A panel discussion on the merits and challenges of green finance innovations and governance was one of the breakout tracks at this year’s ACCA Singapore's virtual conference.
Moderated by Professor Lawrence Loh, director, Centre for Governance and Sustainability at the National University of Singapore, the panellists were invited to discuss how business can shape the future of sustainable finance.
‘Access to financing is now increasingly tied to non-financial elements’
Cedric Rimaud, ASEAN commercial manager at Climate Bonds Initiative, kicked off the panel discussion by outlining the rise and increasing relevance of green finance. ‘What I can really see as an emerging trend is that the access to financing is now increasingly tied to non-financial elements… especially since the 2015 Paris agreement, which said that to combat global warming we should realign financial flows towards a reduction in greenhouse gas emissions. This has triggered the emergence of a brand-new sector in the financial markets, which is green finance.’
Rehan Badar, director at Audit New Zealand, said that sustainable finance could also contribute to a better bottom line. ‘The shift in consumer preference towards sustainability will have an impact on companies’ profitability in terms of how they will go into and explore opportunities in green finance.’
Some of these opportunities were spelled out by Dharish David, sustainable finance lead at Global Compact Network Singapore (GCNS). ‘Studies say that sustainable business models will provide opportunities worth US$12 trillion by 2030. Green buildings, electric vehicles, water, public transportation, waste – all these are new industries that are going to come about because of the circular and stakeholder economy.’
Standards and incentives
Lau Xin Yi, green finance lead for South-East Asia at Carbon Trust, pointed to the adoption of taxonomies as a rising trend in the sustainable finance landscape. ‘For most countries this is seen as a tool that enables policymakers to enhance their market clarity and integrity, and has the effect of spurring sustainable investment. In this space we are seeing quite a number of international guidance and principles appear, to help establish a common understanding to promote adoption of the financial instruments.’
'Investors are not just conscious of their financial returns, but also how rewarding their investment would be socially and environmentally'
To help propel sustainable finance, a number of governments have introduced incentives for investing in renewable sources and transitioning products and services into the green space. Badar cited the example of construction and civil engineering business Surbana Jurong in Singapore.
‘It has issued sustainability-linked bonds where the reduction of greenhouse gas emissions on a 10-year forward basis will trigger a reduction in the cost of borrowing for that entity,’ he said. ‘Even cutting half a percentage point on a multimillion or sometimes a billion-dollar borrowing is a lot of value that you can then redirect to other things.’
On the role of corporate reporting in helping to push sustainable finance forward, Badar talked about the benefits of the new Value Reporting Foundation, which champions integrated and sustainability reporting. ‘Investors will be better served with the new Value Reporting Foundation intent, which better integrates between corporate as well as sustainable reporting, and talks about how to create value in the long term… Investors, when they're making investment decisions, are not just conscious of their financial returns, but also how rewarding their investment would be socially and environmentally.’
Pitfalls
On challenges, David spoke about the importance of public finance, which is lagging due to its relatively smaller size compared with private sustainability investments. ‘Larger instruments such as corporate equity or bonds [which are necessary to provide scale and momentum] only have limited measurable impact on the Sustainable Development Goals. The smaller activities, such as sustainability-linked loans, directly have higher impact. So the task is getting smaller instruments packaged or securitised to make them more effective, because they are very sustainable.’
‘I think accountants are in a really unique position to balance the profitability aspects of business with people and planet'
A number of panellists warned about the need to guard against greenwashing. Lau said: ‘We are trying to avoid making any misleading claims about the environmental benefits of our product, service or technology… We need third-party verification and assurance services to provide that additional validation – be it about the credentials or the robustness of the issuers, or the processes behind a certain green bond or green loan.’
Rimaud agreed. ‘Investors want to be able to really understand that when an issuer comes to market and promises a green framework or sustainability objectives, this will be grounded in actual data and scientific evidence.’
The accountant’s role
As to where accountants feature in sustainable finance, Rimaud said one possible role was to help justify the green agenda. ‘We need to see what the energy consumption is – what are the costs related to that? And then what the benefit is of transitioning to renewable energy. We need the help of accountants to do this budgeting.
‘What I think will happen is that companies will realise that there are a lot of benefits in doing this transition, because renewable energy will eventually be much cheaper than fossil fuel-based energy production.’
Another panellist, Paul Davis FCCA, regional managing director – finance, Asia Pacific, at Allianz Global Corporate & Specialty, said that this tied in well with the ongoing evolution of the accountant’s role. ‘The part they play in bringing a strategic or more green focus to an organisation is going to be vital to the future. Now, for me, the role of accounting is to take all of the pieces, move them slightly away from building data, to actually provide insights and analytics, and draw conclusions.’
Badar agreed on the natural fit of accountants to play the linking role. ‘I think accountants are in a really unique position to balance the profitability aspects of business with people and planet. I think they remain at the heart of making sure that businesses are able to make those connections, and to enable those charged with governance to make informed decisions in a sustainable and equitable way.’
