What will Southeast Asia’s ESG look like in 2024?

Introduction

Southeast Asia’s evolving landscape melds environmental, social, and governance (ESG) factors with financial dynamics. The region’s vulnerability to natural disasters propels a surge in sustainable finance initiatives.

ESG Progress in Southeast Asia

While prioritizing rapid economic growth, Southeast Asia grapples with carbon-intensive activities that exacerbate climate change. Initial ESG strides in the region emphasize environmental concerns in policies and regulations. Over the past five years, Asia-Pacific has witnessed a doubling in ESG policies, aligning corporate disclosure with or even surpassing US standards, as reported by Goldman Sachs.

Transitioning towards ESG Principles

Learning from European advancements, Southeast Asia now pivots towards ESG disclosure, climate risk mitigation, and decarbonization. Despite varying institutional maturity, ASEAN’s unified sustainable finance taxonomy and specific country frameworks in Malaysia and Indonesia signal a collective approach.

The Rise of Sustainable Finance

Forecasts predict a surge in sustainability-related policy developments. In 2023, there was a 40% increase in green finance development compared to 2022. Governments lead the charge, with corporations and small to medium-sized enterprises anticipated to follow suit, thus shaping a financial landscape increasingly influenced by ESG imperatives in Southeast Asia.

Looking Ahead to 2024

The forecast for green finance in 2024 remains promising, showcasing a global commitment to sustainable investments. Projections indicate a significant uptick of over 20% in green finance activities from the previous year. The estimated value of green bonds issued is expected to surpass $300 billion, reflecting heightened funding for eco-friendly projects.

Embracing Green Finance Initiatives

Governments, corporations, and financial institutions are poised to further embrace green financing initiatives. Regulatory requirements and an increasing realization of the economic benefits tied to sustainable practices drive this momentum. The forecast underscores an ongoing shift towards aligning financial strategies with environmental objectives, fostering a more resilient and environmentally conscious global economy.

Conclusion

Southeast Asia is primed for a surge in green finance, marking a pivotal moment in adopting ESG principles to construct a more resilient and eco-conscious economy in 2024.

Source: Sustainable Fitch, KPM


Check out our Knowledge Hub for more insightful articles.

Source: Sustainable Fitch, KPMG

Key EU Sustainability Reporting Regulations Explained

By Marie Coupeau

Relevant legislation:

  • Corporate Sustainability Reporting Directive (CSRD) – 2022/2464/EU
  • EU Taxonomy Regulation – 2020/852/EU
  • Sustainable Finance Disclosure Regulation (SFDR) – 2019/2088/EU
  • Non-Financial Reporting Directive (NFRD) – 2014/95/EU

Corporate Sustainability Reporting Directive (CSRD)

Almost 50,000 companies expected to be impacted by CSRD (three quarters of business in the European Economic Area). 

CSRD will apply to:

  • Companies listed on regulated markets in the EU (apart from listed micro-enterprises), and large companies. 
  • Large companies, if meets 2 out of 3 of the following criteria:
    • +250 employees
    • turnover > €40 M 
    • > €20M total assets.
      • Will need to take into account information at subsidiary level.
  • Listed SMEs, but transitional period (SMEs can opt out until 2028). 
  • Non-EU companies with a net turnover of €150 million in the EU, and with at least one subsidiary or branch in the union.

Reports must cover:

  • Environmental matters – including science-based targets, EU Taxonomy and climate risk-related reporting. 
  • Social matters and treatment of employees.
  • Respect for human rights.
  • Anti-corruption and bribery.
  • Diversity on company boards (in terms of age, gender, educational and professional background).

