ESG Matters @ Ashurst episode 4

Episode 4 transcript

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Anna-Marie Slot: Hi, I'm Anna-Marie Slot, Global Sustainability ESG Partner for Ashurst, and welcome to another episode of our 30 For Net Zero 30. Today, we are joined by former regulator, and now CEO of the Sustainable Finance Institute Asia Eugene Wong. Thanks so much for joining today. Can you maybe give us a little bit of your background and tell us about yourself?

Eugene Wong: Thank you very much, Anna-Marie. It's really a pleasure to be here. I was previously a managing director of the Securities Commission Malaysia where I was very much involved in the efforts of the capital market regulators of the Association of Southeast Asian Nations, or ASEAN, in promoting sustainable finance. I was also a past chair of the ASEAN working committee on capital market development, and a past chair of the Deputies of the ASEAN capital markets forum.

Both of these bodies tasked with growing and connecting the capital markets in ASEAN I'm a strong believer in sustainability, and I feel that there is a need to connect the financial sector and the real economy in the mutually reinforcing manner to promote sustainability. When I left the securities commission, I found that the Sustainable Finance Institute Asia or SFIA as we like to call it to continue my sustainable finance journey.

SFIA is an independent institute dedicated towards driving the sustainable finance effort in the region, particularly ASEAN, mainly through catalyzing transformational change.

Anna-Marie Slot: What could you tell us about that journey that you've been? On in the last 18 months or so, has there been a big shift in your mind around sustainability or what are you seeing on the ground?

Eugene Wong: That's a really good question. I think the biggest shift is my mother is talking about climate change. Why is that? Well, I guess within weeks of each other, China, Japan and Korea have announced net zero targets. And the three of them, as you know, account for 33% of global carbon dioxide emissions. The French government is being sued for not doing enough to stop climate change.

So it's really no longer someone else's problem and the combination of natural disasters, other climate impacts such as poor agricultural use, rising inequality high-profile campaigns and certainly Sir David Attenborough's documentaries have forced people to confront reality. I think that's where my mom got it from.

They're seeing a physical destruction from climate change and the impact of inequality of the social fabric right before them. So from Australia, to Bosnia, to Scotland, to Thailand, people have taken to the streets to protest demanding that the governments do more. When COVID struck the protest didn't stop. They just shifted online. Importantly, I think the young people are waking up to this.

In the Netherlands young people sue their government for lack of action on climate change and they won. The call of the government to reduce emissions by 25% the next year. And even in Colombia, the Colombian government was also sued for not protecting the rainforest and the court there held that the forestation violated the rights of the youth and also the rain forest.

But more interestingly in Pakistan, a seven year old girl who's a minor was allowed to sue on climate change. So it's really taking whole at the very, very grassroot levels as well. And COVID's showing us how vulnerable we are. It's highlighted how inadequate, what the human race has built this, beat our health systems, our ability to cope with a massive disruption to the norm.

We only hear a single united call now, which is build better and build back greener. But of course, we don't see this happening sufficiently and we'd like to see a lot more of it. In a sense, not everyone is on board or aware, but society as a whole, I think is starting to take ownership. I look at the major newspapers every day and there's not one day I don't see at least one article on climate change.

Anna-Marie Slot: Interesting. And I think you're right. I think it is becoming a conversation happening at multiple levels with lots of different stakeholders. And you make a fair point about how in fact the legal system is being used to hold governments to account on various things that they have said out loud and committed to.

You're based in ASEAN and it's such a region that will be impacted as the climate change happens over time. Is there a specific action, especially in your role in SFIA that needs to be taken in this near term, in the next two to three years to help this process? And if so, maybe you can talk about who you think needs to be taking those to really be a game-changer in how we deliver on these net zero promises.

Eugene Wong: Well, we're really off the mark with our Paris agreement targets, and we need more action faster. So I like to tell people that particularly in ASEAN, perfect just isn't good enough. And the quest for perfect will stop us from making those other changes that we can make right now that will have a major impact collectively.

So we need everyone on board, but not everyone is ready to be green tomorrow or the day after. And this is particularly relevant for ASEAN where we're very diverse economies, social structures and cultures. The annual GDP of ASEAN countries ranges from $1,500 U.S. dollars per capita to $65,000 U.S. dollars. So asking everyone to make a change in the same way is just not practical and it's not effective.

At the same time having a higher perfect target can be so scary that people just don't try it. That's a lot wasted and much needed opportunities that's being left out. Of course, more liberal approaches like transition pathways are also more subject to abuse. And there is increased concern on the part of the investors that greenwashing will be prevalent.

So this is where we need effective and robust transition criteria and standards that are science-based and credibly measured. The role of transition finance is really important for ASEAN as given the state of development of the member states of ASEAN brown sectors, such as utilities and transportation play a significant role in their economies and cannot be shifted overnight.

Fossil fuel will still be very significant as an energy source for ASEAN moving forward. And based on an Asian development bank report, coal fire generation is set to grow faster than every other energy source in Southeast Asia. In fact, by 2030, the share of coal generation will increase from 36% in 2014 to 42%, although the share of natural gas generation will be decline from 40% to 30%.

