Ukraine conflict won't undermine investors' climate activity
The positive momentum around investors' climate change engagement, that built to a crescendo at COP 26 in November, will not be undermined by the global instability that results from Russia’s invasion of Ukraine, say industry experts.
While countries come to terms with forced changes to oil and gas production and an increasingly fragile geopolitical environment, the positive work on climate change continues.
As the Asia Investor Group on Climate Change (AIGCC) noted in its annual report, issued last week, “For many Asian markets, the discussion is now transitioning to implementation. Attracting private capital into green industries and infrastructure with strong domestic policy settings will be critical to achieving many countries’ climate goals.”
In the last 12 months, there had been a marked acceleration of activity among governments, corporates and investors to address the challenge of net zero, noted the AIGCC.
"For example, COP26 saw a ratchet up in ambition on coal phase-out across the region. This included new multilateral commitments and dedicated programs for early plant retirement, replicating capital markets’ increasing shift away from funding coal projects."
The war in Ukraine has shone a spotlight on the need for energy security and independence, not just in Europe but globally, Rebecca Mikula-Wright, CEO of the AIGCC, told AsianInvestor.
“The rapid transition to renewable and clean energy economies will help facilitate this, as well as achieving the necessary climate goals. We have seen the EU and Germany, in particular, announce an acceleration of their renewable energy transition, to lessen their reliance on Russian oil and gas."
A Hong Kong-based ESG expert spoken to by AsianInvestor also pointed up the EU’s accelerating investment into renewables and said, “there could be geopolitical implications that affect national action on other climate commitments and impact energy markets both for the good and bad. Bans on imports of Russian oil and rising costs may temporarily reverse the decline of coal in development markets.”
The massive political and economic upheaval being caused by the Russian aggression may disrupt investor activity in the short term, but “climate change will not fall off the table; in fact its importance will only increase,” said Gordon Noble, partnership manager at Sydney's Institute for Sustainable Futures at UTS.
“One of the reasons for this is climate change is already impacting financial systems. Russia and China both have climate crises playing out in different ways within their borders. The rapid escalation of climate risks means that there is a need to move from dialogues that are focused on disclosure, to flow of capital."
“There is no doubt Ukraine is posing huge dilemmas for governments,” said Noble. But he was confident that despite the current friction between the US and China over relations with Russia, their joint commitment to the G20 Sustainable Finance Working, which is co-chaired by the US and China, would be maintained.
“G20 finance ministers and central banks recently met in Indonesia and have given the G20 Sustainable Finance Working Group a clear work program demonstrating that it is going to play a critical role in bringing together all the different sustainable finance initiatives globally. “
The rise in the number of Asian investors engaging collaboratively or in parallel to engagements convened by AIGCC is a critically important component, said Mikula-Wright.
AIGCC's Asian asset owner members include Singapore's GIC, Korea's NPS, Taiwan's Cathay Financial Holdings and ShinKong Life and Hong Kong-based AIA. International asset owner members include CalPERs and CDPQ. Mikula-Wright said the group is in discussions with several other owners in the region. Australian super funds are members of the IGCC sister organisation that was set up by Australian funds 15 years ago.
"Along with country-level announcements, we have seen many Asian nations taking part in and signing on to global agreements made on the side-lines of COP26," said Mikula-Wright.
"Firstly, China, Japan, South Korea, and India signed the Statement on the Breakthrough Agenda, which affirmed the commitment of world leaders to work together towards the Paris Agreement goals."
Secondly, China, Japan, South Korea, Malaysia, Singapore and Vietnam signed the Glasgow Leaders’ Declaration on Forests and Land Use.
In 2021, the Principles of Responsible Investment signed-up new members ICICI Prudential Life, China Pacific Insurance, Kasikorn Asset Management Company and ORIX Life Insurance. A PRI spokesman pointed out that mainland China now has 93 signatories, with Hong Kong at 87, Singapore at 61, Japan at 109 and India at 24.
Additionally, Japan, the Philippines, Singapore, South Korea, and Vietnam joined the Global Methane Pledge. In the coal and fossil fuel sector, via the Global Coal to Clean Power Transition Statement led by the United Kingdom, Indonesia, South Korea, and Vietnam made new commitments to phase out coal power, a significant development for the region.
To support investors in the region with their sustainability work, AIGCC launched the Asia engagement guide in early 2021 and supported the development of the corporate engagement training model to be offered to AIGCC members and stakeholders.
On the international front, AIGCC is involved in a number of international collaborative projects and initiatives. One of these, Climate Action 100+ has seen Asian signatories steadily increase from a small base in 2017 to over 40 at the latest count.