While all ASEAN member states have made Paris pledges, implementation has not been easy with huge infrastructure and funding gaps. If nothing is done, the economic impact of climate change will be profound – estimated GDP per capita loss for ASEAN members range from 0.7% – 8.5% by 2100.2 And this doesn’t even take into account societal or environmental impacts.
However, as we emerge from the pandemic, there’s an opportunity to build back better and help reboot our economies by transitioning to green, moving away from high-emission pathways and changing the behaviour of businesses and people.
To achieve this, ASEAN governments must be both tactical and structural in their approach. Doing this provides immediate changes whilst building long-term structural frameworks that will lure institutional investment and subsequently shift behaviour at every level of society. In short, a complete rewiring of the economy.
Governments must first take a tactical approach to their economic recoveries. The ASEAN Comprehensive Recovery Framework (ACRF) offers a roadmap. It’s the region’s ‘exit strategy’ from the COVID-19 crisis and sets out seven priorities under the broad strategy of ‘Advancing towards a More Sustainable and Resilient Future’, including promoting sustainable finance, to building green infrastructure and facilitating the transition to sustainable energy.3
ASEAN countries should link the ACRF and its implementation plan with their climate change and sustainable development agendas. This will act as a catalyst for change across the board; with governments setting the agenda, the private sector will be in a better position to mobilise. This will stimulate institutional and foreign direct investment (FDI) to fund the green transition.
According to the UN, countries globally are falling far short of what is required to achieve the targets set out in the Paris Agreement.4 COVID-19 acts as the opportunity for governments to recharge their approach to climate change, but in order for these climate pledges to make truly long term and broad-based change, much of the economic activities that have been built up over the last century and a half must be rewired to fundamentally alter their emission trajectories.
ASEAN’s governments can focus on three key areas of structural change which have far-reaching impact in recalibrating economies:
The ACRF identifies green finance as a key mechanism to ‘contain’ the drop in other sources of financing caused by the pandemic. To generate broad-based use of green finance, a unified language in the form of taxonomy is needed to ensure that all participants work towards the same environmental objectives and contribute to science-based climate transition.
ASEAN has seen pockets of development on this front. Singapore recently issued a consultation paper on a green and transition taxonomy for financial institutions5. Malaysia’s Bank Negara will soon enforce its own taxonomy that sets out a common language to categorise economic activities based on their impact on climate change6.
But overall, ASEAN still lacks cohesive definition on what is considered green or in transition, which will deter institutional investment in much-needed cross-border infrastructure. ASEAN doesn’t need to and shouldn’t start from scratch. It should leverage and align with ongoing global efforts to harmonise taxonomies. The International Platform on Sustainable Finance (IPSF) Working Group on Taxonomies, co-led by China and the EU, will publish a “Common Ground Taxonomy” by mid-2021, highlighting commonalities between existing taxonomies.7 Hong Kong for instance has pledged to adopt the Common Ground Taxonomy once available.8
Institutional investors are hungry to invest in sustainable infrastructure, which can offer stable, long-term returns. Recognising this, Asian Development Bank (ADB) and Singapore’s Infrastructure Asia inked a cooperation agreement in 2019 to help governments in Southeast Asia develop bankable and sustainable infrastructure projects.9 But project participants – including banks, developers, investors and governments – must have a common framework to assess environmental, social and governance (ESG) risks.10
ASEAN governments must work together to develop such a framework to facilitate a common definition of sustainable infrastructure. The International Finance Corporation’s (IFC) Environmental and Social Performance Standards and the Asian Development Bank (ADB) Safeguard Policy Statement can serve as a good starting point.
Infrastructure investment will drive economic recovery following the pandemic, and the Green Social & Sustainability (GSS) bond market has a significant role to play in financing the transition to a low-carbon, climate resilient economy.
Given that sovereigns make up almost half of the volume of the global bond market, their leadership role is critical and the ball of change lies in their court.11
Southeast Asia has had some success in this regard; Indonesia issued its first sovereign green sukuk in 2018, and the Singapore government has just announced its intention to issue green bonds12 to stimulate infrastructure investment and recovery. But the rest of the region still lags behind.
Increasing the number of GSS issuance amongst ASEAN members should be a key climate finance objective for governments, central banks and development finance institutions. Sovereign GSS bonds support growth in local markets by attracting investors and in turn demonstrating investor demand, setting precedent, and increasing visibility. It can also shape the wider financial system, opening up green finance to more players.
It’s clear that public policy globally is taking a green turn. Our economies must start the transition if we are to have a sustainable future. If Governments choose to take both a pragmatic and long-term approach, they can prompt a shift in the behavior of every level of society – from statutory boards, to corporates and consumers. Financial institutions, like HSBC, have a significant role to play too; indeed, HSBC is proposing several new climate resolutions at its upcoming AGM, including phasing-out the financing of coal and publishing annual progress reports.
It’s a delicate balance. A balance that ASEAN – its member states and leaders – must achieve as we emerge from this pandemic. What’s needed is coordination, collaboration and pragmatism.
Climate change is a threat we can no longer ignore. The time to act is now.
A contribution piece by Frances Chen, Head of Corporate Sustainability, HSBC Singapore, published in The Straits Times on 15th March 2021.
2 ASEAN Task Force Report 2020.11.17
11 HSBC: Sovereign GSS Bond Survey