Various performance-based sustainability-linked bonds and loans exemplify a growing market for sustainability-linked finance, which incentivises the issuer or the borrower to achieve environmental or social targets while providing the opportunity to reduce financing costs.

Despite the laudable motives behind the design of sustainability-linked finance, this edition examines its two unresolved dilemmas – the omission of the “additionality principle” and the risk of moral hazard. There is no easy answer to both dilemmas but we look forward to new structural changes that can ensure sustainability-linked money is financing genuine and additional advances in environmental and social progress.

Given the complex interlocking issues surrounding sustainability, combined with a “green rush” of funds moving into the space, questions have been raised about the quality and transparency of some of the products that are labelled “green” or “ESG”. Concerns have also been raised about the clarity and alignment of the ready-made ESG ratings provided by some consultants and ratings companies.

This edition looks at the myth often promoted by raters and some fund managers that there exists a universal and decision-ready rating of sustainability fitness. While noting that sustainability analysis is at least as complex as financial analysis, it also points out how ESG metrics can influence public policies.

The latest AR6 report from the Intergovernmental Panel on Climate Change (IPCC) confirms in unequivocal terms what we have largely known for many years: the changes in sea, land and atmospheric temperatures are caused by human action. They are irreversible and the outlook is alarming. The one ray of hope is that we can avoid the worst and set a recovery path if we act with bold strokes immediately.

This climate science report is expected to provide evidence-based data for governments and investors to become more demanding, as well as the ammunition to the media and the civil society to call out laggards and green-washers in the corporate world. On this premise, this issue highlights five crucial takeaways to examine its key implications for business.

The Hong Kong Monetary Authority released the Climate Risk Management section of its Supervisory Policy Manual on 20 July. These new guidelines suggest that climate risk assessment will be a wide-ranging exercise. The HKMA also expects all Authorised Institutions (AIs) under its supervision (banks and money lenders) to prepare climate-related disclosures as soon as possible, and no later than mid-2023.

This edition looks at this new set of requirements and points out what sort of daunting tasks bank management faces in transforming climate risks into traditional risks that their operational staff can take on board. It also examines why climate risk management cannot be compartmentalized in one corner of a bank, but rather, it is a cross-cutting issue affecting all levels.

Based on the recommendations of the Taskforce on Climate Related Financial Disclosures (TCFD), the Network for Greening the Financial System (NGFS), a coalition of 91 central banks and monetary supervisors, produced the second iteration of their climate scenarios in June 2021 to make stress testing easier for banks, investors and insurers. The Monetary Authority of Singapore and the Hong Kong Monetary Authority are both members of NGFS.

This issue takes a look at how the NGFS has tried to render the multidimensional puzzle of climate action scenarios into a manageable policy-based guide, and examines why the whole exercise leaves the impression that financial researchers tend to keep within a comfort zone. It also tells how respected economists Nicholas Stern and Joseph Stiglitz argue that existential risk in a hothouse world cannot be addressed with standard utility approaches.

While business organizations exist to set accountability standards on climate change, some new initiatives are underway to look at ways for business to measure and report the full range of environmental issues affecting the planet. These are sometimes referred to as the global commons, which involve the protection of our water, our land, our oceans, our climate, and the biodiversity of which we are but one part.

This edition takes a look at the early but notable initiatives by The Task Force on Nature-Related Financial Disclosures (TNFD) and The Science-Based Targets for Nature. It also examines why risks to the global commons are also risks for business and where the drivers of better stewardship will come from.

A great deal of discussion is currently underway about the initiative by the International Financial Reporting Standards Foundation (IFRSF) to develop its own sustainability reporting standards. Conflicting voices are heard: some feel that with the accountancy profession on board, it ensures all business activity reports vital non-financial information on environmental, social and governance issues. Others, however, pinpoint potential issues which will not work in favour of better sustainability reporting, and more importantly, the purpose of sustainability reporting which is always to drive up environmental and social standards.

This edition examines some of the pitfalls in financial reporting standards and analyses why we need broader participation when it comes to the oversight of the complex environmental and social issues surrounding the design and application of sustainability standards.

The industry-led Green Finance Industry Taskforce (GFIT), brought together by the Monetary Authority of Singapore (MAS), is currently conducting a consultation exercise to develop a taxonomy which will ultimately define what projects and companies should qualify for green finance. By taking the initiative to create a common language for all financial institutions in ASEAN, Singapore is asserting its ambition to become the green finance hub of Asia.

