The World Wide Fund for Nature (WWF) plays a pivotal role in promoting sustainable practices within financial systems, making it a critical participant in the sustainable finance value proposition.
FinanceAsia recently caught up with Vivek Kumar, CEO of WWF Singapore to discuss how public market participants can advance sustainable finance, what central banks, and development finance institutions need to do more, considerations for green bonds, and more.
FA: How is WWF collaborating with public market participants to advance sustainable finance, and what specific strategies or initiatives are being employed to drive this collaboration?
Kumar (pictured above): Globally, WWF works on ‘financing green’ – increasing investment in sustainable development; and ‘greening finance’ – improving the integration of environmental risks and opportunities into financial decision-making.
In Singapore, we collaborate with banks, investors, regulators, and stock exchanges to advance sustainable finance. Our initiatives like the Sustainable Banking Assessment, Respond Framework for Asset Managers, Development Finance Institution report, and capacity building through the Asian Sustainable Finance Initiative are examples of how we actively engage with and enable stakeholders in this space.
WWF also serves as a neutral convenor, bringing together industry stakeholders to address sustainability. For instance, the WWF Earth Hour Summit gathers 500 C-suite leaders to discuss sustainable finance openly. At the upcoming 2024 Summit on April 19, a keynote panel featuring HSBC, the Monetary Authority of Singapore (MAS), and the International Finance Corporation, moderated by WWF, will examine the evolving landscape of transition finance in Asia.
FA: What steps are public market participants should taking to enhance their engagement with the sustainable finance ecosystem?
Kumar: Our recent sustainable banking assessment showed a notable increase, with 39% of banks in 2022 committing to achieving net-zero financed emissions by 2050, up from 15% in 2021. WWF, a founding partner of the Science Based Targets initiative, urges more banks to adopt similar commitments.
Banks must develop the capability to identify material nature-related risks at a client asset level and integrate nature-related transition plans into their overall sustainability strategy.
Our 2022 assessment revealed that while banks are recognising nature-related risks, this is not consistently reflected in client expectations and policies.
It's crucial for all banks to rapidly advance the help in achieving the 1.5°C goal. Our findings show that in 2022, over half of the assessed banks made minimal progress since 2021, lacking basic environmental and social policies and procedures. This widening gap between leading and lagging banks exposes the latter to disproportionate environmental and social risks.
FA: Development finance institutions (DFIs), government backed institutions that invest in low and middle income countries, are an important part of the transition finance ecosystem too. WWF assesses these DFIs. Talk us through this.
Kumar: WWF has been assessing DFIs' efforts in Asia to integrate environmental and social considerations into their energy-related decision-making since 2021. As providers and facilitators of direct and indirect financing, DFIs can play a pivotal role in supporting energy transition.
Our findings show that:
- DFIs with multiple government owners outperformed those with partial private sector ownership across key indicators.
- Credit ratings significantly impact performance, with highly rated DFIs excelling due to better financial management and governance.
- While some DFIs restrict coal financing, more can take steps to phase out coal activities and limit financial products related to oil and gas.
- Many DFIs overlook sustainable material sourcing in supply chains, missing the opportunity to support renewable energy.
- Few DFIs disclose clients' comprehensive greenhouse gas (GHG) emissions and implement credible frameworks to assist clients with Paris alignment.
- None require clients to commit to science-based emissions targets, Task Force on Climate-related Financial Disclosures (TCFD) reporting, and transition planning for fossil fuel asset decommissioning.
- None require clients to commit to science-based emissions targets, TCFD reporting, and transition planning for fossil fuel asset decommissioning.
- While most DFIs have climate strategies, only a few have specific energy sector policies.
- Broader adoption of climate risk screening, alternatives analysis, and carbon shadow pricing in due diligence is needed to enhance decision-making.
- Senior management needs to take a more proactive role in managing climate change risks and opportunities, particularly in the energy sector.
FA: Tell us what DFIs can do to make a bigger sustainability impact.
Kumar: To expedite the energy transition, WWF recommends that DFIs take the following actions:
- Cease all financing for coal, oil, and gas projects.
- Strengthen and expand commitments to sustainable finance initiatives and realign their mandate and mission with clean energy objectives.
- Promote investments in energy-related sectors, particularly in middle-income countries where mitigation efforts are most urgent.
- Adopt and implement robust energy sector policies and risk management procedures.
- Strengthen governance structures, improve training programmes, and integrate sustainability criteria into the staff appraisal process.
- Increase support for clean energy projects while reducing investments in fossil fuel-related ventures.
- Develop more risk-reduction instruments to lower the cost of capital and increase investment in renewable projects in developing countries.
- Foster broader stakeholder collaborations to share best practices and raise public awareness about the benefits of clean energy.
FA: Recent reports by the WWF suggest that central banks and financial supervisors are failing to integrate environmental risk. What needs to be done by them? Where are the gaps?
Kumar: Regulators are uniquely positioned to raise the bar and level the playing field, by aligning and enhancing ESG risk management requirements throughout the region. They can further help banks by providing strong micro-prudential supervision such as expectations for banks to integrate environmental and social considerations into their overall business strategy and governance.
In addition, we need to create sector-specific policies and processes for banks, and analyse banks’ portfolio-level exposure to risks.
Other areas include actively supporting initiatives to address environmental and social data gaps; supporting capacity-building efforts for the financial industry; and enabling the existence of multi-stakeholder initiatives, taxonomies, or carbon pricing mechanisms
FA: Singapore is focusing on the phase-out of coal and energy transition to renewable energy. How is WWF working in this area?
Kumar: To meet the rising energy demand, the Asean region has relied on fossil fuels. In 2020, fossil fuels accounted for 79% of Asean’s electricity generation, with coal accounting for 44%.
WWF is working on its Repowering Asia initiative, collaborating with financial institutions and corporations to facilitate the phase-out of coal and promote renewable energy by phasing out finance for new coal projects and supporting mechanisms for phase-out like TRACTION by MAS. The Asean Taxonomy for Sustainable Finance guides capital toward low-carbon development, supporting the transition away from coal in Asia.
FA: For green bonds, what considerations should market participants focus on?
Kumar: Environmental bonds, 'green bonds' or 'ESG bonds,' raise debt to invest in companies or projects that offer environmental advantages.
Whether debt capital markets labeled as green eventually play their part in becoming zero carbon and nature-positive, depends on those who control transactions, including market practitioners, financial regulators, supervisors, and central banks.
What counts is that issuers of green bonds, underwriters, and investors shift away from environmentally harmful debt capital instruments and move into green debt instruments that fulfill the criteria of best-practice green bonds.
