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Leading the charge towards a net-zero transition

21 Aug 2023

In the race to net zero, banks and financial institutions have a vital role to play to ensure that real impact is made.

To get to net zero in time to meet global climate change targets, emerging markets will need to invest an additional USD94.8 trillion – more than the world’s annual economic output combined – going by Standard Chartered’s research.

In its report titled “Just in Time: Financing a just transition to net zero”, the bank puts forth the case for a “just transition”, one where climate objectives are met without depriving emerging markets of their opportunity to grow and prosper.

“If richer nations do not help finance emerging market transition, either they will not transition at all, or the economic effects of transition will be so harsh that emerging economies will not enjoy the same development richer nations have enjoyed over two centuries, fuelled by carbon,” the report suggested.

Indeed, in the race to net zero, banks and financial institutions have a vital role to play to ensure that real impact is made.

To this end, Standard Chartered has pledged to mobilise USD300 billion in green and transition financing by 2030 guided by its green & sustainable and transition finance frameworks, and is actively working with clients to help them achieve their climate ambitions.

To discuss transformational breakthroughs needed in businesses and how Standard Chartered can support companies in their net-zero transition, the bank hosted a roundtable discussion with its clients from Trina Solar and Baoshan Iron & Steel Co Ltd (Baosteel).

Most recently, Standard Chartered inked a memorandum of understanding (MOU) with Baowu Group, the parent company of Baosteel, to provide transition financial services in line with the group’s dual carbon strategy.

According to Standard Chartered, this marks a milestone agreement as it represents the first MOU the steel giant has signed with a foreign bank. Among other things, Standard Chartered will serve as an ESG rating adviser to the group and provide transition finance.

During the roundtable discussion held in Singapore, Chen Qiang, Managing Director, Baosteel Singapore Pte Ltd, highlighted that attaining carbon neutrality remains top of the firm’s agenda.

“We aim to reach peak carbon emissions this year, with a target to achieve carbon neutrality by 2050,” he said. In addition, the steel conglomerate has set ambitious targets to reduce emissions by 8 per cent in 2025, by 15 per cent in 2030 and by 30 per cent in 2035 (taking 2020 as the base year).

Rapid growth in sustainable finance

Encouragingly, the past few years has seen steady growth in sustainable finance issuances and borrowings both in Asia and globally. Moreover, the market is exhibiting increasing sophistication, evidenced through growing volumes in issuances and lending in various formats not limited to green bonds and loans, Standard Chartered said.

In 2022, over USD1.49 trillion in sustainable debt instruments were issued, with the overall sustainable market volume exceeding USD5.4 trillion, the bank added, citing estimates from Bloomberg. And one firm riding on this momentum is leading photovoltaic (PV) manufacturer Trina Solar. With the support of Standard Chartered as the sole mandated lead arranger, bookrunner and green loan coordinator, Trina Solar secured its inaugural USD250 million syndicated green loan last September.

This marks the world’s first Common Ground Taxonomy (CGT) aligned syndicated transaction, the bank said. The CGT is a comparative study of the green taxonomies of both China and the European Union (EU), first published at COP26 in November 2021.

As Tracy Wong Harris, Head of Sustainable Finance Asia at Standard Chartered explained, while there was subjectivity from international investors looking into the China market previously, having a CGT-aligned agreement is akin to saying that it is recognised by China and the EU. “This shows we have solid credentials on what we call green and aligns with the East and the West…

We believe CGT can promote green finance product innovation, set clearer standards for green financing of Chinese companies and accelerate cross-border capital flows into China’s green finance market.

Tracy Wong Harris
Head of Sustainable Finance Asia, Standard Chartered

Echoing this sentiment, Trina Solar’s Group Chief Financial Officer Wu Sen noted that the path to carbon neutrality will be guided by green technology. “Trina Solar aims to use 100 per cent renewable energy in our operations by 2030 in accordance with the Paris climate agreement. Among other initiatives, we’re committed to working with global partners to develop a net-zero value chain and innovative net-zero products,” he said.

A collective effort

As part of the conversation, the moderator posed a question to Harris on how Standard Chartered’s sustainable finance proposition stands against other banks. On this note, she highlighted that one key differentiator is how the bank is able to leverage its comprehensive product suite to help clients across 59 markets globally.

“Beyond loans and bonds, we cover all the thematics from green, social, sustainability bonds to sustainability-linked to transition. We’re helping Asia clients in the EU carbon compliance market and we also have capabilities in the voluntary carbon market. “With a holistic product suite, we are able to help our clients go beyond just net-zero and transition, (to cover) the governance and social areas as well,” Harris noted.

That said, developing sustainability-linked financing solutions did not come without its challenges. As Freddy Ong, Head of Client Coverage, Singapore, Corporate, Commercial and Institutional Banking at Standard Chartered noted, the bank had to better understand the industry and its positioning before innovation could take place.

ESG (environmental, social and governance) has been on many people’s minds for a long time. I think what has happened over the last few years is a sense of urgency. And because of that urgency, many people need a lot of clarity. Globally we’re trying to figure out where do you want to get to, what can we get to and how do we measure?

Freddy Ong
Head of Client Coverage, Singapore, Corporate, Commercial and Institutional Banking, Standard Chartered

To better support clients in achieving their green targets, Standard Chartered created an ESG advisory team in Singapore last year that could guide clients towards their desired capital structure, said Ong.

In addition, the bank set up a dedicated Transition Acceleration Team to provide clients in carbon-intensive sectors with expertise on how to accelerate their low-carbon transitions, and tools to measure their progress.

According to Ong, the bank is also investing a lot of time and resources towards upskilling employees in a bid to enhance its ability to help clients in their transition journey.

“This is a really big move and we can’t do it on our own. There will be many challenges along the way… (but) we’re all on this journey together,” he concluded.

Source: The Business Times © Singapore Press Holdings Limited. Permission required for reproduction.