This issue examines some of the challenges in bringing Singapore’s green taxonomy in line with European standards, the Paris Agreement targets and the United Nations’ Sustainability Development Goals, and makes suggestions for a more effective and ambitious taxonomy.

The world’s major cities are one of the most important areas for climate action if governments are seriously striving to achieve the national or city carbon neutrality targets they have committed.

This issue reviews some of the climate plans made by six affluent East Asian cities – Hong Kong, Guangzhou, Tokyo, Shenzhen, Singapore and Seoul. It also identifies some of the gaps in their climate strategy that urgently need to be filled, in the hope that their ambition levels are raised in the next few months.

Many investors and fund managers are flocking to ESG and green investments. Added to this excitement is the recent launch of STAGE (Sustainable and Green Exchange) in Hong Kong and the launch of FIRST (Future in Reshaping Sustainability Together) in Singapore. These initiatives taken by Asia’s two key stock exchanges are meant to give a bigger push to sustainability, to drive improvements in the ecosystem through collaboration, and to guide capital flows to support the transition towards a net-zero economy.

Checking the existing gaps and mismatches amidst an air of optimism for sustainable finance, this issue attempts to find out how STAGE and FIRST can play an important role in helping sustainable finance live up to its potential for enabling global sustainable development.

Between August and November 2020, leaders in China, Japan, South Korea and Hong Kong all announced specific dates by which to achieve carbon neutrality. These long-term targets are a welcome development as they give a clear signal that the region’s governments acknowledge the era of emissions of greenhouse gases must end and that a low carbon economy must be built as a key development plank.

However, this is just the beginning of the beginning. Business and finance in Hong Kong and Singapore should take heed of the likely sets of new rules and regulations and also be prepared to participate in action plan frameworks developed by their government for a safer, healthier and fairer future for all sectors of the society.

This issue also attempts to identify the challenges arising from the path to zero emissions for the government of China, Hong Kong and Singapore.

The property sector is responsible for approximately one-third of global greenhouse gas emissions and 40% of global energy consumption. This development drives growing interest from global real estate investors to integrate sustainability into their investment process. The Solactive CarbonCare Asia Pacific Green REIT Index, co-developed by Carbon Care Asia and Solactive, is the first of its kind to close this gap and allow investors to identify companies which demonstrate strong sustainability performance and commitments to meet the carbon reduction targets set out in the Paris Climate Agreement.

This issue explains why green buildings become an attractive asset class and how this Index works to explore the potentials of investing in the greenest REITs in the Asia Pacific region.

In June 2020 the International Capital Market Association (ICMA) published a new set of standards, the Sustainability-Linked Bond Principles (SLBP), which heralded the birth of a new asset class called Sustainability-Linked Bonds (SLBs). Unlike green bonds, social bonds or sustainability bonds – which place strict restrictions on the use of proceeds for predefined projects – funds raised from SLBs can be used by issuers without restriction. Whilst SLBs open up plenty of room for innovation, they also create a number of potential pitfalls which issuers and investors should treat with care.

This issue explains what SLBs are, their focus and challenges, as well as who stands to benefit most.

For financial institutions, scope one and two greenhouse gas (GHG) emissions centring on energy use in their offices are quite easy to calibrate. However, sitting fair and square in the Greenhouse Gas Protocol’s list of Scope 3 emissions is a potent word: investments.

In August 2020, the 70-strong industry-led Partnership for Carbon Accounting Financials (PCAF) published a draft report. Entitled “The Global Carbon Accounting Standard for the Financial Industry”, it pointed out the need for harmonized methodologies and reporting rules to step up the identification and disclosure of portfolio GHG emissions within the finance sector. The move to measure financed emissions can be seen as part of other global initiatives to ensure the finance sector develops the concepts of green and sustainable finance, and meets its obligations to contribute to the achievement of the Paris Climate Agreement.

This issue explains why banks, investors and insurers should take more pro-active steps towards assessing their financed emissions and highlights the various measuring approaches recommended by the PCAF.

“Making Green Bonds Work: Social and Environmental Benefits at Community Level” is a new research report prepared by Carbon Care Asia for Oxfam Hong Kong after analysing 249 green bonds with an aggregate issue amount of US$84 billion issued in Asian emerging markets between January 2018 and September 2019.

This report aims to find out whether we can be sure green bonds achieve their intended environmental targets, whether projects funded with green bonds are resilient to climate risks, whether these projects also ensure social benefits, and what kind of best practice can be identified.

In this issue, you will learn more about the various crucial research results and observations from the Oxfam Report, as well as our recommendations that might help green bonds work better for both planet and people.

