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May 17, 2022

APAC – Preparing for the next chapter

Jean Chong and Kachi Nwanna
Moody's ESG Solutions
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Focus on net zero and biodiversity momentum are driving risk management practices and investment flows across the region

On May 12 we held our second annual flagship ESG APAC conference, featuring Moody’s experts sharing research and analysis on biodiversity, sustainable finance, and climate-related risk. Key industry figures from across Asia Pacific (APAC) joined us to share their insights as the region prepares for its post-pandemic chapter in ESG integration.

Here are some takeaways from the event. A link to the replay is also available below.

Biodiversity

  • Momentum on biodiversity and natural capital will gather pace but familiar challenges remain unaddressed, such as practices around reporting, quantifying (including in financial terms) and assessing the impact of nature-related risks.
  • Natural capital considerations are intertwined with climate and social risks. Nature-related risks are moving up the agenda for policymakers and market practitioners. Going forward, the Task Force for Nature-related Financial Disclosures (TNFD) will be an important lever of action. Furthermore, the panel asserted that sustainability narratives could evolve to include “nature positive” commitments from governments, which aim to halt and reverse nature loss by 2030. This topic will be in sharp focus as part of the Convention on Biodiversity COP 15 Summit in Kunming, China, scheduled for later this year.
  • Natural capital risks have found their place as a consideration in issuer credit profiles and ratings. Moody’s Investors Service analysis finds that ten sectors across the region face high or very high natural capital risks, including oil & gas exploration, agriculture, steel, mining and chemicals.

Sustainable finance

  • Despite the moderation in sustainable bond volumes in Q1 2022, the long-term growth trend remains intact. Global issuance of sustainable bonds totalled $203 billion in this quarter, which was down 11% from the fourth quarter of last year, and down 28% from the first quarter of 2021. While we expect uncertainty to persist in the near-term, we believe the long-term growth perspective of sustainable bonds will remain resilient. The need for climate mitigation and adaptation financing, accelerated decarbonization efforts to achieve net zero goals, growing regulatory attention on sustainability and a continued focus on the interconnectedness of environmental and social objectives will all support the sustainable debt markets over the long term.
  • Across the APAC region sustainability taxonomies are proliferating. These classification systems of economic activities that are under discussion, or in development, include the Common Ground Taxonomy (CGT), the ASEAN Taxonomy, and domestic developments in Singapore, Indonesia, Malaysia, Korea and Australia. This growth is a recognition of the importance of well-defined parameters that can support transparency and increase the flow of capital into sustainable activities. However, national taxonomy divergence might pose potential challenges for investors integrating requirements into investment processes.
  • A key theme from the panel discussion was a call for policymakers and industry to collaborate on developing transparent, relevant, comparable and interoperable standards and guidance, not only for taxonomy development but also for wider reporting initiatives that are deepening in rigour and broadening to cover emerging topic areas. External reviews, including Second Party Opinions, can play a crucial role in enhancing market transparency and integrity and building credibility of emerging bond labels such as sustainability-linked bonds

Climate

  • The race to net-zero remains top of the agenda across APAC. Interconnected areas of risk mitigation, opportunity creation, responsible corporate citizenship and responding to investor demand are valued components for businesses as they embark on their transition journeys towards net-zero.
  • Companies are making progress on climate related target setting, but data coverage and comparability remain a challenge for the financial industry. As market players refer to more forward-looking datasets based on transparent net-zero commitments, Moody’s Temperature Alignment datasets revealed that Asia Pacific’s temperature across high emitting sectors is estimated to be 2.9°C, far above the 1.5°C of the Paris Agreement. Ambitious targets call for collective effort to develop credible, realistic, achievable and measurable transition goals.
  • Looking ahead,  Russia’s invasion of Ukraine spotlighted the global issue of energy security and has accelerated the diversification of energy sources and strategic goals for renewable or alternative energy sources. The use of carbon credits to help neutralise carbon footprints is also growing in relevance to support Asia Pacific’s participants in their journey towards net-zero.

You can watch the on-demand replay of the event HERE.

You can also register for our upcoming ESG related webinars through our Sustainability in Focus channel.

Moody’s ESG Solutions provides insights and analyses on ESG themes and multi-stakeholder performance, climate-related risks and opportunities and global sustainable finance trends.