Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Welcome to the Business Plan for the Planet podcast, a series centered around ESG insights.
Speaker: In these episodes, you'll hear from experts whose work is at the heart of sustainability linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
Speaker: Join us as we shine a spotlight on their commitment to a sustainable future.
Speaker: Hi there and welcome to our podcast today.
Speaker: My name is Alex Lupus and I'm the Global Co-Head of ESG Sales and Global Head of Global Investor Access for HSBC and I'll be your host for this session.
Speaker: Our guest today is Wai-Shin Chan, Global Head of Climate Change at HSBC.
Speaker: Wai-Shin recently participated in a panel, The Climate Risk and Response in Asia at the FT Climate Capital, the Future of Climate Finance event.
Speaker: Panellists discuss the many physical risks climate change poses in the region.
Speaker: and what Asia does to reduce emissions is of vast importance for the rest of the world.
Speaker: Today, we'd like to delve a bit deeper into the climate risk in Asia and across the globe, particularly in light of the fast approaching COP26 event in Glasgow.
Speaker: Wai Xin, welcome.
Speaker: Thank you for having me, Alex.
Speaker: It's always nice talking to you, especially about climate change.
Speaker: As ever, good to talk to you too.
Speaker: Let's sit the scene a little here, Wai Shin.
Speaker: It's good to be together again.
Speaker: COP26 was delayed a year due to the COVID-19 pandemic, and this is the 26th conference of the parties to the UN Framework Convention on Climate Change.
Speaker: With less than a decade until the 2030 deadline for emissions cuts that will keep global warming below one and a half degrees,
Speaker: What can you tell us about the finer points of the crucial negotiations that will take place at COP26 and around it?
Speaker: Yeah, well, at these climate negotiations, there are always so many moving parts that it's quite hard to keep a track of.
Speaker: We're talking about the mitigation aspect, the adaptation aspect, the financing aspect, lots of different things.
Speaker: What I think
Speaker: we should be looking out for is a spectrum of success.
Speaker: And that will also depend on the perspective that you are holding, whether you are a government, whether you're a business, investors or civil society.
Speaker: Now, long term visibility is crucial as it allows investors and businesses to make decisions that will incorporate a lower carbon or even better, a net zero future.
Speaker: So these stakeholders will be looking for things like clarity, clarity of policy, which means not just the direction, but also the speed of implementation of these climate policies.
Speaker: If I could mention quickly three key discussion points for COP26.
Speaker: The first is on Article 6 of the Paris Agreement.
Speaker: This is about the trading of emissions reductions.
Speaker: either bilaterally between countries or through a global carbon trading mechanism.
Speaker: Something else to look out for would be the fine tuning of climate pledges, those aptly named and nationally determined contributions and their ambition and how that will play out through common timeframes.
Speaker: So how long will climate pledges last and how often should they be revised?
Speaker: the reporting formats that they have, how much details need to be provided so they can be useful but not be burdensome, as well as the inclusion of adaptation, preparing for the consequences of climate change and finance.
Speaker: Finance is always intertwined throughout the climate agenda and may prove to be a sticking point again, because
Speaker: In 2009, the developed world promised the developing world $100 billion per year from 2020, and that hasn't really happened.
Speaker: And this affects things like promises, ambition levels, and cooperation.
Speaker: So lots to be keeping an eye out for, Alex.
Speaker: Yeah, clearly a lot to be negotiated at COP26.
Speaker: And look, it's obviously a very important and crucial time and meeting at this point of where we are.
Speaker: There is some concern about it might not be able to go ahead meaningfully in the wake of the pandemic.
Speaker: What's concerning people?
Speaker: Should we be concerned about it not going ahead or not being resolved?
Speaker: It's already been postponed by a year, so I think it will go ahead.
Speaker: I'd be quite shocked if it didn't.
Speaker: But it is about global fairness and the appropriate balance between developed and the developing world.
Speaker: All the voices need to be heard, different sides of the equation, so to speak, because these issues play out differently.
Speaker: in terms of decarbonisation of the economy, the global economy, the local regional economies, as well as the vulnerability of countries.
Speaker: The solutions in the agreements could be less balanced if not all delegates, as you say, are not able to travel physically, which is often dependent on access to vaccinations.
