Climate change and global warming are no longer a future concern but rather immediate threats. Extreme heat, drought, temperature shifts and wildfires among others are currently wreaking havoc on people around the world.
According to the 2022 statistics from the World Meteorological Organisation, the period from 2015 to 2021 saw the seven warmest years on record. Also there is a 93% probability that at least one year between 2022 and 2026 will become the hottest on record.
Meanwhile, based on data from the World Bank, 216 million people around the globe are likely to migrate within their own countries by 2050 due to climate change, 49 million of which will be in East Asia and the Pacific. To address climate change, the World Bank Group's Climate Change Action Plan which covers fiscal years 2021-2025 increases climate finance to 35% of its overall commitments on average.
As part of the global efforts to help businesses transition to a low carbon economy, UOB has implemented sustainable finance umbrella frameworks to provide companies with simplified access to green and sustainable financing so that they can build resilient businesses. The frameworks are also aligned with internationally-recognised standards, principles and guidelines, including the Loan Market Association/Asia Pacific Loan Market Association Green Loan Principles and Sustainability Linked Loan Principles.
With its commitment to net zero by 2050 for its financed emissions, UOB has also laid out a comprehensive roadmap for six focus sectors in the energy and built environment ecosystems that are critical to the transition of the economies and industries in Southeast Asia. The Bank's approach is in line with the guidance from the Glasgow Financial Alliance for Net Zero (GFANZ) on how financial institutions should set targets and use sectoral pathways in alignment with the Paris Agreement and the 1.5°C global warming trajectory outlined by the Intergovernmental Panel on Climate Change.
"Based on regional pathways, the targets demonstrate the Bank's strong belief in a just transition that continues to support socioeconomic growth and improve energy access across the diverse economies in the region," said Tan Choon Hin, president and CEO of UOB Thailand.
The world is currently emitting 50 billion tons of CO2 equivalent greenhouse gases each year and requires US$100 trillion of investments for net zero transformation. This can be done through sustainable finance to support businesses in their transition.
"Sustainable finance is about deploying capital to help solve the world's most pressing environmental and social issues. Financial institutions have an essential role to play in addressing sustainability challenges, facilitating the transition to a low carbon economy and in stimulating sustainable development. In identifying and addressing growing environmental challenges and the associated risks, financial institutions can help catalyse business transformations towards a low carbon future," Tan added.
As more countries and companies set targets to achieve net zero carbon emissions, sustainable finance can also help drive the transition, while taking into consideration the need for a just transition that ensures continued socioeconomic growth in the region, given the diverse economic and social needs.
Beyond that, there are other social issues which innovative sustainable finance can help solve, such as increasing access to education and ending poverty.
Thailand has joined the world's bandwagon in transitioning to a low-carbon economy. The country aims to reach carbon neutrality by 2050 and zero greenhouse gas emission (GHG) by 2065. To reach such goals, Thailand has already put in place an enabling policy environment for climate-compatible green infrastructure investment to rapidly scale up, with the promotion of a bio, circular and green (BCG) economic model compatible with green investments.
However, there are certain struggles facing Thailand when it comes to the development and implementation of green finance in the country. First and foremost, the country needs to stimulate underlying demand from financial institutions (and their customers) for sustainable products, and a genuine interest in the different aspects of sustainability.
Meanwhile, support is required from policies and regulatory standpoint (such as carbon tax) so that the reduction of GHG becomes a corporate's priority, and this can be further substantiated with tax exemptions or financial subsidies to support the adoption of green technologies.
Global green financing -- aimed at environmentally friendly projects around the world -- has grown over 100 times in the past decade, according to a Reuters report last year. Global borrowing by issuing green bonds and loans, and equity funding through initial public offerings targeting green projects also swelled to $540.6 billion in 2021 from just $5.2 billion in 2012, according to a research conducted by TheCityUK and BNP Paribas. UOB Group has publically committed to S$30 billion in sustainable finance target by 2025, and reached S$25 billion as of 2022, reflecting the global growth in green financing.
As for Thailand, the trend of green finance is expected to continue growing in the next five to 10 years given the increased urgency of climate action globally, while attention on nature and biodiversity will also continue to grow.
With the continual expansion of green finance in the country, governments and institutions are also expected to prioritise investments in green projects to achieve sustainable and environmental goals while consumers are likely to demand more sustainable options for their investments, loans and banking services. Additionally, advancements in technology and data analytics are likely to create more opportunities for green finance by enabling more accurate measurements and monitoring of environmental performance.
What is green finance?
Sustainable finance, which combines green financing without being detrimental to society, refers to financial products and services that are specifically designed to support environmentally and socially sustainable projects and initiatives.
This can include the financing of renewable energy, energy-efficient buildings and other activities that reduce greenhouse gas emissions, improve resource efficiency, or promote environmental and social sustainability.
How does green finance work?
Green finance can take many forms, including green bonds, sustainable loans and more. The ultimate aim of green finance is to shift capital flows towards low-carbon and sustainable activities, and to promote an economic model that is more resilient, equitable and environmentally responsible.
How can banks and financial institutes help businesses gear towards sustainability and a low-carbon economy?
First, banks and financial institutes can help companies towards their journey to a green transition through their social and environmental risk management in strategic decision-making and financial activities. As banks systematically evaluate these risks in their loan appraisal processes, the requirements and recommendations set out for borrowers will help inform businesses on managing the Environmental, Social and Governance (ESG) risks in areas such as human rights, labour and working conditions, pollution prevention, resource efficiency, community health and safety, as well as biodiversity conservation.
Second, banks and financial institutes can encourage businesses in pivoting and adopting technologies towards a low carbon future by redirecting capital towards green and sustainable activities. This will create further awareness towards the companies' carbon footprint from their business operations.
This article is part of a 20-part series that explores what it takes to create and secure a sustainable future. In collaboration with UOB. You can view the whole series here.
