Sector Deep Dive #5: Sustainable Infrastructure in Asia
In March 2021, InfraAsia organised a deep dive session on sustainable infrastructure in Southeast and South Asia with four established industry speakers. We discussed the existing challenges and the growing potential of leveraging technological innovations for projects.
Sustainability is a top priority for countries across the globe, with COVID-19 and climate change severely exacerbating sustainability-related challenges. Governments and business leaders alike are working hard to address these challenges by announcing their commitments to the Environment, Social and Governance (ESG) goals, as well as their plans to achieve net-zero emissions.
In the region, there are many opportunities for businesses to contribute towards this process. However, they need to act fast. According to the United Nations, 2021 is a “make or break year” in the fight against climate change. While the stakes are high, COP26, the United Nations Climate Change Conference, and the Leaders Summit on Climate called by President Biden are key opportunities to agree to long-overdue global action.
In this article, we discuss the opportunities in sustainable infrastructure, as well as explore the areas and sectors that have great potential for technology to make sustainability projects more commercial.
Charting the path towards sustainability
The transition towards a more sustainable and net-zero carbon economy has already begun; we are not starting from square one. Countries and corporates have started setting their targets and creating plans to enable more sustainability-linked initiatives. Alex Everett, Senior Investment Consultant, Climate Fund Managers, says there is a substantial growing pool of capital which helps to effect change. This pool of funding serves to motivate developers to integrate sustainable features into each of their projects. Furthermore, we are beginning to see sustainability-linked projects generating a higher premium or rate of return compared to conventional projects. This is a virtuous cycle.
Climate change impacts all sectors. Stella Saris Chow, Head of Sustainable Finance, International, ANZ, observes that traditional fossil fuel companies are already investing in renewable energy and energy efficiency technology. Banks and investors have a role to play in supporting and providing capital for their needs as these companies invest to transition to a low carbon economy. Making bold decarbonisation targets can be tied to sustainable finance issuances such as sustainability linked bonds, which can attract new sources of liquidity. For example, ANZ was sole sustainability-structuring advisor and joint lead manager and bookrunner for Surbana Jurong’s sustainability linked bond issued in February. The bond issued in SGD, and was oversubscribed, and attracted new investors from Asia and Europe who were interested in the sustainability elements.
Getting everyone to do the right thing
A major concern many investors and green groups have is the quality and transparency of ESG reporting. While the effectiveness of disclosures has improved over the years, there remain different methodologies and varying standards; these result in concerns about greenwashing practices. Further, the multitude of possible approaches results in some corporates being unsure of the approach they should take, or the set of standards they should follow to attract green financing.
In this regard, starting sustainability journeys as early as possible can help companies strategise and embrace best practices, mitigating and adapting risks. Esther An, Chief Sustainability Officer, City Developments Limited (CDL), notes that the organisation, which started their sustainability journey over two decades ago, has continued to step up its strategy to future proof its business. Over the last three years, it has conducted two climate change scenario studies to gain greater insight into the potential financial impact of both physical and transitional risks in it key markets posed by climate change.
There is a need to constantly improve processes and regulations to increase the quality and transparency of ESG reporting. SGX recently announced a partnership with OneConnect (part of Ping An group) on ESG Reporting to strengthen the former’s sustainability efforts1. The Monetary Authority of Singapore (MAS) issued a set of guidelines late last year to all financial institutions with the aim of enhancing financial institutions’ resilience and management of environmental risk. The guidelines were developed by incorporating best practices from around the world and covers governance and strategy, risk management, and disclosure of environment risk information.
Technology as a key enabler of climate change solutions
In the last decade, technology has improved by leaps and bounds. This also means that we are better able to measure the impact of sustainability on society and the economy.
The Earth Observatory of Singapore, for example, uses diagnostic tools to conduct deep assessments. Its climate research team helps to provide critical information on climatic forces in Southeast Asia, which enables better forecasts of how climate change is impacting the region.
