, I share two country-specific experiences on how governments have successfully integrated climate policies into their rebuilding and resiliency plans. From mitigating climate risk in the Philippines, to new regulatory reforms in Thailand, the discussions provided deeper insights into best practices and lessons learnt from deploying green finance instruments in the respective countries.

The Philippines: Disaster-risk financing 

Comprehending the value of preparedness from typhoons Yolanda and Haiyan, the Philippines government, with the help of the World Bank, has built its National Disaster Risk Financing and insurance strategy. Lesley Jeanne Cordero, Senior Disaster Risk Management Specialist, World Bank, cited her experience on working with the public sector on the same, stating the need for public and private capital to support relief, recovery and reconstruction efforts. The facility will also enable clarity on “ who pays for what, when and how”, thereby mobilising  multi-stakeholder resources more effectively.

She declared that Development Finance Institutions (DFIs), like the World Bank, will need to understand the fiscal needs of the government to develop effective financing mechanisms, such as contingent credit facility or catastrophe bonds, around them. Her sharing elevated the importance of data collection and analysis to devise effective recovery and relief efforts under resource-constrained environments, while communicating risks, managing expectations and engaging communities at scale.

Thailand: The rise of ESG regulatory reform and sustainability disclosures 

Ruenvadee Suwanmongkol, Secretary General, The Securities and Exchange Commission (SEC) shared her experience on the regulatory role of the Thai capital market in driving ESG reform for retail investors and businesses/corporates. As a segue towards achieving the country’s national strategic plans in a sustainable way, the SEC is working with DFIs, like the World Bank and ADB, to build local capacity for ESG audit and conduct third party green assessments.To protect businesses and investment portfolios from long term “returns erosion”, SEC also educates retail investors on their expectation of yield and align with them to account for ESG risks in their portfolios. With examples of various sustainable investment products that have been made available to mobilize capital towards sustainable businesses (green bonds-farmers; social bonds-housing; sustainability bonds for developing public transport etc.), the SEC has demonstrated their commitment to systematically account for climate, social and governance risks into fiduciary duties/compliance. As next steps, the SEC will be managing the transition to greater disclosure requirements for Thai listed public companies beginning in 2022.

The sharings from countries provided rich insights on the importance of connecting sustainable finance needs to climate risks, emergencies, and by providing  instances on the type of reforms conducive for germinating and nurturing green investments.

The 2015 Paris Agreement called attention to “make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. In this context, the AVPN Conference broke new ground by providing an enriching platform for experience sharing among policy practitioners, researchers, investors, DFIs, public and private enterprises from different countries to reveal, reset and reprioritize their climate goals towards a low-carbon and inclusive development trajectory.

Summing up the convenings on a positive note, Joanne Manda, Regional Advisor, Climate Change & Innovative Finance, UNDP, shared that “although COVID has been a crisis, it has been a real opportunity to reimagine the world going forward”. There is an urgent need to build back better along the lines of  SDG benchmarks, and this can be operationalised by engaging in effective partnerships across private sector, government, development financial institutions. To quote Niall O’Connor, Director of the Stockholm Environment Institute, “it’s time for change and to push higher than before for a new, inclusive, low carbon, equitable future.”


About Author
Sanchita Talukdar
Sanchita Talukdar Associate- Policy AVPN

Sanchita Talukdar, is a Research Consultant at AVPN, and works as researcher and content curator. She brings more than 10 years of research experience in economics and environmental policy. She has worked on various research projects in India and Singapore in the areas of environmental valuation, water quality and sanitation issues in low income countries and impact of climate change on food security for Australia and the United States. She has provided research, rapporteur services for PUB’s - Singapore International Water Week.

She is also a United Nations volunteer and currently volunteers for various grassroots level initiatives at community clubs. Previously, she worked as a research associate with the Lee Kuan Yew School of Public Policy, National University of Singapore. Sanchita holds a Ph.D. in Economics from the M.S. University of Baroda in India.