The recent exit of the United States Federal Reserve from a global group of financial regulators working to police risk in the financial system (the Network of Central Banks and Supervisors for Greening the Financial System, or NGFS), and the withdrawal of BlackRock from the Net Zero Asset Managers (NZAM) initiative have marked a whirlwind few weeks of American uncoupling from global climate action.
The withdrawal of American banks from the Net Zero Banking Alliance (NZBA) at the start of January, which was followed by Canada’s biggest banks pulling out of the United Nations-led coalition set up at the COP26 climate talks in 2021, has cast doubt over the commitment of financial institutions in funding global climate action – at a time when climate-induced disasters across the world are on the rise.
Despite the shadow hanging over the future of several international climate pacts, key financiers in Asia say the region – especially China – is now well positioned to step into the leadership void.
Speaking at Eco-Business’s Sharpening the ESG focus: CSO Outlook 2025 dialogue held on 21 January in Singapore, Jaclyn Dove, global head of sustainable finance for Standard Chartered Bank, said that while there may be a slowdown in corporate climate action this year, Asia has an opportunity to lead in developing the carbon markets and in adaptation and transition finance.
There is a huge opportunity in Asia. Interest in transition finance has been on the increase.
Jaclyn Dove, managing director, global head of sustainable finance, Standard Chartered Bank
Dove said there would be no change to Standard Chartered’s climate targets, which include decarbonising its own operations this year and its financed portfolio by 2050.
Mervyn Tang, Asia Pacific head of sustainability for asset management firm Schroders, said that the US retreat from climate alliances such as NGFS would not have a significant impact on global climate action, as such alliances were mostly “rhetoric” and limited in their effectiveness at driving down emissions.
Tang said the region was unlikely to see a rollback of climate targets, as companies will ultimately be forced to cut emissions as climate impacts worsen, particularly in Asia, he said.
“We believe that if we don’t get to net zero, the world will look so bad that even if you have the short-term reversal in policy now, you will have to see big policy shifts in the future.”
This dialogue, moderated by Eco-Business founder and chief executive officer Jessica Cheam, has now been published on the Eco-Business podcast.
Tune in as they discuss:
- 2025’s sustainable finance and investment outlook
- Do global net zero alliances have a future?
- Transition finance as a huge opportunity for Asia
- The region’s pragmatic net zero agenda
From left: Jessica Cheam, Mervyn Tang and Jaclyn Dove at the ESG Outlook 2025 dialogue hosted at By the Bay, Marina Bay Financial Centre, Singapore. Image: Eco-Business
The edited transcript:
The world’s largest economy has withdrawn the World Health Organisation, pulled out of the Paris Agreement and announced a “drill, baby, drill” policy at a time of the Los Angeles wildfires. With that in mind, what is your outlook for 2025?
Jaclyn Dove: There may be a bump in the road for many from a global trade perspective – there will be impacts such as tariffs and regulations that may be curtailed. But for us in Asia, there is a huge opportunity for us to take ownership of what we want to do from a framework and business perspective.
At a very high level, I don’t think it’s all doom and gloom. I’m optimistic for this region.
A lot of our markets and clients are those heavily impacted by climate change. We set out on our net zero journey [Standard Chartered committed to net zero emissions in its own operations by 2025 and across its full value chain by 2050 in 2018] independent of others institutions and organisations today. We have the right frameworks in place, and will continue along that journey.
From an individual organisation’s perspective, it was a voluntary choice from us to align to certain guidelines and frameworks, and we use those to set out how we facilitate that [net zero] transition for our clients and our markets.
From a trends perspective, it’s business-as-usual for us – we identified key areas that we think could be enablers, such as blended finance, developing carbon markets focused on natural capital and biodiversity, and we really see an opportunity for adaptation and resilience finance.
We are seeing climate events in all of our markets increase and accelerate, and we have made that commitment to how we help finance and at least facilitate that flow of capital – and that won’t change.
I think there will be a slowdown in adoption on certain things. A lot of organisations may revisit how they intend to execute against their strategies, but the role we play will be to continue helping that transition.
