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Financial|Sustainable|Environmental
Financial|Sustainable|Environmental
financial|sustainable|environmental

Speakers highlight factors impacting on ESG, funding

8th December 2021

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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There are several things that are impacting on environmental, social and governance (ESG) and funding for ESG measures, speakers outlined on day one of Fitch Ratings’ ESG Outlook Conference on December 8.

Fitch sustainability director Nneka Chike-Obi said climate change was of importance for companies and ESG funders and that there was a split between adaption and mitigation financing.

She mentioned that a gap in funding for adaptation was a challenge, as the majority of funding was going towards mitigation measures.

She explained that adaptation deals with addressing the physical effects of climate change that would occur.

Therefore, this funding gap is concerning, given that these effects are already being felt and that adaptation is already necessary. Notably, she said that COP26 brought to the fore the need to commit adaptation financing to developing countries, with a commitment to meet the current funding gap by 2022.

Chike-Obi said another concern was how to transfer the funding for adaptation from developed to developing countries.

Aberdeen Standard Investments Asia-Pacific corporate debt head Paul Lukaszewski, meanwhile, mentioned the Sustainable Finance Disclosure Regulation (SFDR), which he said was significantly impacting on what was happening in the market, especially with many European-registered funds having to comply with these regulations and other markets reacting to the higher transparency that it was bringing about.

SFDR imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants.

He said asset management was beginning to adapt its behaviour and improve its sustainability practices, with SFDR impacting how the market was behaving.

Lukaszewski noted that there were positives and drawbacks to SFDR. Positives included the robustness of the approach, which, as alluded to earlier, increased transparency.

However, a negative of this was that it was very eurocentric, he said, with biases against developing countries.

In terms of the social aspect of ESG, Chike-Obi said that there was a misconception that this was culturally specific and that what was socially good varies from place to place. She also said that headline-grabbing social issues were not actually what was relevant for the market.

Rather, she said, the biggest social risks were issues such as diversity in senior management of boards, treatment of workers and reputational risks, besides others. This, she said, was therefore universal, with maybe slight cultural differences, but globally, corporate leadership could understand how social issues affected financial risks if they go unresolved.

She stressed that the market needed a common language around social issues, with clear metrics and measurability. She explained that many companies used very abstract concepts when outlining their social measures, rather than statistics and numbers.

She said that while investors have flagged social issues as being very important, these were very difficult to measure, which was one of the challenges in this arena.

“What needs to be understood is that social issues are not just about ‘being nice’, but rather, measurable social issues that can impact a company’s performance, Chike-Obi said.

HSBC Asia-Pacific debt capital markets sustainable bonds head Luying Gan said that, with the social aspect becoming more prevalent, there had been increases in funding for this.

She said that, of importance for companies in this regard, was incorporating this funding into their organisations, rather than just giving money away for charitable purposes. For example, she said that small- to medium-enterprises lending is crucial to many organisations, and moreover, the returns on this perform quite well.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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