Investment in gas, coal, and other fossil fuel power generation from 2016 to 2030 will also be higher than in non-fossil fuel per generation. So fossil fuel is not something that you can turn off like a switch in ASEAN, but gradual change is possible and it's important that the target is set for that gradual change. I like to raise the example of PETRONAS, which is Malaysia's national oil company and the fourth largest liquified natural gas exporter.

It's announced its aim to achieve net zero by 2050 and to intensify reducing scope one and scope two emissions, if a regional all major can do it, then everyone can do it. But those who want to embark on this journey must be given guidance on how to transition and how that journey can be financed. The lack of clarity actually is a major turnoff and people I speak to about the transition possibilities, or we say, we need a clear path.

So not only do we need a good, clear transition pathway, we need one that's supported by the market and where market discipline alone isn't enough. We'll need the regulators to step in and provide this guidance. The role of regulators is really important in making things happen, particularly in ASEAN. They often wear both the regulator and market development hats. As a regulator, they help provide discipline and enhanced credibility. And in the market development role, they create roads for the capital to travel on.

At the same time, they play a role both domestically and also regionally. So ASEAN doesn't have an institutional infrastructure like the EU and as such regulators from around the region, working together synthesize that sort of a structure. Doing this, it can promote ASEAN as a regional sustainable investment destination and attract capital to help the regions green journey.

The ASEAN capital market regulators have laid that plans down to support transition finance in the ASEAN capital market forums roadmap for sustainable ASEAN capital markets and the working committee on capital market developments report on promoting sustainable finance in ASEAN. I think the challenge really is to deliver transition standards that work for ASEAN, yet at the same time command the confidence of investors, the success of the ASEAN green bond standards and the ASEAN sustainability bond standards issued by the ASEAN capital markets forum, I believe provides a good model to follow for creating this transition pathway.

Anna-Marie Slot: Definitely fair points. I mean, ASEAN, as you say, complex and varied, and this transition pathway is going to be different for all of the different companies and countries that are on it.

I think it's an interesting point you raise around the role of fossil fuels in the region, and there's a lot of discussion obviously about different countries in their own pathways. One thing that I think ASEAN nations have been very good at is leapfrogging on developments as well, and technology and advancements. So as you are interfacing with different players around the market, how are you seeing this?

I see this as kind of a very iterative goal setting over time and a potential that they could leapfrog current estimates by adopting technologies and things like that as they come out. Obviously around sustainability and energy transition, there's so much advancement moving so much quicker.

I think in other parts of the world, if you had asked people if wind and solar would have been viable commercial opportunities 10 years ago, they would have had a very different reaction than they have today to those things. So how do you see ASEAN adapting to that?

Eugene Wong: Well, ASEAN always taken advantage of technology. It embraces technology very well, but I think importantly for ASEAN it has to also overcome certain infrastructure limitations, for example, curtailment.

I have to say that there's been a lot of effort in this. The Vietnamese have done very well. We have seen traditional oil and gas companies from the Philippines moving out into renewable energy. Obviously PETRONAS's net zero commitment is something that's very, very interesting. And I would say it starts at [inaudible].

We also find that the cost of renewables has gone down so significantly it makes sense. And you have to remember in ASEAN, we have a lot of very rural isolated areas that benefit greatly from off-grid opportunities. If we look at the stimulus packages that have come out as a result of COVID two very interesting packages came out from Malaysia with a large scale solar opportunity, and one in Indonesia called Sudan [inaudible], which had a rooftop solar program.

So we are beginning to see a lot of this happen and certainly shovel-ready projects are the other opportunities that ASEAN has. The lower costs certainly helps. The stimulus packages can be leveraged and used to support the growth of renewables. And in fact, Indonesia is taking this very seriously. It's appointed a new director for renewables and ASEAN is certainly looking at its own targets towards renewable energy.

Anna-Marie Slot: And if I could bring it back to you for a moment, are you making any commitments around net zero kind of in the near term? Or how are you thinking about that for yourself or indeed for SFIA?

Eugene Wong: That's really interesting. It's really easy for us here because we're in the business of sustainability so we don't really have to change our business, but that's actually quite a lot that we can do. And we want to do on our own net zero journey.

Let me first share a bit with what we're doing at SFIA. We don't have a huge carbon footprint. We're in a green building and even before COVID we have staff who work from home. In fact, we encourage staff who live further away to work from home and only get together and significant events or meetings that we need to all huddle around the table together. We try not to use too much paper and we also mind our digital carbon footprint. I think that's very important.

It's interesting people forget that the internet isn't all that green because you don't see the carbon output in front of you. There's nothing physical. We look at the devices we have they're quite small. We tend to forget about the big infrastructure backing the internet. More than 4 billion people are connected to the internet today. And the carbon footprint of the internet is actually apparently equal to the airline industry by some estimates. So we are very conscious how we use the internet.