GRESB, the global real estate sustainability benchmarking organization, has released the score results of its 2019 Real Estate Assessment. Given the need for more in-depth studies of improvement pathways in ESG performance, CCA has continued to analyse the ESG improvement potential and performance of the real estate sector in Asia, applying our proprietary SECOL framework to the cross-year data sets provided by GRESB.

In this issue, we share some of the key findings from this study, with a view to render realistic recommendations for potential and existing GRESB assessment participants. Our recommendations include what actions to take in the weakest areas such as waste management, energy efficiency and green building certifications, besides corporate governance structure and climate performance.

The COVID-19 pandemic has affected economic and social life worldwide. Launched ahead of COP 26, “Race to Zero” is a global campaign to rally leadership and support from businesses, cities, regions and investors for a healthy, resilient, zero-carbon recovery. It would be irresponsible for policy-makers to take action on economic recovery without taking into account the climate emergency, which will in all likelihood produce more severe and lasting impacts than the pandemic.

In this issue, we propose five top agendas for the Hong Kong SAR Government to consider acting upon in order to achieve three key objectives simultaneously: achieving the greatest impact in carbon reduction, winning public support and creating the best opportunities for post-pandemic recovery. These five agendas involve the building of community solar farms and utility-scale wind farms, tightening energy efficiency compliance for buildings, creating zero-emission bus fleets and the launching of a new EV car-only sharing scheme.

2019 was a watershed year for climate policy in Singapore. During the annual National Day Rally speech of 2019, Prime Minister Lee Hsien Loong called climate change “existential” and a “life and death [matter]” for Singapore, under which “everything else must bend at the knee” to safeguard the existence of the island nation.

In this issue we deep dive into Singapore’s latest changes in governance structure following the PM’s call, focusing particularly on the growing importance and influence of the National Climate Change Secretariat (NCCS), the coordinating agency overseeing Singapore’s climate policy. We also take a broad look at the long-term low emissions development strategy just released in April 2020, which does not only outline Singapore’s approach to achieving its enhanced Nationally Determined Contribution (NDC) under the Paris Agreement, but also signifies the government’s new direction in its national development strategy.

The coronavirus pandemic hitting lives, health, jobs and livelihoods across the world shows that people can make drastic changes to their way of life during catastrophic events. One key lesson for business is therefore the need for a radical upgrade of company assessment of social, political and environmental risks.

In this issue we look particularly at the ways in which this pandemic may drive companies to take a more comprehensive approach to environmental and social issues. We also point out five future directions for reference of any business that wishes to stay ahead in a post-pandemic environment with a drastically different corporate strategy. To help clients achieve this, CCA is offering a unique solution called Crisis REsilience & Sustainability Assessment (CRESA).

It has been estimated that ASEAN markets will need around USD 200 billion in green investment annually until 2030 to finance the sustainable development of Asian economies. To identify good practices in green integrity and social contributions, however, sustainability-conscious investors will need to face various challenges including the lack of harmonisation between the different standards, guidelines and taxonomies, as well as the expectation gap between issuers and investors regarding project transparency and impact assessment.

To resolve these misalignments and expectation gaps, Carbon Care Asia and Solactive AG jointly developed a Sustainability Bond Index which builds in two levels of filters to ensure that the green, social and sustainability bonds issued in Asia Pacific demonstrate quality disclosure and positive environmental and social outcomes. This issue highlights the latest development of the sustainability bond market and explains how this Index can help the wider investment community to navigate the labyrinth.

At the UN climate talks in Madrid in December 2019, one of the positive outcomes was the approval of a new Gender Action Plan that strengthens gender perspectives and women's participation in climate action.

Women’s perspectives and participation in climate leadership are important components of climate planning and action which will address the needs of women and raise awareness of the needs of children and family. This issue explores why there is a strong case even in places like Singapore and Hong Kong, where affluence and gender equality are relatively greater, that women hold important perspectives which should be a core part of planning climate mitigation and adaptation by both government and within companies.

COP 25 held in Madrid in December 2019 was considered a lost opportunity by most commentators; some even brand it a serious failure. As country delegates decided to defer some of the thorniest issues to the next U.N. climate summit in Glasgow in November 2020, the result is that the starting date for the Paris Agreement will arrive without an agreed set of rules. So what are the key issues that have been left unresolved by the Conference and what does its underperformance mean for businesses trying to chart the uncertain waters of climate change and climate change action? This issue gives an in-depth analysis on COP 25 and its implications for business in Hong Kong and Singapore.