Decarbonising the whole global economy is critical, to minimise the worst consequences
of climate change. In this week’s episode, I chat with Helena Fung, London Stock Exchange’s
Head of Sustainable Investment, on the key drivers in the sustainable finance industry
in Asia. The last two years has seen a big increase in sustainable investing globally,
and major banks are committing trillions to facilitate this shift into a more sustainable
economy. Could Asia be at the forefront in the sustainable finance industry globally?
What would a sustainable finance industry need to accelerate to net zero?
And more importantly, how is Asia going to lead the way? This is The Big Conversation.
Helena, thank you very much for your time today. So happy to have you on this call.
Sustainable finance has been a really, really topical discussion for a lot of people,
and especially markets right now. So, Helena, maybe you could just maybe give us a quick intro,
and then we could get straight into it. Sure thing, Garett, I’m delighted to join
you this afternoon. So, I’m Helena Fung, I’m Head of Sustainable Investment at FTSE Russell,
part of the London Stock Exchange Group. I’ve been in the business for about two years,
but I’ve been in sustainable finance for, I think, coming up 15 years.
And before that, in finance for around 18 years. My background is, I studied this in
Law. Essentially, my role here is to define and execute the strategy for sustainable investment,
across the number of propositions that we have in the business. So the predominant ones with
FTSE Russell being, of course, index [unclear] but very intrinsic to that, and I think important in
particular to the APAC region is what we do on the data and the analytic side. So it’s really about
understanding the needs for APAC, making sure that we are responding to that demand, but at the same
time that we’re working across the ecosystem to really kind of help to drive forward the
sustainable investment agenda within the region. Fantastic, and that’s great. Helena, we’re going
to dive straight in, actually. And then one of the key things that I really wanted to ask
you was, what do we really need to see, to accelerate the just transition to net zero
in the next few years? Especially from the Asian angle, and a global angle.
Well, you know, we’re at a really critical point in that whole transition process. If we’re going
to meet the global climate goals that have been set out at a government level and in policy,
then this is really, as people have said, the decade of climate, the ten-year period
going up to 2030. That we really need to halve global emissions by around about 45 to 50% in
order to meet our longer-term global goals around avoiding the worst impacts of global warming.
So in that sense, accelerating the transition from this point onwards is really an exigent task.
I think that involves coordination across every aspect of the capital and financial markets. From
regulators to investors, to banks, to service providers like LSEG. And really, a kind of very
collaborative effort across the value chain, the capital markets Dow, and within that there are
a couple of core pieces. Because we need to move away from fossil fuel use, and that’s particularly
important in the Asia region where we have some very high carbon-intensive power grids that
need to be transitioned towards green energy. But it’s also important, I think, to make sure
that at the same time as we’re decarbonising, we’re also scaling up the green solutions that
are going to be needed across the whole range of different industries, to make sure that we’re
accelerating towards electrification, towards some of the solutions that are going to be needed
to really help to meet the climate mitigation and adaptation goals that we have in the region.
Again, I think we need to consider this really within an APAC context. And the
fact that we have a number of developing as well as developed markets here, and that
markets are not homogenous within APAC, they’re at different points in their transition. And that’s
where that element that you mentioned, Garett, of the just transition, comes in. We need to make
sure that we’re really enabling all countries within APAC to be able to meet those goals,
and not leaving anybody behind in the transition. And this really where that whole social element
as well comes into thinking about how do we transition to where we need to be, in order
to avert the worst impacts of climate change. I also want to just talk about the market. There’s
been a lot of high-profile announcements that about banks increased investments to
sustainable investments, a lot of people talking about targets for 2030. But realistically,
what do we need to see for this year, to really see that they are actually serious about this?
Well, I think what we need to see, and particularly if you look at the corporate
side of the equation, it’s businesses being very serious about putting strategies in place,
that they’re going to move the needle towards low carbon and sustainable solutions in the
long term. And I think in particular when you look at financial institutions and
their exposure to companies, this is where, really, the solutions are required across
all actors within financial services. So, from companies, we really need to see them
putting in place very credible transition plans, aligning themselves with science-based targets
and ensuring that they really have the right strategies and the right governance in place,
to make sure that they can meet those targets to decarbonise in actuality, on a go-forward basis.
So that really needs to be happening from this point onwards. And as I said previously,
there isn’t really a lot of time here to waste. It’s really about making sure that that happens,
from now, across the board. So I think when investors are looking at companies,
they need to be really understanding how companies are positioning themselves to meet the challenges
of that low-carbon transition. What steps are they putting in place, how much is that a political
feature of the way that the company’s organising itself on a go-forward basis? So, certainly,
there are sort of practical elements that need to happen, to make sure that we’re scaling up the
solutions for the green transition. At the same time, you’ve got to make sure that the companies
in your portfolio are sufficiently aligned with those goals, in order to make sure that you’re
mitigating risk, but also positioning well to take advantage of the opportunities that are going to
be really important in that low-carbon transition. And, Helena, I just wanted to focus a little
bit on the industry itself. In the sustainable industry, there’s been a lot of developments in
the US, and especially Europe as well. But I just really wanted to give our viewers a much, much
better idea in terms of what’s happening in Asia, specifically on sustainable finance investments.
I certainly think we’re a lot more advanced than what maybe the market’s given us credit
for. Could you elaborate a little bit on that? Yes, I’d be happy to, and I think you make a
great point. I think in the last couple of years, certainly, and the pandemic has been
a really interesting driver of this, we’ve seen a great deal of focus in particular on environmental
issues. And I think what’s happened over the course of the COVID-19 pandemic is really that
people have become very aware of the, I guess, the fragile nature of markets.
