ESG Matters @ Ashurst episode 5

ESG Matters episode 5: transcript

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Anna-Marie: Thank you for joining me for another episode in our 30 for Net Zero 30 podcast series, where I've been speaking to climate action champions across the globe about real steps to take now towards achieving 2030 goals. Today, I'm joined by Wai-Shin Chan, who has extensive experience in global climate and sustainability and is currently HSBC's global head of their Climate Change Centre of Excellence and also co-head of ESG research for HSBC. Wai-Shin, welcome to today's episode. Super excited to have you here. Perhaps we could start with you telling us a little bit about yourself and your role at HSBC.

Wai-Shin Chan: Anna-Marie, thank you so much for having me. And so, as you said, yes, I run HSBC's Climate Change Centre of Excellence and also co-head ESG research globally. I oversee research across all aspects of climate change in ESG for the bank. The main aim is to provide our clients, that's institutional investors, as well as corporate clients, with comprehensive insights across climate change and sustainability. My main area of focus is in climate change. I am the geek on the team. I love reading about climate science. That goes back to my studies in mathematics and physics at university. I like thinking about the implications, not just for businesses and economies, but also how climate change might affect societies and people. What I really enjoy is joining the dots as I do see that most of the issues through a sustainability lens.

I also am, shall we say, don't mind going through hundreds of pages of policy documents from the likes of the UN, the EU and China. Another growing part of my role is that of ESG integration. This involves working with our equity and credit analysts, our economists and strategists, to try and embed ESG much more deeply within the wide ranging analyses that we do. I'm fortunate enough to work with so many smart people and that gives me the opportunity to learn from my colleagues. Finally, I have to confess I'm often an unofficial consultant for various parts of the bank when it comes to sustainability.

Anna-Marie: It sounds like a lot on your plate. I guess first question, have you seen any shift? Or what's the biggest shift really that you've seen in the last 18 months regarding sustainability?

Wai-Shin Chan: Biggest shift, that would probably be the overall awareness or the increase in awareness in sustainability from everyone. The general public, investors, corporates and governments. In my role, I could probably get away with saying that it has been fairly niche over the years. I used to do my research and then knock on people's doors. These days, I hardly need to knock on anyone's door as they all come to me. If I were to frame that in terms of issues, I would say that climate change has almost become normal in the course of doing things. For individuals, there's an awareness of carbon and climate change, et cetera and so it's beginning to influence in however small way, the choices that they make. There's probably an element of impacts here, the floods, storms, droughts, bush fires, typhoons, these extreme acute events so many us have witnessed breaking records in recent years.

For businesses, this awareness is evolving. If I could explain, maybe a few years ago, it was fine for a company to have some form of climate target, say a 20% reduction in emissions at some point in the future. Then this evolved such that it had to be aligned with two degrees and then in the last 18 months, okay, maybe 24 months or so, this has really shifted to being aligned with one and a half degrees. And that's been behind the ubiquitous net zero movement that we've seen bandied around so often these days. And that is a good thing. However, we are now entering the phase of where I'd like to call a climate integrity, where climate integrity really matters. This increase in awareness that I mentioned highlights this. For example, there is good net zero on one side and to put it gently, not so good net zero on the other side. There is a lot more scrutiny of how good these climate targets are.

NGOs were always there, but investors are now digging through the announcements and plans of companies and governments to see whether they really make sense. They're asking questions such as, "Will they really reduce absolute emissions, not just relative? Will they really withhold emissions from reaching the atmosphere? Will the emissions reductions last? Or will the emissions just shift elsewhere?" These are the types of questions that are being asked and the level of sophistication of this awareness is rising.

There's also a growing debate out there on carbon offsets. These are probably necessary for so many businesses to meet their net zero targets, but there are many questions surrounding the accuracy of the carbon accounting, the permanence of the offsets. Will they last a 100 years? And the additionality of the offsets, are they truly displacing a high carbon activity? Or would they have happened anyway? What we have to avoid is greenwashing. That's making something out to be environmentally friendly when actually it's not. And even better, we have to avoid rainbow washing, making something out to be sustainable, including its impact on society and people, again, when it's really not.

Anna-Marie: Wai-Shin, really, really good points, all very interesting points. And I think we see that as well, The real increase in granularity as people talk about this subject. We went from 10 years ago, just a couple of us talking about it in the corners. And then now everyone's talking about it, but what words are they using? And what words do they actually mean? And what is it that they're saying? And how does that translate in actual impact? And that impact bit is really fascinating. Next question for you, you've laid out a whole range of possibilities where you're looking and what people are doing. What is the one specific action that you think would really be a game changer? Really help people deliver on net zero promises? What do they need to do in the next two to three years to really change things?