Speaker: And we're seeing that some lower income countries, they're struggling to get the vaccines rolled out and hence they'll be unable to travel due to various restrictions.
Speaker: A related concern, if I may, is whether world leaders are actually willing to travel.
Speaker: There will be a very large high level delegation from the United States.
Speaker: The president and his cabinet are going.
Speaker: And I think the Australian prime minister recently confirmed he will travel, but it's looking less likely that the heads of China, India, Russia will attend.
Speaker: And that's important because these are some of the largest emitters in the world.
Speaker: So any potential agreement over various issues may be weakened if these large
Speaker: emitting countries are not on board.
Speaker: So there's definitely, I think, cause for concern there.
Speaker: Waisin, you mentioned the developing and the developed nations, and there seems to be some tension between, I don't want to say both sides, but developing and developed nations around the responsibility for climate change on the one side and the opportunity to develop the younger economies on the other.
Speaker: Is this also why finance is often a sticking point in the negotiations?
Speaker: Yes, it is somewhat.
Speaker: I think there is a blurring of the lines here, Alex.
Speaker: Now, developed economies are responsible for the vast majority of historical emissions, but the developing economies are responsible for the majority of current annual emissions.
Speaker: So that's one thing to think about.
Speaker: Now, on the other hand, per capita emissions in the developed world are much higher than in the developing world.
Speaker: So there are many different ways to look at this.
Speaker: Let's just say that climate change is everyone's problem.
Speaker: It's global.
Speaker: However, the impacts from climate change are very uneven.
Speaker: They're very much regional and local, and the developing world is generally more at risk here.
Speaker: developing economies would like to raise their standards of living and grow their economies, which is a perfectly reasonable intention.
Speaker: The question is, how do they do it?
Speaker: Do they do it with older, potentially higher carbon intensive technology or do they do it with newer, modern, lower carbon technologies?
Speaker: If you pull this all together and the issue of finance looms large, the developing world feels it cannot commit to future emissions.
Speaker: and future emission reduction promises whilst improving their standards of living etc unless they have access to these lower carbon technologies and the finance to decarbonize their economies and adapt especially and this is something that's often said if the developed world themselves have not really kept their own historical promises of either emissions reductions or for financial provisions
Speaker: I agree there.
Speaker: And I think your point about it's a collective responsibility is extremely important.
Speaker: While we may be calming at it from different aspects, there is something that unites us all together.
Speaker: But the balance of climate risk is also very different as well, right?
Speaker: And while there's nowhere that really that won't be affected by climate events, it affects us all.
Speaker: As you say, there are definitely regions that are more at risk.
Speaker: If we may take a moment, let's listen to a snippet from the recent FT Climate Panel of you, Robin Harding, Asian editor at the Financial Times, and Sunita Rajakumar.
Speaker: founder of Climate Governance Asia, discussing the risks for the Asian region.
Speaker: I think we all know about the global risk of climate change, but what's different in Asia?
Speaker: And Asia is a very big place.
Speaker: So how does the risks differ within Asia?
Speaker: Weishim, perhaps you would like to go first on that one.
Speaker: Thank you very much, Robin.
Speaker: I mean, the IPCC put out regional fact sheets for each region.
Speaker: I think it's difficult to compare these directly.
Speaker: Asia is probably worse than more developed regions, so Europe, North America, but probably similar to less developed regions, so Africa, Central and Southern.
Speaker: We're expected to see increased intensity and frequency of extreme events, hot extreme precipitation, tropical cyclones.
Speaker: That's very topical in Hong Kong today.
Speaker: However, it's a slow onset events that are not talked about as often.
Speaker: So coastal areas, losses, sea level rises and water viscosity.
Speaker: So there's no escape from these climate risks.
Speaker: They're mostly fixed by your geographic location.
Speaker: So many factors at play.
Speaker: If we look at temperature, the absolute levels as well as the change, we look at water availability per capita, vast diversity in the Asian region, but also it's the access to this water and the ability to capture and store it.
Speaker: Take Singapore, for example.
Speaker: It doesn't have much renewable water.
Speaker: It's very hot.
Speaker: It is one of the smallest shares of agriculture and GDP.
Speaker: However, it's very, very small.