Application of CSRD in 4 stages: 

  • 1 January 2024 – for companies already reporting in line with NFRD (reporting in 2025 on 2024 data).
  • 1 January 2025 – for large companies that are not currently subject to NFRD (reporting in 2026 on 2025 data).
  • 1 January 2026 – for listed SMEs, small and non-complex credit institutions and captive insurance undertakings (reporting in 2027 on 2026 data).
  • 1 January 2028 – reporting in 2029 on the financial year 2028 for third-country undertakings with net turnover above 150 million in the EU if they have at least one subsidiary or branch in the EU exceeding certain thresholds

Taxonomy Regulation

The Taxonomy Regulation established 6 objectives for European companies and some third-countries companies active in Europe to follow:

  • Climate change mitigation
  • Climate change adaptation
  • Sustainable use and protection of water and marine resources
  • Transition to a circular economy
  • Pollution prevention and control
  • Protection and restoration of biodiversity and ecosystems

The Taxonomy regulation allows to assess the companies’ performances towards the above objectives through 4 criteria:

The Taxonomy regulation will be implemented in Europe according to the following timeline:

Milestones (infographic Eurosif)

Sustainable Finance Disclosure Regulation (SFRD)

Due Diligence regulation proposal

Who needs to report?

  • EU large Limited Liability companies
    • Group 1: 500+ employees & net EUR 150 million+ turnover worldwide 
    • Group 2: 250+ employees & net EUR 40+ million turnover worldwide, and operating in defined high impact sectors, e.g. textiles, agriculture, extraction of minerals.
      • Rules apply 2 years later 
  • Third countries companies
    • Active in EU 
    • Turnover aligned with group 1 & 2, generated in the EU

SME and micro companies are not concerned

When?

European Parliament needs to approve the proposal.

Once adopted, Member states have 2 years to transpose into national law.

Corporate due diligence duty:

  • Identify, bring to an end, prevent, mitigate and account for:
    • Negative human rights impacts
    • Environmental impacts 
  • Different levels:
    • Cie’s own operations
    • Subsidiaries
    • Value chains 

Enforcement:

  • Administrative supervision:
    • Member state designate an authority to supervise and impose sanctions
    • Commission creates European Network of Supervisory Authorities
  • Civil liability: damages and compensations

Sources:

CSRD

Taxonomy

SFRD

Due Diligence

Unveiling the Resilience of Investment Management Platforms Amidst Shifting Deal Dynamics in 2023

Investment management platforms are digital tools that allow investors to manage their investments online with the maintenance of an investment portfolio, or a collection of financial assets. In 2023 the investment management platform sector in the ESG FinTech landscape is experiencing stable deal numbers, with a decrease in mega-deals compared to 2022. However, interest and investment in the sector remain strong.

Investment activities in the sector are well-distributed globally, with strong representation from the Americas, Europe, and Asia. The overall trend in investment management platforms is very promising, emphasizing its enduring appeal to investors and the financial industry at large.

Steady Deal Numbers:

This stability suggests a mature and well-established market, signaling confidence among investors and stakeholders. The sector’s ability to sustain deal activity in the midst of changing market dynamics speaks to its enduring appeal.

Mega-Deal Slowdown:

In 2022, the sector experienced a notable surge in deal value, largely attributed to the groundbreaking $1 billion acquisition of Australia-based platform Superhero by Swyftx. This mega-deal served as a testament to the sector’s potential for growth and innovation. However, 2023 has not seen a repetition of such mega-deal transactions, with Clean Capital’s $500 million development capital injection from Manulife Investment Management in the US being a notable exception. While mega-deals may be rarer this year, this development underscores the sustained interest and investment in the Investment Management platform sector.

Case Study: Clean Capital and Manulife Investment Management:

The standout transaction in 2023 is Clean Capital’s securing of $500 million in development capital from Manulife Investment Management in the US. This sizable injection of capital demonstrates that, while mega-deals may be less frequent this year, there is still substantial interest and confidence in the sector’s growth potential. Clean Capital’s ability to attract significant funding reaffirms the sector’s position as a focal point for investors seeking sustainable and innovative financial solutions.

Conclusion:

The Investment Management platform sector in 2023 is characterized by its resilience, stability, and sustained investor interest. While mega-deals may not be as prevalent as in the previous year, the sector continues to attract substantial funding from various regions, underlining its enduring appeal and potential for growth. As the industry navigates the dynamic funding landscape, stakeholders can anticipate further innovation, expansion, and a continued commitment to environmental, social, and governance (ESG) principles within the realm of FinTech.