Wai-Shin Chan: That's a really tough question. I'm not sure I could boil it down to one specific action as these things never happen in isolation. Let me try though. I'd probably say, and this is not earth shattering, but I'd probably say the communication of implementation. It would be the leaders of governments and organizations that need to take this action. It's about giving a higher degree of certainty to everyone. If we start at the beginning, it's all very well and fine having a pledge. You can pledge anything you like to any one you like, however implementing that pledge is much, much more difficult. We have seen a lot of net zero plans, corporates and countries that actually don't come with any details at all. I for better, for worse, enjoyed reading through the EU's plans for climate neutrality in 2050, because that laid out a timeline and it told us which laws and which regulations would need to be updated, which sectors would likely be affected, et cetera. And that's pretty good. The only stumbling block for them is politics. And that's a really, really big stumbling block potentially in so many countries.

But for companies, I sometimes wonder if they have fully thought through what they are pledging. If they have, how is this going to be implemented? And sometimes how the implementation works is not that well communicated. It's not communicated to all stakeholders and I think that's really important. It isn't just about shareholders, but also employees, customers, local communities and various authorities for example. The question to ask is, "Do the various stakeholders to an appropriate level of details, know A, what is coming? B, what changes mean for them? And C, what they need to do about it?" I'm not sure that's always the case. For example, employees at all levels from board through to the implementers at senior and middle management, right through to the juniors and trainees, should know what their part in such a strategy is. How to implement and give life to the vision. If that's what it is, so that the communication can take various forms. And that's probably why capacity building is such an important part of the global climate negotiations.

Now, these leaders should have a fairly detailed plan on how they intend to do this, which parts of the business will have to reassess or rethink what and how they do things and over what timeframes. And sure, these plans are dynamic and will need adjustments, but they should be communicated again with clear reasons. In the end, it's about giving all those stakeholders enough certainty to make decisions, rather than just guessing. And in some cases, if I can say, hoping, that their actions will fit in with that plan or vision. What I've probably said is no doubt easier said than done. And the visions, plans and actions will vary across different sectors and industries depending on their carbon intensity, et cetera. I try to avoid perhaps talking about the more obvious need to decarbonize energy systems, power generation, change the way we consider transportation, et cetera.

But the message of clear communication of action is one that all organizations can adopt. I also think that this communication should be regular so the progress updates can be helpful. We tend to have short memories or at least I do when it comes to certain issues, we're all so busy with our individual daily tasks. The reminders of why it's important, why we are doing this, what our roles are in these, could help keep the action momentum going forward. And I think that really, really helps because I've always thought we need to break down the longterm vision into shorter term goals, otherwise climate change can feel a bit abstract and the net zero targets going out to 2050 or the climate neutrality target from China going out to 2060, can feel very, very far away, indeed.

Anna-Marie: Being clear in what you're saying you're going to do, communicating that out to everyone and then doing what you say, all really fantastic ideas on that one. I'm going to bring it back to you for a second. What is your own commitment to net zero in the next say 12 months?

Wai-Shin Chan: On a more personal level, if I could say that, I guess the more I read and learn about net zero and broader sustainability for that matter, the more inadequate I feel in terms of my contribution. I think I have a pretty good idea of the changes I need to make in my life and my work, but I'm not there yet. Far from it. There is a lot to consider though. The most obvious ones, probably firstly, traveling less, not difficult to do when we're not really allowed out of Hong Kong at this stage during the pandemic. I used to travel an awful lot, primarily for work. And we've been very, very fortunate in my role, allows me to jump on the Zoom with anyone in the world, albeit I'm not sure I'm getting enough sleep as a result, but I wonder how long we can maintain some of these pandemic restrictions in the future.

One thing that we're doing with my family is being more conscious of food and food waste actually. I'm aware of the different carbon intensities of various diets. I'm not vegetarian yet, but we've certainly being moving towards cutting out meat, at least more from our meals during the week. Pasta doesn't have to meat in it, although the children insist that we have cheese in there. Chinese soup doesn't always need to have meat in it either. I have been steering my family towards less carbon intensive meats, so away from beef and lamb and more towards pork and chicken, for example. Although this is such a complicated area, it makes a difference where the livestock are raised and then we can get into other sustainability issues such as intensive farming and the many, many ethical questions that can arise from there.