Speaker: It doesn't get hit directly by as many extreme events.
Speaker: And when it does, its excellent infrastructure means it is less sensitive.
Speaker: The risks from other places really come from these slow onset events.
Speaker: The less well-known, the ocean acidification, if you think of aquaculture in Thailand or Vietnam, desertification, biodiversity loss, glacial retreat for all those Asian economies that get their water from glacial melt, salinization and the effect on ecosystem services.
Speaker: This all has major implications.
Speaker: In general, just to finish off, most vulnerable countries tend to have lower resilience
Speaker: the relatively lower income and GDP levels coupled with inadequate resilience of physical infrastructure as well as the systems to deal with it through technology and political governance mean that adaptation is a bigger challenge in some Asian countries than for mitigation.
Speaker: Okay great thank you.
Speaker: Let me come to Sunita now.
Speaker: What about climate risks in Malaysia?
Speaker: Is there anything that you would particularly draw attention to?
Speaker: Yes, thank you, Robin.
Speaker: I'd like to draw attention to the risk.
Speaker: I mean, we understand risk in terms of physical and transition risk, but I'd also like to introduce the audience to new concept of climate governance.
Speaker: And this I view is a big risk, especially in this part of the world, because if according to best practices of corporate governance, the majority of the board comprise independent non-executive directors, and if these directors are not sufficiently climate literate,
Speaker: Then you've got the long-term stewards of the organization, not sufficiently aware of the top financial risks arising from the climate crisis.
Speaker: And this is also the concept of dynamic materiality, that materiality used to be calculated as a percentage of revenue, profits, and net assets
Speaker: But now with dynamic materiality, directors are needing to be much more forward-looking as capital markets and regulators start to pull these risks forward because they want to prevent systemic risks to the capital markets or to the financial system.
Speaker: And it starts off with recognizing and accepting the responsibility of boards and their accountability in managing these climate risks.
Speaker: Wai Shin, Sunita here has drawn the conversation towards climate governance and policy response.
Speaker: What's your view on policy response within Asia and globally?
Speaker: That's a tricky question, Alex, but I do think we have to distinguish between a pledge, a climate pledge, and policy implementation.
Speaker: All Asian economies have some form of climate pledge, whether it's an absolute pledge, relative reduction, intensity based or a combination of these.
Speaker: However, not all Asian economies have net zero or carbon neutrality announcements or pledges only from memory, China, Korea, Singapore, Malaysia,
Speaker: Japan, Indonesia, and now Hong Kong quite recently.
Speaker: However, even fewer of these have told us exactly how they're going to do it.
Speaker: Now consider the European Union.
Speaker: I know how they are planning to implement their climate strategy.
Speaker: There will be all sorts of changes to regulations, the energy infrastructure,
Speaker: the energy efficiency, energy technician, renewable targets, vehicle standards, industry, lots of details there.
Speaker: Getting it through the EU parliament is a different question.
Speaker: However, for most of Asia, however, we don't quite know all the details and how it could even be implemented.
Speaker: So this takes us back to the question of clarity.
Speaker: And I think this is a bit of a problem for Asia.
Speaker: especially as we account for more than half of global carbon emissions.
Speaker: Now, in terms of climate governance, financial regulators should have the visibility of how the financial system will cope with a changing climate in the future.
Speaker: It's not just shocks, but some of the slow onset changes that are happening from climate change, sea level rises,
Speaker: ocean acidification, desertification, et cetera.
Speaker: And I believe regulators should work to enhance climate transparency, for example, by requiring more disclosure of climate issues by businesses.
Speaker: And many Asian markets do not have climate disclosure requirements in place, something that we're hoping to see in the future.
Speaker: I think it's a good point you make about the clarity of policy, Yixin.
Speaker: I think we're moving on from pledges to execution, and I think that's what's going to be critically important moving forward.
Speaker: Also within the panel, there was also a question of carbon taxes as a way to reach climate goals.
Speaker: Do you think this could be an effective policy response?
Speaker: Yes, carbon taxes and carbon pricing.
Speaker: Carbon pricing is a means to put
Speaker: a price on the externalities of climate change that refers to asset damage, health impacts, crop yields, et cetera.
Speaker: These have long-term implications for societal and economic development.
