With the target of net-zero carbon emissions just 27 years away from the year 2050, a collective effort has to be made, says Melissa Moi, UOB’s head of sustainable business. She was speaking at The Edge Singapore’s first sustainability investment forum on June 13 alongside Eric Teng, CEO of Straits Developments, a wholly-owned subsidiary of Singapore Exchange S68 (SGX)-listed conglomerate Straits Trading Company, and En Lee, managing director and head of sustainable and impact investments Asia at LGT.
The two-hour forum saw Teng, Moi and Lee speak about the sustainability efforts made by their respective companies. Some of the initiatives made by Straits Trading Company, for instance, include its sustainable tin smelting practices, where energy consumption is reduced with more efficient furnaces in newer smelters and advanced filtration systems. The group has started introducing green technologies to its properties and is retrofitting them with solar panels and efficient building management systems, which will reduce energy consumption.
In addition, the group is developing green newbuild projects, including the Straits City hotel in Penang, Malaysia. The hotel will be equipped with energy-efficient systems, including a programme that enables guests to stay within its rooms to help save energy. Upon checking out, the savings will offset their bill.
Straits Trading is also working on a sea-modelling assessment with the Nanyang Technological University’s Earth Observatory to understand the impact of climate change, such as flood risks at the hotel itself.
On the “social” pillar of ESG, Teng says that the group has been giving back since Tecity Group founder and philanthropist Tan Chin Tuan, which Straits Trading is a part of, was in charge. On governance, Teng adds the group has been transparent and accountable with its practices, including reviewing its performances and risk profiles before investing and frequent sessions with its stakeholders.
An ecosystem of change
In Moi’s presentation, she went through some of UOB’s sustainable finance instruments, including its green and sustainability term deposits, while adding that the world will have to make a “massive transformation” from an economy that has been fully relying on fossil fuels to one that is now based on renewable energy.
“What is it going to take? It is not going to be the effort of just one bank, one media publication, or a company or investor that will change this,” she says, noting that the effort will require “an entire ecosystem of change”.
The ecosystem goes from governments who can put policies into place, regulators who can influence policies, corporations and investors, down to the consumers, from the decisions they make, where they invest and what they buy. “There is a massive ecosystem change that has to happen,” she says, warning that at the current rate that the world is going, the limit of 1.5 degrees will be exceeded.
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Moi highlights the need for transition finance, which is the “trickiest bit of financing but the most needed in Asia”. “When we think about this massive transition that was activated to a net-zero economy, one of the biggest areas that we need to focus on in Asean, and the emerging markets (EMs) in Asean, is the power sector and how to evade capturing that with coal and oil and gas,” she says.
Investors don’t want to put money towards them because there are a lot of calls where they need to move away from that. But we recognise and realise that we will support EM Asean to have this transition and move their energy sources from brown to green. In this period, we need to be thinking about supporting not just decarbonisation but also social and economic development and affordable and equal access to energy,” she adds. “So, we need to be thinking about the concept of transition supporting our economy and supporting our clients. This is not an easy thing to do because [it’s still difficult to define] what is brown and what is green. But we fundamentally believe we must support our clients in this transition because you don’t help the real economy decarbonise if you pull away.”
The core of sustainable investing
The third presenter was LGT’s Lee. The LGT group is owned by the princely family of Liechtenstein, which has been around for some 900 years, spanning almost 27 generations, says Lee.
“That is a very, very long time. And that’s probably the reason why we always do today what’s necessary to ensure future generations thrive. That is the core of sustainable investing,” he says.
In his presentation, Lee went deeper into the various definitions of investing, especially in investing sustainably, responsibly and positively. In essence, sustainable investing encompasses a range of approaches which can be simplified to the “ABCs” — to avoid harm, benefit stakeholders and contribute to solutions, he adds before illustrating some examples through case studies of impact investments LGT had made.
One of the companies introduced by Lee was M-KOPA Solar, which provides affordable solar home systems that generate clean energy for low-income households in East Africa. Other examples were companies that improved the livelihoods of the local communities in the Philippines, India and Brazil.
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Following the three presentations, guests got to pose questions during the panel discussion moderated by Jovi Ho, assistant editor at The Edge Singapore. Regarding how companies choose which ESG standards or frameworks to report with, Straits Trading’s Teng says the group has complied with SGX’s listing rules, where issuers must report certain metrics. “The ‘E’ [part of ESG] is the big thing, and we are taking it a step at a time, whereas the ‘S’ and ‘G’ [pillars] are not as difficult.”
UOB’s Moi says the bank looks at some standards from a decarbonisation perspective. However, she acknowledges that “there is no one prescriptive way to look at every single sector and every single type of client”. “There was a massive conversation around [the availability] of quality data. It isn’t an easy conversation to have,” she adds, noting that it is challenging to set baseline conditions that can be applied to the different sectors across various countries.
Understand the risks
On the correlation between green initiatives and shareholder returns, Teng says that the company’s business must first be sound with green initiatives enhancing it. Moi’s take, however, is that there is now a “fundamental need” for businesses to understand their climate-related risks and social-related risks.
“There is a danger when you ignore these particular factors. When you look at who you do business with and how you do business, that will fundamentally have a potential impact on the ability of your client to repeat it, for example,” she says.
“So I think on one side, the risk piece is far more mature than the opportunity piece. But I do think when you think about all of the differences of levers that we see, from a regulatory from a legal perspective, all the pressures around stakeholders that you’re going to see is that going green is not the sort of nice thing to do that it is there is a business imperative that comes with it. And they will likely be far greater challenges to those companies who don’t.”
For not-for-profit companies considering transitioning to sustainable business models, LGT’s Lee suggested they consider engaging with venture philanthropists, who are “prepared to give concessionary capital or donation-like funding, but they come with a hands-on experience similar to a venture capital investor”.
Rounding up the session, the panellists note that investors should look out for companies that genuinely want to make an impact. For the private markets, Lee says the team spends time with the team just trying to assess that, just being on the ground and meeting senior management and people on the ground, asking a few questions and so forth.
It is similar to looking at publicly-listed companies, adds Moi. Renewable energy, especially, requires specialists and technical knowledge that companies need to understand, in which most banks may have specialists that can make these analyses — not just on the company’s financial viability but on the technology and accessibility.
“The other piece that I would say, particularly with renewables within an Asean EM context, is keeping you abreast and aware of different regulatory changes and some of the different infrastructure challenges that come with instituting renewable energy. So it’s not a matter of if you build it, they will come. Electric disruption takes time for things to be deployed at scale. So, it’s a lot of homework and knowledge,” she adds.
Look for opportunities
For Straits Trading, Teng says that the social and governance aspects of ESG have been something that the group has been working on for a long time. He adds that given the group has pedigree, ESG is not an issue and that this generation of leaders must maintain it. However, he acknowledges that the environmental portion would appear more challenging for the group even though they have been mining sustainability for a long time. He adds that it is how one measures different metrics among the group’s businesses, including properties and hotels, in addition to mining operations. “The question is how investors will look at us overall,” he says.
On sustainability opportunities in Asia, Teng says it is important to see it happening, while Moi says there is a huge opportunity to drive investable action that will allow us to impact economies positively. Lee notes the huge amount of opportunities, especially with the rise in the adoption of technology and the ability to democratise access to essential goods and services, especially in Asean, where there are 600 million people.
“This is where I think some of the most interesting impact investment opportunities will be. And particularly in Singapore, I think you’ve got the biggest inflexion point of huge wealth accumulation in the region where the biggest challenges are on your doorstep. So I think we have an opportunity to invest well to drive the change,” he adds.
