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Sustainable financing: The big shift is visible

IFM_Eugene Wong Weng Soon - CEO - Sustainable Finance Institute Asia Limited
Global companies took in a record $859 billion in sustainable financing in 2021

Maybank, Malaysia’s universal bank conducted a flagship conference named ‘Invest ASEAN’ on August 24. The conference tackles some of the most important issues for the region. It goes beyond the usual financial conversations; bringing together thought leaders and special speakers on topics such as geo-politics, cyber-security, ethics, climate change, blockchain, cryptocurrency and other major topics to offer a more holistic and timely view of the challenges facing ASEAN.

This year’s topic of discussion was ‘Sustainable financing: The big shift is visible. The Invest ASEAN panel compresses regional experts having expertise in Sustainable Financing. The conference was addressed by Eugene Wong Weng Soon, CEO of Sustainable Finance Institute Asia Limited.

According to Soon, sustainable financing covers a range of activities, from putting cash into green energy projects to investing in companies that demonstrate social values such as social inclusion or good governance. He said the best example of social values is having more women on their boards.

“Sustainable finance has a key role to play in the world’s transition to net zero by channeling private money into carbon-neutral projects”, says Soon. He said on this forefront European Union Green Deal Investment Plan aims to raise $1.14 trillion to help pay the cost of making Europe net zero climate change emissions by 2050.

“To ensure that sustainable investments deliver on their promises, global accounting body the International Financial Reporting Standards Foundation has just set up the International Sustainability Standards Board to come up with new rules to validate sustainability claims” Soon said.

Referring to a study, Poonsit Wongthawatchai, EVP, ESG Division, Bank of Ayudhya Public Company Limited, said the performance of a range of ESG investments worldwide between 1970 to 2014 found that half of them outperformed the market. Only 11% showed negative performance.

Analysis by BlackRock – the world’s biggest asset management company – found that during the height of the COVID-19 pandemic in 2020, more than eight out of 10 sustainable investment funds performed better than share portfolios not based on ESG criteria.

Wongthawatchai said paying higher dividends to shareholders, companies with high ESG ratings have also enjoyed stronger increases in their share prices in the past five years.

“This matters because most stock market investments are made by financial institutions such as pension funds. In the United States, 80% of listed equity in leading companies is held by organizations that are looking after other people’s money. While individuals may choose to earn a lower rate of return to save the planet, institutional investors and pension fund trustees don’t have that luxury. They must abide by what is known as a fiduciary duty to act in the best financial interest of investors”.

“But rising returns on sustainable assets mean trustees no longer have to sacrifice sustainability for profit”, Wongthawatchai said.

Timothy Tan, Snr Associate, Sustainability & Sustainable Finance, Singapore Exchange Limited said in contrast, sustainable companies are more likely to win contracts, save costs by using fewer resources, have less regulation, retain the best people and avoid losing money on old carbon-intensive processes.

Global companies took in a record $859 billion in sustainable investments in 2021, including $481.8 billion in green bonds that raised money for specific environmental projects. And the level of sustainable finance is only set to grow. The total value of ESG investments is on track to exceed $53 trillion by 2025.

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