Technology also improves traceability along the supply chain. Gerry Mattios, Expert Partner, Global Sustainability Innovation Centre (GSIC), Bain & Company, observes that many companies across sectors are looking to adopt technology solutions for better global supply-chain traceability, particularly solutions that can help to trace the origins of raw materials and ensure they adhere to the highest standards of sustainability practices.
Building capacity to advance sustainable infrastructure
Companies are interested in deploying green capital, and standards and technology provide support for its deployment. However, amidst growing interest, there remains the concern of sufficient capacity and resources in the region to execute it. This capacity is required at different levels – in governments, corporates, and individuals alike. Sustainability considerations also need to be factored in across the entire project life cycle, from planning to construction and operation.
To successfully implement this, expertise and knowhow across different disciplines is required. Investors and large corporates are also increasing their sustainability requirements for their supply chains. In the absence of adaptation and mitigation measures, climate risk is expected to be more severe in the Asia-Pacific region than other parts of the world2 , and the ability to predict and plan for the impact of climate change is of paramount importance.
Gerry shares that the traditional thinking is that only large corporations should be investing in sustainability, as they tend to be the larger polluters. However, sustainability should be a key concern and objective for businesses of all sizes. There is a need to raise awareness among companies, especially SMEs, of what they can do and how they can benefit from adopting a sustainable strategy. Targeted training sessions by the likes of GSIC can help companies from different sectors find solutions to sustainability challenges they may be facing.
Where Singapore can contribute towards sustainability goals in the region
There are many areas where Singapore can contribute to the area of sustainability, including water and waste management, renewables, climate change adaptation, green buildings, and energy efficiency.
Many new ideas are being developed and piloted in Singapore. This allows us to (i) play the role of the region’s green knowledge and finance node, and (ii) convene events where newer ideas and solutions on sustainability in the region are designed, discussed, and delivered. Some platforms that provide an avenue for such discussions to occur include the annual Asia Infrastructure Forum, CleanEnviro Summit Singapore, Singapore International Water Week, and World Cities Summit.
On a corporate level, many Singapore based firms are also setting up or expanding their sustainability practices.
A long journey lies ahead, but the tide is turning.
The call to action on sustainability is growing strong around the world. In his 2021 letter to CEOs, Blackrock Chairman and CEO Larry Fink spoke of the “historic investment opportunity” of climate transition3. Singapore has also committed to playing a bigger role in sustainability with the Singapore Green Plan 2030, which outlines the country’s plan to advance sustainable development. As the regional finance centre, Singapore is also committed to promoting and facilitating more green financing solutions; improving the consistency and transparency of ESG reporting and disclosure; and building knowledge and capabilities in sustainable finance4.
However, the journey is only just beginning. A recent report from Oxford’s Economic Recovery Project and the UN Environment Programme (UNEP) found that only 18% of announced recovery spending can be considered ‘green.’ Some high-potential areas to spend for green purposes is identified in the report, including green energy, green transport, energy efficiency and building retrofits, natural capital investment, and green R&D5. These areas present business opportunities for sustainable infrastructure, both in greenfield and retrofits.
As the world progresses towards the “new normal”, countries and companies will have more opportunities to calibrate how green this new normal will look for them. With the wave of green interest globally, it is evident going back to the old normal will not be good enough. There is much more to be accomplished, and we can do it by working together.
1 SGX and Ping An to collaborate on ESG Reporting LINK
2 Sizing up the climate risk challenge in Asia, McKinsey (2020)
3 Blackrock Chairman and CEO Larry Fink’s 2021 letter to CEOs. Source: LINK
4 "The Future of Capital is Green" - Keynote Address by Mr Ravi Menon, Managing Director, Monetary Authority of Singapore, at IMAS-Bloomberg Investment Conference on 9 March 2021. Source: LINK
5 Are we building back better? Evidence from 2020 and Pathways to Inclusive Green Recovery Spending (2021). Source: LINK
This article was collated and written by Ng Kai Scene (ex-COO, Infrastructure Asia), with the support of Lee Mei Lin (Lead, Infrastructure Asia), and Tan Jie Ling (Lead, Infrastructure Asia)