And the fact that what we’ve seen in terms of the disruption and the disarray in markets at
the beginning of 2020, in the early part of the pandemic, is very sort of resonant of
what could happen if you have a disorderly transition to a low-carbon environment,
if we don’t put those steps in place, that I was just talking through, in advance. So, you know,
essentially, I think that has really served to kind of underscore the need for policy-makers,
as much as for investors and for financial institutions, to make sure that they are
well-positioned, that they are taking account of the risks that are inherent
in environmental issues, as well as in the full range of some of the ESG and social challenges.
So I think what we’ve seen is, as I said, policy-makers really kind of set to double-down on
making sure that financial institutions in their regions are accounting for climate risk, taking
that into account, in the capital allegation provisions, for example. So you’ve got the
regulatory driver. At the same time, I think we’re seeing increased leadership from asset owners in
their region. Having spent quite a previous part of my career in sustainable finance in Europe,
I can certainly attest to the fact that asset owners and the investment community as a whole
have been a very important driver and catalyst for that pivot towards sustainability. So it’s
really encouraging to see that happening here, as much as we’re seeing a focus on the policy
instruments, like carbon markets, like taxonomies, for example. A renewed focus on disclosure,
a focus on TCFD as a reporting standard for climate metrics, and climate strategies.
So I think it’s really the pulling together of kind of all of those different elements that are
going to be, A, very important in meeting the goals that we have in this part of the world,
and APAC is, as I said before, very exposed to a lot of the risks of climate change. And it’s
an area where we actually need to really scale up investment on climate and make sure that we are
orienting capital flows in the right way, to be able to fund the transition. But at the same time,
you know, it’s really also about making sure the investors understand and are factoring this into
their portfolios. And that’s the bit that we’re beginning to see happening. It’s been a kind of
a top-down transition, I would say, in Asia. But given the need for Asia to transition, how
important that is on a global scale, to meeting climate goals, it’s very encouraging to see that
happen at pace in the last couple of years. And some interesting points there, but
can we just focus a bit on the quality of the data? I mean, how do you see the quality of data
in Asia? Are companies in Asia embracing the disclosure of their data? Do you see that in
a more… Are we seeing a more advanced disclosure of data here in Asia, compared to other parts of
the world, or are we still lagging somewhat? Well, look, I mean I think you made the point
before that in some ways, Asia has traditionally been regarded as a bit of a laggard in this space.
And I think the data and the lack of a homogenised disclosure of their market has been certainly
a part of that. Having said that, given the focus by policy-makers, given the focus by investors,
and the questions that companies are regularly being asked about their ESG practices and
policies, I think there’s now greater familiarity with the kind of sustainability data points that
investors need to see and are asking for. We’re also seeing, which I think is
equally encouraging, is another convergence and alignment around what the key standards
are. And that’s also been an issue in the past, not only for companies in Asia, but on a global
basis. What are the frameworks that investors are supporting, and what do companies need to
disclose, has been this sort of alphabet soup approach to different disclosure initiatives.
But we’re seeing convergence around things like, I mentioned before, TCFD, a sort of a gold standard
of climate-related reporting. So that certainly makes things easier. I think what you’re seeing
is that there’s a focus really on the larger companies. So those larger companies that maybe
have had deeper pockets or better resources for expending on sustainability personnel
and reporting, are probably the ones that are most familiar with being scrutinised by investors. So
those are the ones that we’re seeing, I think, really upping their game.
What we need to see now, and this becomes even more interesting when you think about the
exposure of the banks, is a requirement for companies across all market cap sizes,
but also private and unlisted companies, to begin disclosing the same kind of data.
And I think this is where, for data providers like LSEG, it becomes very interesting in terms
of understanding how we can help to facilitate that. Not just for the larger companies,
the larger listed companies in the main markets, but really across all of those companies. So,
yes, I mean, definitely the quality and the amount of disclosed information
is improving. There’s always further to go, and I think it is really that kind of unlisted space
now that’s going to be challenged to disclose the main data points.
It's interesting, I mean, just in terms of industries evolving very rapidly,
and as we mentioned, Europe seems to be leading the way. But could you see
Asia being at the forefront of the industry itself? And if so, could you give us examples
of what perhaps some banks or some practitioners are doing to really get ahead of the curve?
Yes. I mean, that’s a great question. I do think that, from a sustainability perspective,
Asia is a really exciting part of the world, for a number of reasons. Now, in many ways, Asia is
very exposed to the risk of climate change. From a physical perspective, we have a lot of
sea-level areas that are at risk from rising sea-levels. And then, of course,
we have some pretty significant weather events here in Asia. So there is a great deal of exposure
to the physical impact of climate. And, as I’ve said before, there’s also an increased
need to really finance that transition as well, particularly in the more emerging markets. So,
from an investment standpoint, there should be a lot of opportunity within Asia, to make sure that
we are entering capital flows in the right way. So there is that increased need, there is the
fact that you’ve got very fragmented markets at different stages of development. But at the
same time, it’s the response of policy-makers, but also, I think, the response of industry is
very exciting. If you look at what’s happening in China, with Blockchain, with the digital economy,
with looking at NLP, NAI, as a way of uncovering insights, where the data doesn’t currently exist,
on sustainability factors and issues. I think there’s a lot of, I want to say
creativity and entrepreneurial spirit going on here, in terms of thinking through how can we
factor sustainability into different elements of industry, but also to gain different insights.
So I think both from that kind of that need perspective, and the requirement to invest,
I mean the STGs is another great way of looking at this, in that capital is needed to meet
the STG, the 17 sustainable development goals by 2030, I think is estimated at something like 1.5
trillion dollars on an annual basis. So that’s a massive opportunity to really have an impact,
but also it’s an investment standard as well. So, to your question, Garett, I would
say absolutely. I find this a really exciting part of the world, from a sustainability angle.