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  • Writer's pictureBait Al-Amanah

Asia-Pacific Region increasingly favors Green Investment

*Picture Credit: Insurance Business America

Original article in Chinese published in People’s Daily China by Liu Hui (correspondent in Thailand) and Ma Fei (correspondent in South Korea) Translated and Adapted by Benedict Weerasena

Core Insight

At present, many countries in the Asia-Pacific region have begun to formulate emission reduction targets, introduce green development policies, expand green investment, and inject momentum into the sustainable economic and social development of the region in order to jointly respond to global climate change and promote economic recovery in the post- pandemic era.

Morgan Stanley Capital International (MSCI), a world-renowned index compilation company, recently released the 2021 Global Institutional Investor Survey Report, stating that in response to challenges such as the new Covid-19 pandemic and climate change, the proportion of investors in the Asia-Pacific region who are willing to increase ESG (environmental, social, governance) investment is growing gradually, even higher than the global average. This shows that governments and enterprises in the Asia-Pacific region are increasingly paying attention to environmental issues such as green growth in the process of economic development.

Factors such as the environment are important considerations for investment decisions

MSCI has surveyed 200 insurers, sovereign wealth funds and other institutions around the world. The total assets of these institutions amounted to US$18 trillion. The report pointed out that by the end of 2021, around 79% of investors in the Asia-Pacific region plan to significantly or moderately increase ESG investment, which is higher than the global average of 73%; 57% of investors in the region expect to have “completely” or “to a large extent” incorporated ESG issues into their investment analysis and decision-making processes by the end of 2021.

Current ESG activities according to world regions Source: MSCI 2021 Global Institutional Investor Survey Report

ESG is considered to be a responsible investment concept and corporate evaluation method that pays attention to environmental, social impact and corporate governance. The high willingness to invest in ESG in the Asia-Pacific region shows that the region is increasingly concerned about the impact of business activities on green development.

Since last year, the pandemic and natural disasters have adversely affected global investment. Corporate behavior, business resilience and broader sustainability issues have become the focus of investors’ attention. The report shows that 72% of respondents believe that companies with higher ESG ratings have more sustainable plans during the pandemic. Baer Pettit, President and Chief Operating Officer of MSCI, said that green development has become the investment priority of many companies. The formulation of climate change targets has caused changes in investment needs, and with the help of technological innovation, this trend has been amplified.

The US Consumer News and Business Channel (CNBC) website stated that the Asia-Pacific region is increasingly aware of climate change and is actively responding to the impact of climate change. The main driving factor is the improvement of the investment environment for energy transition and other sustainable solutions. According to the MSCI report, about 50% of investors in the Asia-Pacific region incorporate climate change indicators into their investment decisions, which is higher than the global average of 42%.

Malaysian economist Benedict Weerasena of Bait Al Amanah (House of Trust) said that environmental sustainability will become an important consideration for investment decisions in the Asia-Pacific region. Main investment areas across Asia Pacific include the financial sector, consumer discretionary, infrastructure projects, renewable energy and electric mobility among others.

Green investment-related support policies continue to be introduced

Driven by the goal of carbon neutrality, green investment in the Asia-Pacific region is expected to continue to grow. At present, governments in the Asia-Pacific region are actively promoting sustainable economic growth. Many countries have successively introduced policies to set emission reduction targets and encourage green investment in order to achieve a more sustainable future.

The Singapore government announced last year that the country’s carbon emissions will reach a peak around 2030, halve on this basis by 2050, and achieve zero emissions as soon as the second half of this century. In February of this year, the government put forward more specific measures for emission reduction targets and formulated green development goals for the next 10 years. For example, from 2030, all newly registered cars must be clean energy vehicles, and 60,000 electric vehicle charging stations will be built in 2030. The government will also issue green bonds to support specific public infrastructure projects. Public sector green projects with an investment of S$19 billion (S$1 equals approximately RMB 4.9) have already been launched.

The Ministry of Environment of South Korea recently announced the “2021 Carbon Neutral Implementation Plan”, requiring relevant departments to formulate various carbon neutral implementation plans this year, such as the plan to achieve 100% pollution-free vehicles by 2050, the basic hydrogen energy economy plan, and financial green Investment guide, etc. In order to support investment in the hydrogen energy field, the Korean government will implement a clean hydrogen energy certification system, strive to formulate safety regulations for liquefied hydrogen energy within this year, and complete the legislative work of the clean hydrogen energy power generation quota system in the first half of the year.

The Thai government passed a five-year strategic plan in January this year to promote the development of biology, recycling and green economy from 2021 to 2026, covering 4 fields including agri-food industry, healthcare services, energy and biochemistry, tourism and creative economy. The Thai government is currently drafting a master plan to establish peak carbon emissions targets and zero emissions targets, and take measures to mitigate the impact of climate change.

in Malaysia, measures taken to promote ESG investment are not new. For example, Bursa Malaysia launched the FTSE4Good ESG Index in 2014 to support investors in making sustainable investments in local public-listed companies. Since then, the ESG scores of Malaysian companies has shown consistent improvement over time. In fact, Malaysian companies demonstrate some of the highest levels of performance in the area of corporate governance, in relation to other companies operating in Emerging Markets. Also, the Malaysian Government provides Green Investment Tax Allowance (GITA) for Assets, GITA for Projects, and Green Income Tax Exemption (GITE) for Service Providers to strengthen the development of green technology green investments.

Green Investment Tax Allowance (GITA) & GITA for Projects, and Green Income Tax Exemption (GITE) Source: Malaysia Investment Development Authority

Overall, Benedict Weerasena believes that the rise of ESG investment leads to stronger business resilience and better preparedness in facing systemic shocks caused by external factors. In a world full of unpredictability and unprecedentedness, companies and investors with long term sustainability goals are more likely to thrive and prevail. Hence, economies across Asia Pacific with higher ESG investments will be less vulnerable to shocks and increasing volatility.

China’s green development method provides important reference

China’s efforts to promote green investment have attracted worldwide attention. Last year, China made a solemn commitment to the world, striving to reach a peak in carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060. The National Energy Administration of China recently stated that China’s renewable energy development and utilization scale has ranked first in the world. By the end of 2020, the total installed capacity of renewable energy power generation reached 930 million kilowatts, accounting for 42.4% of the total installed capacity, an increase of 14.6 percentage points compared to 2012.

Helge Berger, Assistant Director of the International Monetary Fund’s Asia-Pacific Department and Head of China Affairs, said that the digital economy and green investment will help the Chinese economy achieve a more balanced recovery in the post-pandemic era and bring positive spillover effects to the global economy.

Weerasena said that China will push for renewable energy and electric vehicles to encourage more fund flows into ESG-related exchange trade funds, contributing to a 20% growth in assets across Asia, in trying to reach its carbon neutrality target for 2060. This way forward will certainly push other developing countries to place a higher emphasis on green investments, especially in terms of renewable energy and green mobility.

Xie Dongming, head of research for Greater China at OCBC Bank in Singapore, said that China has strong scientific and technological strength and a vast market. China’s practice and experience in green investment can help many countries avoid detours on the road to sustainable development.

*This article originally written in Chinese was first published in People’s Daily China.

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