Introduction
(Kuala Lumpur, Dec 2) The Global Green Finance Leadership Program (GFLP) successfully held its capacity-building event, “Scaling-up Sustainable Finance in Southeast Asia”, on November 29-30 in Kuala Lumpur, in collaboration with the World Bank Group Inclusive Growth and Sustainable Finance Hub in Malaysia. It is also the first in-person event since the pandemic. Over 200 people attended on site and another 120 joined via livestreaming.
Flagship report launch: ASEAN countries need to “REACT”
A new flagship report was launched during the event, co-authored by the Beijing Institute of Finance and Sustainability and the World Bank. The report, entitled “Unleashing Sustainable Finance in Southeast Asia”, reviewed the progress made in terms of sustainable finance in 5 key ASEAN economies —Indonesia, Malaysia, Philippines, Thailand, and Vietnam, and surveyed relevant financial institutions.
It shows that while sustainable finance has experienced widespread expansion, the markets remain small – 2.5% of the total debt market – and far from meeting the funding needs, totaling at the level of trillions, of ASEAN-5 economies for their sustainability objectives.
“This report marks a milestone in recognizing the tremendous untapped potential of sustainable finance in ASEAN. Both the public and private sectors have significant roles to play to scale up sustainable finance, through enhanced policy frameworks, capacity building, and international collaboration. We hope experiences from China as a developing economy and active player in green finance, can provide insights for local stakeholders”, said Dr. MA Jun, Chairman of China Green Finance Committee, founder and president of Beijing Institute of Finance and Sustainability, and co-chair of the G20 Sustainable Finance Working Group. He also pointed out that collaborations on green and sustainable finance between China and the ASEAN economies could be enhanced in areas such as standards harmonization, capacity building and cross-border green investments via various platforms, including the G20, NGFS, GFLP and GIP.
More information about this report can be found here.
Experts’ insights
Policymakers called for coordination across departments and alignment across jurisdictions
The discussions on the first day centered on policies, featuring government officials and financial sector experts from not only ASEAN economies, but also other parts of the world - Kazakhstan, Brazil, China, Korea, the EU and the UK.
The formulation of policy frameworks, represented by roadmaps, guidelines, taxonomies, incentives, and disclosure requirements, has gained strong momentum over the years, as several speakers introduced the latest progress in their jurisdictions. Despite the varying approaches and granularity, top-down policy, and standard-making are preferred by financial regulators, in order to set expectations for the financial market. Policy coherence across different government departments was also emphasized, to ensure that efforts are mutually reinforcing rather than undermining each other.
“It was evident that policy makers should improve enabling policy frameworks while striving for policy coherence. Incentives are critical for financial sector players to direct or reallocate financing to support a just transition. Governments need to review current policies that are incompatible with sustainability goals, such as fuel subsidies, to ensure efficient use of limited resources”, said Dr. Ndiame Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand.
Another important aspect that has been widely recognized in the panel discussion is to enhance comparability and interoperability of taxonomies across jurisdictions, which resonates with the G20 Sustainable Finance Roadmap. However, balancing between national priorities and international common practices may be strenuous for some economies.
While consensus on “pure green” has grown, with formation of regional and international harmonization of taxonomies such as the ASEAN and the Common Ground Taxonomy, some speakers also called for new taxonomies on transition and social finance, where gender equality, social welfare, and inclusiveness need to be addressed.
Gaps Remain: Data, Capacity and Accessibility
Several speakers pointed out key challenges in data availability and quality. On one hand, disclosure frameworks have advanced in recent years, and many jurisdictions have tightened disclosure requirements for financial firms. On the other hand, more granularity and technicality are demanded by the capital market, even on the downside of such issues.
Meanwhile, some speakers underlined the challenge of limited capacity in the financial sector or government, such as lack of technical expertise, which will require further capacity building. Some also mentioned the dilemma that certain mitigation or adaptation activities help to avoid loss rather than generate profits, hence difficult to measure their commercial value.
Accessibility of financing for SMEs has also raised concerns. As illustrated by speakers, while the investment-level companies have been supported by traditional green bonds and loans and the cutting-edge start-ups are supported by PE/VC, the majority in the middle were underserved, in contrast to the fact that economic impact as well as emissions of SMEs could be significant in many emerging economies including Southeast Asia.
Sustainable Finance: Going Beyond Climate
On top of the burgeoning green bonds and loans, the ecosystem of sustainable finance has continued to grow, with increasing recognition of risks and opportunities in biodiversity, disaster risk finance, carbon pricing, and social finance.
On nature-related financial risks, two reports were presented, which called for deeper understanding of the risks and impact of investment activities, capacity building and engagement with financial institutions, enhanced monitoring to fill data gaps, and development of regulatory expectations. Panelists also emphasized the necessity for nature-related disclosure, which will require substantial groundwork on risk exposure measurement and forward-looking analyses.
In response to the growing concerns on natural disasters in the past years, like heatwaves, floods, draughts and typhoons, discussions on disaster risk finance also attracted much interest among participants, as the insurance coverage is relatively low compared to what is needed to be climate resilient in the region. Cases from Philippines, Indonesia, Malaysia, and China demonstrated the role of disaster risk insurance and catastrophe bond in supporting public budget in the face of natural disasters. It is highlighted that governments have an important role to play in this regard, to ensure payout for disasters from public budget will not compromise other development priorities.
On carbon pricing, market practitioners from Singapore, Japan, China, and the UK reviewed the development of compulsory and voluntary carbon markets. Panelists emphasized the importance of regulatory measures and standards to maintain the integrity of the market, as well as digitalization and documentation to create transparency.
Following these discussions, participants of this GFLP event were also invited to visit some local green projects, including green buildings, sustainable farming, wildlife conservation and water and waste treatment facilities. It was announced that the next in-person event will take place in Mongolia in mid-2023.
About the GFLP
The GFLP was launched in 2018 and hosted by Beijing Institute of Finance and Sustainability (BIFS), in collaboration with domestic and international partners. To date, it has hosted 11 major capacity building seminars, including two in Beijing, one in Kazakhstan and one in Morocco. It aims to build a platform for knowledge sharing on best practices of, and inspiring innovations for, scaling up green and sustainable finance worldwide.