I don’t foresee that there will be a need for us to significantly change our approach with clients on that transition – so [we will continue] helping in an advisory as well as a financing capacity.
It’s good to see some defiant optimism, even if the landscape is uncertain at the moment. The Financial Times recently ran a story about how there has been a withdrawal of US$30 billion from climate-focused mutual funds – the first drop in four years. But investors continue to back funds with broader climate focus, such as green bonds. With that in mind, where are you seeing the main opportunities right now in sustainable finance?
Mervyn Tang: The pull-out from climate funds is not necessarily a result of Trump. If you just look at various public market climate funds, they have performed awfully in the last few years. Most of the wealth was pulling away from climate funds because they were seeing double-digit negative returns. And there was a number of different reasons for that.
A lot of renewable or clean tech businesses were relatively new, so they didn’t have much cash. And so they were particularly exposed to higher interest rates. The interest rate environment has not been dipping as much as expected, given what we seen with the Federal Reserve and other actions.
There were also issues with the supply chain as a result of what was happening in Israel, Palestine, Russia and Ukraine that led to a lot of constraints in terms of the delivery of clean energy and battery EVs [electric vehicles] and EV infrastructure.
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We are seeing movement from public to private markets… when backed by government support… you can create a lot of private assets where the risk-return profiles make sense for both institutions, as well as private investors.
But if we think about the broader story, if we take China for example, renewable energy capacity has increased by a huge amount, which is what you need to see from an energy transition perspective. But that doesn’t mean investing in solar panel producers or wind turbine producers actually makes money. It depends on the industry dynamics, the pricing, etc.
But if we look at the other trend of investing more generally, we are seeing movement from public to private markets. There are more private market options available, for instance direct investment in (clean) infrastructure, and the return profile of investing, say, in a wind farm is very different. But when backed by government support, with contracted power prices, you can create a lot of private assets where the risk-return profiles make sense for both institutions, as well as private investors.
So I think with public market funds, we have to be realistic with what happened in the industry. But I see a lot of very encouraging signs in private markets, both in renewable energy and then emerging in transition.
Besides the Federal Reserve pulling out of the NGFS, we have seen large financial institutions pulling out of alliances like the Net Zero Banking Alliance and the Glasgow Financial Alliance for Net Zero (GFANZ), which was formed at COP26 in 2021. Do these alliances have a future?
Jaclyn Dove: Standard Chartered is signed up to both, and was chair of GFANZ. The concept of both organisations was to create an aggregation or a standardisation, and really help drive it.
From our perspective, [the recent developments] are something we just have to sit and watch at the moment. Yes, we are seeing some organisations move out of [the alliances], but ultimately it is voluntary to sign up and each organisation will be different.
Our view is we have made a commitment to a net zero journey, and we will continue on that. We have made commitments to mobilise US$300 billion to help with the financing of the transition, and our investors and other stakeholders and regulators are going to want to see how we are doing that. Having a framework that we can align with is helpful to do that.
Mervyn Tang: Rhetoric is different to action. Just because trillions of assets and trillions of lending books signed up to an alliance, that didn’t mean that it was driving huge action on climate change. And so similarly, the pullback from these alliances won’t reverse climate action. It will have marginal incremental impact, of course, but it’s not a step change.
Pre-Trump, there was even conflict when it came to the conversation of: why are we setting targets in the first place? Are we setting the targets to drive the economy towards net zero because we believe it’s the right thing to do? For some it is just about preparing for the transition because of the direction of policy. It would be prudent to align our businesses and investment portfolios to this net zero world because otherwise we are heading to a very nasty place.
If we think about the short run versus the long run, we at Schroders believe that if we don’t get to net zero, the world will look so bad that even if you have the short-term reversal in policy now, you will have to have big policy shifts at some point in the future.
I believe that’s the NGFS’s “too-little-too-late” scenario, where we have a bit of a reversal and then we realise how bad things are, and then we maybe have carbon prices increasing substantially in the future.
As a firm, we believe that we still need to think about how our portfolio is aligned in the future, because in the long run, it’s really hard to imagine… Otherwise you are moving towards just investing in adaptation and preparing for a world where gross domestic product (GDP) is 20 to 30 per cent lower. That changes the considerations a bit.