One area that we probably do okay in, if I could say, is food waste, I've made it a point. This might sound awful as a parent, but I've made it a point to give everyone less food at meal times and make sure that they don't starve off by simply saying, "If you're still hungry, you can have some fruit afterwards." And then quite amusingly, I guess, eating leftovers a lot. I know I'm not the only one to do this, but I do like to do a spot of cooking as everyone has picked up during these pandemic times and thinking about what to do with leftover food is actually quite a fun challenge.

More seriously, I'm becoming a lot more conscious of consumer choices. I'm by no means where I'd like to be but I do spend a bit of time, sometimes to the annoyance of my family at the shops or in the supermarket, but ensuring that I know what materials go into products. Are they made or sourced sustainably? Are there ethical issues to be aware of? Without doing a full sustainability footprint of my family's existence, I do hope that the more sustainably conscious choices we make will contribute somehow to the wider picture. There are probably so many more areas where I think I could improve. Let me just say that my children probably roll their eyes when I start in a bit of a sustainability lecture at the dinner table, but then I think nudgingly educating our children to make more sustainable choices is probably a good thing.

Anna-Marie: Definitely. And I think also you raise a really interesting point and a point that if we bring it back to the world of finance, as you know, you're looking at these choices that you're making and you're asking that first level question, but there's a second level question and a third level question and a fourth level question. Yes, okay, so what is my choice? Beef or pork? But then where's that pork coming from? Where has it been raised? How has it been transported? That is the complexity to the question and also the complexity around net zero that I think might get glossed over in conversations, in the press around this. A final question then for today, bringing it back to your work world. How do you think investors are now looking at this? You spoke earlier about how there's much more focus now and people are knocking on your doors rather than vice versa. What do you think is going to happen in that realm in the next two to three years?

Wai-Shin Chan: It has to happen across I'd say, three areas at the same time. In tandem, so to speak, between investors, corporations and regulators. From the regulator point of view, they need to make it easy for corporations and investors to do their jobs properly when it comes to understanding and implementing sustainable goals and that is definitely playing through regulation that's coming out of Europe and possibly out of the United States and the Americas. And we're seeing developments across various jurisdictions here in Asia. But for investors, what I always tell my clients is that climate change and sustainability should not be a bolt on. It doesn't mean that we should be doing our investment analysis coming to a conclusion and then saying, "Right. What do we need to think about, about climate change?" It should be incorporated throughout the whole process of your investment decision making from the very, very beginning.

That does involve a lot of work, I appreciate that, but it's about properly understanding how these climate issues and sustainability issues could play out. Understanding the regulations, which parts of this very complicated business that I'm potentially investing in could be affected? Will it result in an increase in costs or revenues or a decrease in those areas? It's about using the disclosures that come from corporations appropriately. This isn't always done. I sometimes am amused at how few investors have read the sustainability reports and hopefully the entire annual report of companies from cover to cover. There's a lot in there and we understand that the disclosures need to improve for corporations. Yes, they need to be coherent, they need to be consistent and they need to be comparable across various companies within sectors and within regions, et cetera. I think the investors need to be asking for this consistency of information and data. It's about talking to the companies and talking to the regulators to ensure that we're converging on that.

One other thing that investors are doing, which I think is fantastic is that they're getting together to drive things forward. We have various initiatives happening in the investing buy side community, which are approaching companies and are collectively asking for information. That's a very, very powerful way of doing things. And I think that engagement approach is fantastic. One final thing is communicating to their own stakeholders. I think investors need to be doing that as well. They need to be communicating how they are taking climate change and sustainability considerations into account, not just at the end of an investment decision making process, but how that drives the entire investment decision making process. Going forward, I think we're all going to see a rising tide of these three approaches, investors, corporations and regulators.

Anna-Marie: Great stuff, Wai-Shin and thank you so much for your time. I think that's a key, key takeaway for anyone listening in, looking at the entire process through the lens of sustainability. Not just at the beginning, not just at the end, but all the way through your analysis, all the way through your decision making, all the way through your communication, both internally and externally, wherever you are in the financial structure. Great, great points. And thank you so much for your time today, really appreciate it.

Wai-Shin Chan: It's been a pleasure. Thank you for having me. Anna-Marie.

Anna-Marie: 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 Net Zero 30 episode is just one small part of our continuing podcast series, ESG Matters at Ashurst. Make sure you don't miss any of our future episodes by subscribing via Apple Podcast, Spotify or wherever you listen to your podcasts. While you're there, you can also listen to our other episodes and leave a rating or review. In the meantime, thanks again for listening and goodbye for now.

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