Source: KPMG Report “Accelerating Transformation Amidst Economic Slowdown: The Resilient ESG FinTech Sector”

MAS Unveils World’s First Multi-Sector Transition Taxonomy, Paving the Way for Sustainable Finance Innovation

The Monetary Authority of Singapore (MAS) has introduced the Singapore-Asia Taxonomy for Sustainable Finance, a pioneering framework globally. The taxonomy outlines detailed thresholds and criteria for defining green and transition activities across eight key sectors, including Energy, Real Estate, Transportation, Agriculture, Industrial, and others. Notably, it is the first global taxonomy to introduce a “transition” category, acknowledging the unique challenges in Asia’s shift towards a net-zero economy.

The taxonomy employs a traffic light system and a measures-based approach to define transition activities. The former categorizes activities as green, transition, or ineligible, while the latter encourages capital investments in decarbonization measures to eventually meet green criteria. This is crucial for sectors facing challenges in emission reduction due to technological constraints, such as the maritime sector.

Additionally, the Singapore-Asia Taxonomy addresses the early phase-out of coal-fired power plants, providing criteria aligned with a 1.5°C scenario to ensure credibility in the energy transition. The framework also aims for interoperability with global taxonomies by mapping to the International Platform for Sustainable Finance’s Common Ground Taxonomy, promoting cross-border financing flows.

MAS Managing Director Ravi Menon emphasized the significance of the taxonomy, stating that it provides credible definitions for transition activities and covers sectors responsible for 90% of the region’s greenhouse gas emissions. The taxonomy is industry-led, drawing on the experience of financial institutions and real economy players and has undergone four rounds of public consultations. MAS plans periodic reviews to stay aligned with emerging science and technology advancements.

Source: Monetary Authority of Singapore

Integrating ESG into Asian Organizational DNA

The landscape of sustainability within Asian companies is undergoing a transformative phase, shaped by dynamic shifts in global standards, operational strategies, and technological advancements. 

Recent insights derived from an ERM seminar “The New Era of Sustainability Disclosures” offer an illuminating guide for these enterprises, pointing towards a transformative path to embed sustainability as a cornerstone of their operation. The seminar dissected multifaceted strategies and actionable insights essential for Asian companies in redefining their approaches to sustainability.

ERM’s key takeaways for Asian companies

1. Sustainability is Evolving

The discourse emphasized the evolution of sustainability practices, particularly the alignment with ESG frameworks. This alignment not only simplifies the process of gathering and reporting sustainability information but also acts as a catalyst for Asian companies to embrace new sustainability themes, notably focusing on nature preservation and sustainable supply chains. Embracing these themes not only fulfills societal responsibilities but also augments corporate value.

2. Involvement of Decision Makers for Effective Change

The seminar emphasized the critical involvement of CEOs, CFOs, and board members in embedding ESG factors within core decision-making processes. This active engagement not only signifies a profound shift in business paradigms but also serves as a catalyst for broader corporate action. Furthermore, garnering support from senior management not only reinforces the gravity of sustainability goals but also instigates purposeful initiatives across diverse operational domains.

3. The Importance of a Well-structured ESG Implementation Plan

Executing sustainability initiatives demands scrupulous planning, adequate allocation of resources, and a significant investment of time. The seminar strongly underscored the imperative of devising a comprehensive ESG implementation strategy. This strategic blueprint delineates precise initiatives aimed at accomplishing sustainability goals. By furnishing clarity and direction, this methodical plan empowers respective departments within organizations, fostering a harmonized and targeted endeavor toward fulfilling sustainability objectives.

4. Harnessing Existing Relationships and Digitalizing Data Collection

An essential aspect highlighted was the leveraging of existing relationships to procure relevant data, followed by its digitalization. Understanding the current data landscape and identifying ownership is fundamental. It is subsequently, digitalizing the data collection process streamlines monitoring and evaluation, fostering informed decision-making and enhancing the overall efficiency of sustainability efforts.