Jaclyn Dove said some companies in Asia may revisit how they execute their decarbonisation strategies after the re-election of Donald Trump. Image: Eco-Business
Jaclyn Dove: I would say it’s the same from a banking perspective. It’s a trigger to then engage in that conversation with your client, and to have the science and the facts behind it that can say, okay, if you look at your overall business model and your CapEx (short for capital expenditure), OpEx (short for operational expenditure) and technology investment that are needed, this is how we can help you.
Without that – without having a target or any sort of modelling, it’s really hard. Although the science is lost on some people, having analysis helps with dialogue. A framework is useful.
Transition finance has been much discussed of late in Asia. Ravi Menon, Singapore’s climate change ambassador, has talked about the pragmatic pathways that we need to take to get Asia to transition – even if some European Union institutions will not touch coal financing or gas financing. How do you think transition finance will play out?
Jaclyn Dove: This is where there’s a huge opportunity in Asia. Interest from investors in transition financing has been on the increase.
Standard Chartered has invested in a transition finance team. We have upskilled and we have looked at technologies that we know would help facilitate that transition. We financed a few projects that look at reducing flaring and procuring scrap steel – one in Vietnam, another in Malaysia. We are looking at how we can facilitate greener business models for a lot of our clients and invest in new technologies.
Without that, we are not going to be able to finance the transition from coal to renewables, and Asia is where 70 to 80 per cent of all coal energy is generated globally. It is a huge challenge, but also an opportunity. The transition is a focus for us, because each market is moving at a different pace. There is inconsistency across policies and regulation, but there is a huge opportunity for us to work client by client, sector by sector across our portfolio to help finance that.
Asia is home to a lot of projects that need to have financing, but it’s going to take coordination and collaboration across multiple partners.
We have seen discussions around the JETPs [Just Energy Transition Partnerships] in Vietnam and Indonesia going well, but not moving particularly fast; doing certain transactions has taken a long time.
So, it’s not easy – but the opportunity and the potential impact are huge.
Mervyn Tang: Sustainable finance has tried to define itself over the last decade. Initially, people became quite focused on the EU taxonomy, climate mitigation and carbon footprinting. All of those… incentivise you ultimately to invest in things that are low carbon or green.
The philosophical conversation that people generally agree with is that you can’t decarbonise the economy if you just funnel investments into those green projects – because you have a lot of high-carbon assets that continue to operate that need to decarbonise. So if we want to actually get system-wide decarbonisation, we need money to go into those areas and help them to decarbonise.
The tricky thing for a lot of people is: how can we do this credibly? If people say that I’m just investing in oil and gas, how can we find parameters around this? We need different types of metrics [for transition finance]. We need the infrastructure, regulations, corporate capabilities, and finance capabilities to do this.
So if we stop looking at carbon footprint, we need to start looking at changing carbon footprint. But given that carbon footprint is already such a volatile number, looking at the data [for a transition project] becomes even more volatile.
We need to find the right metrics for our investment portfolios, to find some measurement of whether a transition is successful or not. Otherwise, it can’t be credible.
There is always going to be a qualitative element to that. And I think this is why MAS [Monetary Authority of Singapore] has focused so much on transition plans.
A lot of this is not easy. You can’t just look at a number and say, this is a good or bad transition. You need to ask: what kind of technologies are you investing in for this particular sector? How does your business model compare to your peers?
We are starting to get to a place where we will get more credible transition plans to make these assessments. And then that allows us to have more credible transition financing because we have more information to work with.
I’m not going to pretend these are going to be solved by 2025. They are not. But over the next few years, hopefully we see improvements in transition finance in the way that we saw for green finance that reinforced the system that we have now.
What are your views on what qualifies as transition finance?
Jaclyn Dove: I think it goes back to transparency. It [transition finance] is very nascent. There are differing views. At Standard Chartered, we developed our own transition finance framework, because there is no a standardisation for it. We then disclose how we assess it, what we deem credible and the models we run – which I’m sure will be subject to change once there is a level of standardisation.
