IFR Asia Green Financing Roundtable 2018: Roundtable participants

IFR ASIA: One question that comes up all the time is, is there a need for greater standardisation in the Green bond market? So Anna-Marie, what are your thoughts on that? Anna-Marie Slot, Ashurst: Yes, as I mentioned earlier, a couple of years ago this was a huge topic. What does Green mean? And what do we all mean by Green? I think it for me has been quite fascinating to watch the markets evolve in different places across the world, and I think we’ve gotten to a place where the Green Bond Principles and now the Green Loan Principles, which in many ways mirror taking into account the difference of the structure of those two products, I think those are kind of settling in as a standard or at least something that people can use as a comparison mark, sort of, “We have IFRS, but we have IFRS with our own country bits on the end of it.” So I think it is kind of circling around that. You do have obviously China, as we alluded to earlier. Jonathan mentioned China was the largest issuer in 2016, I think, just inched out in 2017, so is now in number two. The China standards are obviously different. People spend a lot of time talking about those standards being slightly different. The one that always gets mentioned if you’re not in the Green circle is China has this concept of clean coal. Most of the sustainable investors across the world don’t buy into clean coal. That’s not on the top of the list for the green funds, “Let me invest in coal today.” So there is that, but China’s point is they’re saying they’re at a different point in their life cycle, and cleaner coal is better than not clean coal. And you can see the arguments, really. So I do think those standards are kind of fleshing out and settling down so that people can then get to the edges, which is where we’re going now. When you talk about a Green project and a Green eligible project, within each sector what does that mean? And then on the back of that, where are you going with the ESG? So how do you reduce carbon in all sectors, as Jonathan mentioned at the beginning? How do you make every sector more sustainable for the long term? IFR ASIA: Katharine, do you see a need for greater standardisation? Katharine Tapley, ANZ: I think it’s really important. I completely agree with everything that Anna-Marie has said. We have the right basis in the Green Bond and Loan Principles and the Sustainability Bond Guidelines I think it’s really important to recognise that every country is different. What is “Green” in Vietnam might be very different to what’s “Green” in Singapore, for example. Definitions of “Green” need to be built accordingly. IFR ASIA: Jonathan, what do you think? Jonathan Drew, HSBC: I think there are a couple of points, Daniel. The first is when we talk about definition of Green, I mean, why are we trying to define Green? And I think people don’t really stop to think about that enough. To me, there are two possibilities. There’s one to think Green is ultimately the label we want for everything in terms of climate impact that we can do that fits within a two-degree centigrade scenario. But at the moment I think in the market we have a definition of Green that’s much narrower than that because it really focuses on most of those things that are sort of 2050 ready or zero carbon. Although it does include some what you might call sort of energy efficiency projects which are more transition type investments, energy efficiency Green buildings, where those can be green even though they aren’t zero carbon. Because of course, again as Sanaa said, we have to get to zero carbon before we get to 450 parts per million or in CO2 concentration in the atmosphere or consume the carbon budget. I think that’s the first point, and you can’t really talk about definitions of Green unless you understand what you’re trying to define. I think the other point around Green and Green bonds is to remember what the Green Bond Principles define: what is a Green bond? The Green Bond Principles do not