I recall reading a BBC article sometime back that apparently the average Australian internet user was responsible for up to 81 kilograms of carbon dioxide being emitted into the atmosphere. I'm sure things are a lot better now with technology and efficiency, but it is still a number that you have to be very concerned about. And data centers are also very of this and they are trying to go green as well.

From a travel perspective we have a policy of flying economy or coach, not just because we are nonprofit, but because carbon footprint of the business class seat is three times bigger.
COVID it's given us an opportunity to look at sustained reduction in travel because everyone's kind of accepted the new ways of doing things. And the conference calls and the podcasts have become a reality and accepted. So that's something which is easily done for us. Personally I do all the things SFIA is trying to do. I mind my internet usage. I make sure that if I'm listening to a song on Spotify five times a day, I download it instead of streaming it.

And my wife importantly, is trying to get me to cut down on my meat consumption because as you know, livestock is estimated to be responsible for up to 14% of the greenhouse gas emissions from human activities and livestock release methane equivalent to 3.1 gigatons of carbon dioxide into the atmosphere annually. So New Zealand's climate change commission said recently that New Zealand will have to slash livestock numbers by around 15% by 2030 to be able to meet its own climate goals. So it's quite fortunate that I like the Impossible Burger.

Anna-Marie Slot: Fair point, fair point. Bringing it back to kind of actions and things that people can do because I think you bring up a good point. People in the absence of having a clear path may end up not taking a path at all, which would be not the right outcome from most people's point of views. If you could get one person listening in to take one action, who would that be and what would that action be?

Eugene Wong: Well, I have to say right now that would be you because I think climate change is a message that's not for someone, but for everyone and it's a message that we should convey to everyone before us and we should take advantage of every opportunity to spread the message.

Climate change is not an anxiety anymore, it's actually a reality and one that's dangerous close. For example, in ASEAN from 2014 to 2017, we had 200 of the major cyclones and 200 off the major floods. So it's something that we can see. I don't understand why many people still see climate change as the distant trend, because we're actually on the brink of a climate catastrophe.

We need to change the way we live, the way we invest our money and importantly, the way we ask for change. And this is everyone's responsibility. Too frequently, we take the easy way out and convince ourselves that there's very little we can do, but the reality is that our collective actions do make a difference. So I have suggestions for different groups of people. If you are a policy maker, you need to introduce pragmatic but effective policies to help drive the agenda. I think the efforts of the ASEAN regulators are really encouraging and more importantly, serious.

In some markets, you have to have policies mandated by regulators to both get people on board and to create a level playing field. If you're in business, you need to remember that the climate alignment goal is not the good to have, but the must have. A few years ago when sustainable finance was still relatively young I spoke to a major fund manager who said to me that he was focusing on sustainable finance investment for many financial reasons. I was quite intrigued.

He said, "Putting social responsibility and morals aside and looking from a purely financial standpoint companies that don't consider sustainability are themselves not sustainable in the long-term. Their business will falter and the investments written off either because the customers will abandon them or because they can no longer operate profitably.

Many businesses actually do believe that the customers don't care about sustainability, but they actually do. In the longer term, the whole supply chain will be subject to scrutiny and you may lose your part in that supply chain if you do nothing about your carbon footprint.

Net zero commitments are increasing every day from both businesses and governments. It's been reported that as of last year, parties that have clenched net zero cover 22 regions, 452 cities, 1,101 businesses, 549 universities and 45 of the biggest investors with a combined revenue of more than half of the U.S. GDP. Customers are starting to look at the carbon footprint of their suppliers very, very seriously.

Of course, if you're an investor or a financier making sustainable financing, your business is important. It shouldn't be part of your business, but it should be your business itself. And I've actually talked to banks who have done precisely that. They have built their businesses around sustainable finance.

The Malaysian Employees Provident Fund, which is one of the oldest national pension funds, it was established in 1951 actually, said that they believe that ESG is the vaccine for any crisis. And they found that even at the height of COVID ESG investments deteriorated at a much lower rate than the other assets. The risk of assets becoming impaired or stranded as a result, ESG factors has been demonstrated over and over again. So I guess a smart investor will take this into consideration.

I also have to point out that a PWC survey of European institutional managers, it was discovered that 77% of those surveyed planned to stop purchasing non ESG products by 2022. So actually ESG is no longer just another product, but the new investing approach. And of course for consumers as we see as a consumer, you should demand change. After all, it was all the protests that got climate change it's profiling and the power of the consumer still remains very, very strong.

In conclusion, I just want to say everyone needs to start their net zero journey today because tomorrow is simply too late.

Anna-Marie Slot: Excellent ending, Eugene. Thank you for that. I think I'll just leave it there. Thank you everyone for listening and thank you very much, Eugene, for joining us today.
Thank you for listening to this podcast. We hope you found it worthwhile. To learn more about the issues we've just covered. Please visit This 30 For Net Zero 30 episode is just one small part of our continuing podcast series ESG matters at Ashurst.

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