Time for action

The insights derived from the ERM seminar offer a comprehensive blueprint for Asian companies seeking to entrench sustainability within their organizational framework. The significance placed on data integrity, assurance, and verification underscores the indispensability of robust governance practices, fostering transparency and engendering trust among stakeholders. Notably, the integration of digitally-enabled collaborative methodologies not only streamlines operations but also enhances cross-functional cooperation, fostering increased efficiency and a culture of innovation.

In navigating the intricate dynamics of an ever-evolving business landscape, the integration of sustainability into the DNA of organizational fabric signifies a commitment to contributing meaningfully to a more sustainable, equitable, and responsible global community.

Check out our Knowledge Hub for more insightful articles.

Source: ERM seminar “The New Era of Sustainability Disclosures”

ESG FinTech Thrives in Asia Pacific: China, India, Australia, and Singapore Lead the Charge

In the fast-evolving landscape of Environmental, Social, and Governance (ESG) FinTech, the Asia Pacific (APAC) region has become a hotbed for innovation and investment. Over an 18-month period, from 2022 through the first half of 2023, China, India, Australia, and Singapore have emerged as standout leaders in ESG FinTech, reshaping the financial ecosystem in the region. 

Leadership in Deals value

A closer look at the geographic distribution of ESG FinTech investment activity in APAC reveals China and Australia as frontrunners, commanding the highest deal values. Together, these two nations account for over two-thirds of the funding in the region, showcasing their commitment to driving sustainable finance initiatives. This success can be attributed to a series of substantial deals that have bolstered their positions as leaders in the ESG FinTech sector.

China’s Economic Powerhouse

China, with its robust economy and strategic focus on sustainable finance, has positioned itself as a key player in the APAC ESG FinTech landscape. The nation’s noteworthy deal values underscore a concerted effort to lead the region in fostering innovation and driving the adoption of sustainable financial practices. China’s commitment is evident in its proactive approach to substantial deals, solidifying its role as a trendsetter in ESG FinTech.

Australia’s Strategic Investments

Australia, too, has demonstrated a strong commitment to sustainable finance, contributing significantly to the flourishing ESG FinTech sector in APAC. The country’s high deal values highlight strategic investments aimed at fortifying Australia’s position as a key player in driving innovation and fostering sustainable financial solutions. Australia’s approach underscores a dedication to long-term impact and leadership in the ESG FinTech domain.

Vibrant Ecosystems of India and Singapore

While China and Australia lead in deal values, India and Singapore shine in cultivating vibrant ESG FinTech ecosystems. Although these nations may not notch as many large transactions, their focus on a high volume of smaller deals – 24 in India and 19 in Singapore – reflects a dedication to nurturing innovative start-ups and promoting sustainable finance solutions. This approach highlights a commitment to building a foundation for lasting change in the financial landscape.

Japan’s Emerging Role

In addition to the prominent players, Japan has showcased its dynamism in the ESG FinTech sphere with 13 recorded deals over the 18-month period. While to a lesser extent compared to China and Australia, Japan’s participation underscores its growing significance in the APAC ESG FinTech landscape. As the region continues to evolve in the realm of sustainable finance, Japan is poised to play a crucial role in shaping the future trajectory of ESG FinTech.

Conclusion

As the Asia Pacific region progresses in the realm of sustainable finance, the leadership of China, Australia, India, Singapore, and the emerging role of Japan are pivotal. These nations are not only shaping the ESG FinTech landscape but are also influencing the global narrative on sustainable financial practices. Their commitment to innovation and sustainable finance solutions underscores a collective effort to drive positive change in the APAC financial ecosystem, setting the stage for a more resilient and sustainable future.

Check out our Knowledge Hub for more insightful articles.

Source: KPMG Report“Accelerating Transformation Amidst Economic Slowdown: The Resilient ESG FinTech Sector”