Riding high on the goals and undertakings to build sustainable communities around the world, deep-pocketed financial institutions have a bigger role to play in investing for a greener and better future for mankind, a China Daily Asia Leadership Roundtable in Hong Kong heard on Tuesday.
As people today try to carve out workable solutions for a slew of pressing issues, including food waste and environmental pollution that hang like a Sword of Damocles over their heads, the role that public funds could play is very limited, Kevin Chen, chair professor of Zhejiang University and senior research fellow at the International Food Policy Research Institute, said at a panel discussion themed “Rewriting the Investment Strategy: Climate Change and Food Security”, held as part of the annual two-day Asia Financial Forum.
“By contrast, private funds have a growing and key role to play in filling the huge investment gap. No matter how many solutions we have at hand, you do need investments to make them happen,” he said.
“The private investment community should judge itself as a player and a driver for sustainable initiatives.”
Natalie Chan, a senior adviser with the Civic Exchange, warned that with an expanding global population and rapid urbanization, the challenge facing the planet is real and serious. “In China, specifically, by 2030, almost 70 percent of the population that would be over a billion will actually be living in urban cities,” she said.
The year 2030 is the deadline set by the United Nations for its sustainable development agenda. At the heart of the bold and structured agenda are a new, universal set of sustainable development goals that UN member states will be expected to use to frame their agendas and political policies.
Based on statistics, Chan pointed out that people living in the cities consume 50 percent more energy, 40 percent more water and 30 percent more food than their counterparts in rural communities.
“This is only the story on the demand side. On the emission side, what’s going on is very much similar,” she noted. “Together, it leads to sort of a vicious cycle. The point is how we could break and turn the cycle.”
Guo Xiaofei, director of green and sustainable finance of corporate and investment banking Asia Pacific at Natixis, believed that on the demand side, the issuer today has the asset, while on the supply side, the investor has the capital. “So, the more relevant issue is how we can play this market scale up.”
Citing green bonds, one of the most mature green finance instruments in the market at present, as an example, Guo said: “The question is how we can ensure that more and more issuers feel comfortable stepping into the market and, from the investor side, how they can constantly integrate environmental, social, and governance indicators into their investment strategies.”
She stressed there’s a lot of work, particularly in Asia, to be done to essentially build up market confidence.
Citing the ongoing Australian bushfires, the sheer devastation of which has shocked the world, Hannah Routh, partner, sustainability and climate change advisory leader at Deloitte China, said the bushfires have essentially propelled climate risks into public debate.
As governments and institutions around the world redouble their efforts to raise public awareness of the sustainable business, Routh believed there’re really some encouraging signs. “Issues like climate change have become a topic of conversation among the general public, not just for the climate enthusiastic like me, but people in the streets are talking and thinking about how climate changes will impact them,” she said.
She noted recent encouraging signs include recent moves by the Hong Kong Stock Exchange, which has issued stricter and more demanding requirements for ESG reporting for listed companies. All Hong Kong-listed companies, therefore, will have to describe how climate risks can affect their operations and, more importantly, how they’re going to tackle the risks.
As a firm believer that the capital and institutional investors have what it takes to play “the key part” in environmental protection and climate change, Vivek Pathak, regional director of East Asia and the Pacific at International Finance Corporation, however, said he doesn’t think investors and enterprises are able to price in the risk factors in general agriculture.
“As an investor, I would be very keen to know what you’re doing with water usage. It may not be very relevant today but water is not priced in most countries. It takes 15,000 liters to produce a kilo of beef and 300 liters to produce a kilo of vegetables, and when you look at the price of beef and vegetables, I don’t think they’ve been priced appropriately,” Pathak explained.
He pointed out that the waste in the agriculture industry is huge. But, by utilizing good logistics, like the cold chain and fast delivery, the waste could be greatly reduced, and that would greatly benefit the whole environment.
Elaborating on his own investment rationale, Pathak said he would invest in a company that is harvesting or producing crops in a way that preserves the soil and the nutrients in the soil for three years as against 18 months. He would ask questions about how the firm is rotating its crops. These are all aspects that most institutional investors would not bother to take a good hard look at.
Pathak said rating agencies should also join the game and do their part, urging them to integrate the ESG indictors into their ratings, as a helpful reference for the average investor to pick out companies that are doing business in a green, environment-friendly, sustainable manner.