Speaker: So what is carbon pricing?
Speaker: Well, I mean, both taxes as well as cap and trade or emissions trading
Speaker: schemes, they're designed to nudge behavior, so to speak.
Speaker: So we're using the markets to direct capital and innovation towards lower carbon activities simply because higher carbon activities are then more expensive.
Speaker: The design of these pricing schemes, tax or ETS, is the most challenging part, however.
Speaker: For taxes, you don't really lower emissions, you just make them more expensive.
Speaker: However, in a pandemic situation or coming out of a pandemic situation, it may not be the best time to legislate for more additional taxes.
Speaker: For trading schemes, you have to be very bold.
Speaker: Putting that cap on emissions, lowering that cap over time, and not giving too many allowances away for free so that participants
Speaker: are encouraged and incentivized, forced even to lower their emissions.
Speaker: Eventually, a complete change in process or a strategy or a business model may be required if further efficiencies cannot be extracted.
Speaker: So I think carbon pricing in general is a good idea, but it has to be implemented very, very well.
Speaker: I think also to further that, that might be taxing.
Speaker: different perhaps developing economies that we actually want to incentivise further.
Speaker: That is correct.
Speaker: So it needs to be implemented in a staged way that is appropriate to the local economy and the societal development.
Speaker: And what about the financial sector?
Speaker: What's its role in all of this?
Speaker: The financial sector has a big role to play.
Speaker: There are probably two sides to this one.
Speaker: Being aware of how climate change can affect a financial system is important, but also how the financial system itself can have an impact and affect climate change.
Speaker: So reporting and disclosure we mentioned earlier is important as that raises awareness by making the effects and the impacts of climate change more transparent across the whole
Speaker: financial system.
Speaker: Financial institutions themselves also play two parts really, being adequately prepared themselves, so internally, so to speak, to make sure they are aware of the overall risk exposure over various time horizons, etc.
Speaker: But also externally in the business that they do, such that their ability to support customers and clients is not at risk.
Speaker: and that is the climate stress testing aspect that many central banks are asking financial institutions to do.
Speaker: This external role is one of advising, one of financing the transition towards a lower carbon economy.
Speaker: Classically, this could be done through helping businesses raise capital in a more sustainable manner.
Speaker: So green bonds, green loans, sustainable bonds, and a whole suite of other financial instruments that look to signal the transition towards a lower carbon future.
Speaker: but also through, and I have to mention this, the appropriate financing of resilience.
Speaker: That's going back to adaptation.
Speaker: This is not something that comes really easily because private capital has tended not to focus on adaptation in the past because the returns are potentially less visible than they might be from mitigation projects.
Speaker: So definitely focusing on adaptation as well.
Speaker: Wai Xun, thank you so much for your time today and your insights into the world's response to the climate crisis.
Speaker: I think one thing, if I can end on a potentially positive note, and one thing that's particularly changed since 2019 and reinforced in the IPCC report is that there is some consensus around the effects and evidence of climate change today.
Speaker: These impacts have become all too obvious, such as extreme weather events in the lead up to COP26,
Speaker: which makes it much more important than ever and creates a clear sense of urgency today, which really none of us can ignore.
Speaker: I think collectively we all own this and we'll all be looking keenly for the three things that you mentioned around Article 6, the climate pledges and the financial obligations that come out of this.
Speaker: Really appreciate your time and your insights, Wyshyn.
Speaker: Thanks for having me, as always, Alex.
Speaker: You mentioned collectively we're all responsible.
Speaker: I'm often asked what can we do as individuals?
Speaker: My answer is always make small but conscious choices in our everyday lives.
Speaker: The food we eat, the transport we take, the things that we buy, these little decisions add up collectively, as you say, to change supply-demand dynamics, and that can nudge businesses to respond more appropriately and more ambitiously to climate change.
Speaker: Thanks a lot, Alex.
Speaker: Great point to end on.
Speaker: Thanks very much, Wai-Shin.
Speaker: This has been a special podcast in the Business Plan for the Planet series.
Speaker: More episodes will follow shortly, so please do keep an eye out for those.
Speaker: For more information on the program, visit business.hsbc.com forward slash sustainability.
Speaker: Thank you for listening today.
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