FINANCING the energy transition to a low-carbon, nature-positive economy will require companies to do more than demonstrate their environmental credentials.
In a panel discussion titled “Financing the Transition to a Low Carbon and Nature-Positive Future” at the Asia ESG Summit organised by Star Media Group, panellists examined how businesses can turn sustainability ambitions into credible, investable and bankable propositions.
According to City Developments Limited (CDL) chief sustainability officer Esther An, the key to unlocking the potential of green finance is to speak the language of financiers and investors – one centred on profitability, risk management and long-term value creation.
“When you talk about business, investors will always look at the bottom line.
“If you want to prove that sustainability is not a cost, you have to find a way to show that ESG performance is bankable, investable and brings returns to the business with quantifiable data.”
She said chief sustainability officers must show investors and bankers how past ESG performance, current risks and future targets translate into measurable financial value.
She said that building a business case for sustainability is particularly important. At CDL, this means seeking sustainable solutions that also create value for its developments.
She pointed to the company’s EcoTrain, which provides an educational experience for children while drawing families to the adjoining shopping mall. The concept demonstrates how a sustainability-
focused initiative can create value beyond its immediate environmental purpose, she added.
The need for financial discipline is equally important from the investor’s perspective.
As Permodalan Nasional Bhd (PNB) corporate sustainability and stewardship head Muazzam Mohamad noted, sustainable investing and transition finance should not be viewed as a compromise on financial returns.
“One common misconception of pursuing sustainable investment is that you need to compromise on financial discipline.
“It is important that sustainable investment is married with strong financial discipline, with clarity given to investors or bankers on how to make projects bankable,” he said.
This means evaluating sustainability alongside conventional investment considerations rather than treating ESG as a separate exercise, he added.
Muazzam emphasised that sustainability cannot be left to one team, stressing the importance of involving people across the organisation from the outset.
Ultimately, the bankability and investability of green projects must be assessed holistically, as with any investment proposal. “On one hand, you have your net-zero targets and low-carbon solutions. On top of that, we also look at the governance and social aspects as well, particularly because there’s always risk in mismanaging a company or a project,” he said.
A project may be environmentally conscious, but poor treatment of workers or inadequate accommodation, for example, can create equally significant risks for the company, he added.
Reporting responsibility
Implementing environmental projects is only one part of the equation. Companies also need robust reporting and measurement to track progress and identify gaps and opportunities.
CDL’s An said credible reporting is increasingly important when companies seek sustainable finance, as investors and bankers want to see evidence of performance as well as a clear strategy for improvement.
“Without tracking and reporting, you don’t know what your strengths are and where you can really take action,” she said.
However, reporting data alone is not enough. She stressed that a sustainability report that simply records water usage, waste, energy consumption and carbon emissions without linking them to a broader strategy or forward-looking solutions is unlikely to make a strong impression on investors.
She stressed that there is no single ESG indicator that can determine a company’s access to investment or financing. Instead, investors are likely to consider a company that boasts a quality reporting system and sustainability that is supported by a strong governance structure.
The key obstacle, however, lies in tracking progress, as organisations are still grappling with how to measure and quantify non-financial impacts.
An said companies seeking financing may therefore need to take greater ownership of the process, developing credible ways to quantify areas that have traditionally been difficult to measure.
From the perspective of an asset manager, PNB’s Muazzam said a strong ESG track record can also strengthen a company’s overall investment proposition.
Ultimately, ESG does not replace conventional investment analysis, but adds another layer to it. “It’s the same as any other investment proposal; it’s just that you are overlaying it with additional sustainability layers,” he said.
Innovation driving investment
Attracting greater investor interest in sustainable finance will also depend on the ability to identify new opportunities for innovation, from solar and carbon capture projects to solutions that help businesses adapt to a changing climate.
For Muazzam, some of the most significant opportunities may lie beyond traditional climate mitigation, with greater potential emerging in climate adaptation and resilience projects.
As extreme weather, heat stress, water stress and flood risks intensify, businesses will increasingly need to invest in protecting their assets and operations from physical climate risks.
That long-term perspective is increasingly important as climate risks can erode asset values and leave companies with stranded assets that become difficult or impossible to finance or sell, Muazzam said.
The need for adaptation is also driving innovation within existing industries. He cited the example of a plantation company that is responding to changing weather patterns by investing in research and development for more resilient seeds, while exploring more efficient irrigation methods to ensure crops have sufficient water during periods of extreme weather.
Muazzam added that beyond adaptation projects, more companies are adopting green procurement policies, which means that suppliers must now think of innovative ways to sell their products.
For businesses, he said, the cost of inaction is becoming another factor in the investment equation.
He noted that the economics of climate action are changing, with the potential cost of inaction increasingly outweighing the upfront investment required to build resilience.
Echoed this view, An said: “Every action or inaction has a cost to it. There’s an impact to the planet, people and profit.”
