16 Feb 2022
The opportunity for business in the global push to net-zero is extraordinary. The change taking place is transformational and the pace is rapid.
Many developed economies are already well advanced in their response. This means for businesses trying to get in on the ground floor, the opportunity has shifted to the Asia Pacific.
"As this financial-sector makeover continues, it’s increasingly likely non-green assets… are going to be in the minority.”
Already we’ve seen significant leadership in the region toward decarbonisation. India is becoming a powerhouse in renewable energy. Singapore is positioning itself as a green finance hub. And in Japan pension funds have been long-term supporters of sustainable capital.
The region is awash with natural capital assets, which is a critical part of the world’s climate solution. But the traditional capital opportunity is also large with the green market in Asia alone worth potentially $US1 trillion, according to some estimates.
Funding that shift will be critical and demand for sustainable finance is rising fast. Data show global sustainable issuance rose to over $US1.6 trillion in 2021, more than double a COVID-impacted 2020. The scope of the total sustainable debt market is, by some estimates, $US4 trillion.
This is not a traditional shift in the market but rather a wholesale transformation of the way we fund our businesses and recognise environmental, social and governance (ESG) risk, particularly around climate change. What we now think of as ‘green finance’ is going to just be ‘finance’ – both in the Asia Pacific and globally.
And the demand for green won’t stop there. As sustainably managed capital becomes the standard way debt and equity are managed in the system, attention will shift toward a class of ‘super-green’ assets with mandates above and beyond what exists today. We’re already seeing a slow but structural shift in capital weights in the market as well as pricing which incentivises being greener - the so-called ‘greenium’.
This means there is still time for businesses lagging behind to embrace the sustainable finance opportunity - a $US4 trillion one, to repeat - and those who harness it now can place themselves in a strong position for the future.
ANZ and Pollination have seen that shift in the market and entered into a strategic partnership to best position our clients and customers.
The partnership – which will also see ANZ take a $US50 million minority equity stake in Pollination - allows both companies, each with their own impressive records on sustainable finance, to increase their impact delivering solutions and support across the Asia Pacific - at a volume and a scale unreachable without the partnership.
For businesses staring into this change, being able to rely on this partnership will provide the depth of understanding and experience needed to navigate the transition. Pollination can see and process the risks of the green tilt that others can’t. ANZ has a track record helping clients reconstitute finance sustainably and leads the market in doing so.
What’s clear is the criticality and opportunity for rapid decarbonisation in the Asia-Pacific region is unique and significant. Many parts of the region are on the front line of climate change and resulting loss of natural capital.
What’s also clear is the preference of the traditional capital system is shifting. Organisations have a lot to gain from how they transform the way they interact with their capital holders.
Done correctly, and with the right partners, businesses can be part of the new capital stack and avoid being isolated in the non-green world. Because that world will get smaller and smaller and the advantages of operating outside it will be larger and larger.
Being able to manage your organisation consistent with the needs of the modern capital system - and also being able to convey that management with the right people in the right way - is going to become a bigger advantage. And there is help at hand.
Achieving the Paris Goals requires capital and companies to invest in ideas that will become the investment propositions or solutions of tomorrow.
As our climate changes, the premium of being able to not just operate in a sustainable way but fund those operations in a sustainable way, is only going to rise – in the Asia Pacific and around the world.
Mark Whelan is Group Executive Institutional at ANZ & Martijn Wilder AM is Co-founding Partner at Pollination
This article was originally published on ANZ’s Institutional Insights website
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
16 Feb 2022
16 Feb 2022