We take into consideration factors such as the technology, industry, market and the maturity of the grid. Is there a plan to green that grid? Or are they subject to government plans and Nationally Determined Contributions (NDCs)?
Mervyn Tang of Schroders: “If we don’t get to net zero, the world will look so bad that even if there’s a short-term policy reversal now, there would have to be big policy shifts in the future.” Image: Eco-Business
Two things stand out for me. China’s role in the global order is going to only increase in prominence, especially in the leadership they have gained in the renewable energy, battery and autonomous vehicles sectors. It’s also worth noting how Trump got elected; he’s the symptom, not the cause. Look at some of the societal changes that were happening – the loss of livelihoods, the workforce transformation – at too quick a pace. Globalisation and inflation, as well as a lot of interlocking forces, created an environment where he could be elected.
How do you see China’s role in the world? How will the forces influencing the climate and environmental, social and governance (ESG) agenda play out?
Jaclyn Dove: From China’s perspective, this is their opportunity. But there is also a broader opportunity for Asia to create its own trade flows.
I see a great opportunity for our clients in Asia. Although we are seeing slow growth, I don’t think it’s stopping. The momentum will still be there and I see a huge opportunity in that.
Mervyn Tang: Being pragmatic is really important. If we look at the EU and other policymaking pillars, you can spend a lot of time deliberating around the edges and asking, for instance, what should be the threshold for a gas plant? Should nuclear be in the taxonomy? You can spend years locked in conversations about these policies. Don’t get me wrong. They are important philosophical conversations to have. But actually delivering stuff and getting clean energy, getting the transition happening are also really important.
I’m co-leading Singapore Sustainable Finance Association’s transition finance workstream, and one thing I’ve enjoyed is the pragmatism. An example of this is working with the policymakers, MAS, and other parts of governments like the National Climate Change Secretariat (NCCS).
There is a clear agenda for how we get things going. It’s not about, “How can we be a green finance hub?” It is about, “How do we decarbonise, how do we drive the transition?
One of the things that we thought was challenging was that we didn’t have all the players together. So it was often financial institutions in a room talking about how we should improve sustainable finance, rather than getting real economy players, regulators, and policymakers to think about the issue.
So we started with the real estate sector, bringing in the Building and Construction Authority (BCA), to have a real dialogue on how we move things along. Is it basic stuff like getting tenant data and finding a way of getting consent so that the real estate developers are able to collect the data?
The next much more ambitious is to deal with the power sector. I think one of the initial conversations we have with different stakeholders is how can we improve the grid? Because for a lot of countries, the grid is just not in a place to install renewable energy, you have to link it to the grid at pace. In many cases, that is what is slowing the energy transition, not the lack of green finance.
Then we bring everyone together and ask: what is the solution to unlock this? Is it blended finance? What actually needs to be done? We zero in on what is stopping us from transitioning rather than getting too high level and philosophical on how to define transition finance. That can get very messy.
Do you have any new year’s resolutions?
Mervyn Tang: I bought a Polaroid camera to try to capture “glimmers”. They are meant to be the opposite of triggers, where you find positive moments that calm your nervous system and make you happy with the world. The idea is that if you pay more attention to glimmers in the world. It’s easy to get completely lost in the gloom, but we need to find themes that are positive.
Jaclyn Dove: My new year’s resolution is to remain optimistic. I think all of us who are in sustainability at the end of last year had pretty empty tanks by the time we got to December. But this year, everyone has come in with a renewed sense of energy. So I want to retain that optimism, and for my team that continuous learning and innovation will help drive that.
Jessica Cheam: For me, if we want good ideas to win, we need to tell good stories. We need to positively shape the narratives around us, whether it’s for ourselves, our organisations, or our industries.
We must put the good ideas out there because there’s a lot of misinformation, disinformation and noise out there. We need to push back against it. That is a role that we can all play and at Eco-Business, we tell good stories. Thank you for joining us for this insightful conversation.
The transcript has been edited for brevity and clarity.
Eco-Business will be hosting a virtual masterclass, “Sharpening the ESG Focus 2025”, on 11 February 2025. Register here and join us online.