IFR ASIA: Good afternoon, ladies and gentlemen, and welcome to the fourth annual IFR Asia Green Finance Roundtable. No doubt, you’ve heard plenty about Green bonds and loans over the last few years. It’s an asset class that’s booming. It’s come from nothing, and now we’ve had the first sovereign Green bond from Indonesia. We’ve had the first corporate Green bond in Singapore from City Developments, who I’m glad to announce are on the panel, and we’ve had Green securitisations in Australia, China. We’ve had Japanese insurers showing a greater commitment to increasing the amount of Green assets on their balance sheets. So it’s definitely an asset class on the rise, and we’ve got a great panel here to talk to us today. On my left, we’ve got Katharine Tapley, head of sustainable finance at ANZ, Anna-Marie Slot, practice group lead, high yield debt at Ashurst. Jonathan Drew, managing director, infrastructure and real estate group in the global banking and markets team at HSBC. Lim Whee Kong, head of treasury at City Developments and Sanaa Mehra, senior associate, Green and social bond origination at Citigroup. So to get things started on a positive note, I’d like to ask Katharine, what are the opportunities for Green finance in Asia? Are there are any particular industries or countries or sectors that could drive issuance? Katharine Tapley, ANZ: In Australia and New Zealand we’re seeing plenty of opportunity, and I think, probably much like other markets, the obvious sectors for Green bond issuance are commercial property, infrastructure and also renewable energy. So in our context, that means solar, wind, as well as geothermal and “run of river” hydro in New Zealand, noting that we are watching carefully how acceptance of hydro and criteria develop. I think helpfully in both countries, we’re also seeing signs of regulatory support emerging. I think that’s going to be crucial and helpful for the future growth. So, for example, in New Zealand with the change in government to Prime Minister Jacinda Ardern, you’re seeing the government make very rapid moves towards things like a zero carbon act for New Zealand and the creation of a Green fund that’s going to put US$100bn into Green investments in New Zealand. In Australia, there are some promising signs coming from some of our regulators. We’ve had APRA, who is the regulator for the financial services industry, making it very clear in statements to the industry that they see climate risk as a financial risk. We’ve most recently seen ASIC make comments around similar issues, including that they are reviewing the top 300 listed companies in Australia around their adherence to the Taskforce for Climate-related Financial Disclosure and in particular the use of scenario analysis to determine companies’ advancements towards dealing with climate change. We’ve also had a senior barrister talk about Corporations Act breach of fiduciary duty by directors if they’re not taking into account climate risk. So in summary, the opportunities for Green bonds are being generated through a combination of industry level action, as well as some regulatory signalling. IFR ASIA: Jonathan, you’re based in Hong Kong. What’s the view like from Hong Kong? Jonathan Drew, HSBC: Well, I think, Daniel, broadly to your question, in every country and for every sector there’s a huge need for what we might more broadly call sustainable financing, i.e. the need to bring finance to create assets that will decarbonise and depollute the entire economic activity that we currently undertake. Because I think when you look at the science of the Green part, the environmental part, I think we have to recognise that the timeframes in which we need to take very significant action are very urgent indeed. So there isn’t, in my opinion, a market or a sector or, for us as a bank, a client who isn’t impacted by and who hasn’t got a very material role to play in this whole process of making our economic activity sustainable. Obviously wi

When Green finance first hit the market, there were high hopes that issuers raising funds in such a way would benefit from improved pricing, given the increased transparency and forecast growth in demand from investors. It is still too early to point to definitive evidence of that, but Green finance has several factors on its side that will drive adoption. Consumers, regulators and investors are demanding that companies show what they are doing to mitigate problems like climate change. A failure to answer the question adequately could mean missing out on investment from global fund managers, or spending by socially conscious millennials. Even if issuers have no specific ambitions to be labelled Green, they certainly do not want to be flagged as polluters. It makes sense to tell the world what they are doing to reduce waste – which all efficient businesses should be striving to achieve, in any case. In Asia, there is no doubt that some Green financings have simply been a marketing exercise, but the growth of the asset class has gained real momentum, with markets like China and Singapore making a push to encourage it. City Developments has been developing energy-efficient buildings for years, and last year became the first corporate issuer of Green bonds in Singapore, while the Monetary Authority of Singapore has introduced incentives to encourage others to follow. On top of that, the Singapore Exchange now requires listed companies to publish an annual sustainability report. In China, there has been a top-down effort to make Green finance an integral part of the financial system, leading to big debt raisings onshore and offshore from the biggest banks and state-owned enterprises. Some issuers are also using Green finance to show their own transformations. This year saw the first Asian sovereign Green bond issue, from coal and palm oil exporter Indonesia, and agricultural commodities companies headquartered in Singapore have taken loans that charge a lower rate if certain sustainability benchmarks are met. Raising funds in a way that emphasises that a business is running on Green principles may not result in a lower cost of financing, but it could attract a broader investor base and help maintain market access during periods of turbulence. On top of all that, having Green values pleases internal stakeholders too. Employees are more engaged if they know their company stands for positive values. Other companies may also want reassurances that the parties with which they do business have a Green approach. Companies could ignore all of this and continue business as usual. That risks others assuming that they have dirty, smoky secrets to hide. The tide is turning towards Green finance, and those who fail to emphasise their environmentally friendly sides could find that investors and consumers treat them no differently to issuers in polluting industries. To see the digital version of this roundtable, please click here To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com