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6: Conversations on Climate Governance: Climate change and accessing the capital markets


In this final series of Conversations on Climate Governance by ACGN-SFIA, the panelists discussed Climate Change and Accessing the Capital Markets: How climate considerations impact the capital markets and funding availability.


The panelists of the webinar were:


1. Dato’ Seri Ahmad Johan Mohammad Raslan – Council Member of Climate Governance Malaysia (Host)

2. Mr Eugene Wong, CEO, Sustainable Finance Institute Asia (Moderator)

3. DG Dzung Vu Chi, Director General, State Securities Commission Vietnam

4. Dr Man Juttijudora, Deputy Secretary General Investment, Strategy and External Fund Management Group, Government Pension Fund, Thailand

5. Ms Jamjun Siriganjanavong, Senior Director and Head of Debt Capital Markets from Krungsri Bank Thailand


The discussion started with a snippet from Dato’ Johan of the current scenario on how climate change sustainability has affected the financial sector including capital markets. Companies are now facing difficulty to access funding, especially in the capital markets because regulators and all stakeholders are increasingly aware of climate governance issues and are putting pressure on the allocators of finance. Thus, companies must step up, embrace and ensure their narratives are aligned with the direction of the government and regulators.


Eugene Wong started by briefing the participants on the importance and scope of the discussion. Climate change is a very big and important agenda. There is a lot of evidence of the real consequences of climate change i.e the flooding, changing coastlines, and drought and there is a lot more to come. And because this climate agenda is a global agenda and it’s affecting all businesses in many different ways. It has a big impact on whether businesses will be around in the future, who will be their customers and how they are going to be funded. That is important as funding is the lifeblood of businesses. Providers of the capital market are taking climate change extremely seriously because they are concerned about the risk to their investments as well as their pledges as regulators to help drive the climate change agenda. Thus, companies can expect new regulatory approaches and frameworks to be introduced.


As investors are now changing their approaches and risk appetite, capital markets intermediaries need to help issuers and investors navigate this new landscape. Thus, this webinar brought in 3 very experienced penalists to share their views and experience on how climate change will affect access to funding through the capital markets from different perspectives on three main focus areas as follows:


1. Regulators: What impact will the new regulatory approaches and frameworks have on capital market participants

2. Investment banker: How trends are changing and how this affect issuers

3. Investor: What investors are looking for and why


Discussion topic 1: What are the capital markets regulators been doing in ASEAN about the climate change agenda?


In ASEAN there is ASEAN Capital Markets Forum (ACMF) is a high-level grouping of capital market regulators from all 10 ASEAN jurisdictions, namely Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Established in 2004 under the auspices of the ASEAN Finance Ministers, the primary responsibility of the ACMF is to develop a deep, liquid and integrated regional capital market.


Recognising the differing levels of development of member states, ACMF adopts a pragmatic approach in implementing its capital market initiatives whereby member countries opt-in to join the initiatives based on their market readiness.

The ACMF meets twice a year and is currently chaired by the Securities and Exchange Regulator of Cambodia.


To guide ACMF as it embarks on the next phase of the integration agenda post-2015, the ACMF Vision 2025 of being an inter-connected, inclusive and resilient ASEAN capital market was coined.


The ACMF Vision 2025 is to support the AEC Vision 2025 for the ASEAN Economic Community to be “highly integrated and cohesive; competitive, innovative and dynamic; with enhanced connectivity and sectoral cooperation; and a more resilient, inclusive, and people-oriented, people-centred community, integrated with the global economy”.


ACMF Vision 2025 will be realised in 2 phases over 10 years to enable a more targeted approach whilst retaining flexibility to re-evaluate ACMF’s priorities against prevailing market conditions.


Amongst the initiatives done by ACMF to support sustainable finance are:


1. The ASEAN Corporate Governance Scorecard

The ASEAN Corporate Governance (CG) Initiative was introduced in 2011 to raise CG standards and practices of ASEAN public-listed companies (PLCs) and to give greater international visibility to well-governed ASEAN companies. This is the first initiative by ACMF to facilitate ASEAN Capital Markets in tapping green finance to support sustainable regional growth to meet investor needs for green investment by studying and observing the International Market Association (IMA) green bond standards and principles to ensure ASEAN green bond standards are aligned with the international green standards and best practices.


2. Roadmap for ASEAN Sustainable Capital Markets

Member countries of ASEAN have made significant commitments to foster sustainable development in the region and mitigate the social and environmental risks linked to climate change. In line with these commitments, the ACMF has agreed to prioritise the development of an open and vibrant ASEAN capital markets ecosystem that facilitates and mobilizes private sector capital for the financing of sustainable projects.


To help realize this goal, ACMF has developed the Roadmap for ASEAN Sustainable Capital Markets (Roadmap) comprising actionable recommendations to provide strategic direction and guide ACMF and its members in developing action plans and initiatives across the region, building on its recent efforts in the sustainability sphere. The Roadmap was developed through engagements with key stakeholders in ASEAN and beyond; analyses and comparison of relevant international, national, and regional roadmaps, as well as a review of publications and best practices from various industry groups and capital market participants.


It was endorsed by ASEAN Finance Ministers and Central Bank Governors in April 2019. This roadmap will promote a common vision and comprehensive direction toward an ecosystem for sustainable capital market development as well as ASEAN Asset Class for sustainable investment.


3. ASEAN SDG Bond Toolkit

The “ASEAN SDG Bond Toolkit: A Practical Guide to Issuing SDG bonds in ASEAN” aims to be a primer for the issuance of SDG bonds in ASEAN. The toolkit sets out preliminary guidance on the key principles and processes that issuers can adhere to when issuing an SDG bond. These principles and processes are based on the best available international practices and experiences of successful examples of SDG bond issuances from ASEAN and other regions, as well as the needs of investors.


The ACMF, through the Asian Development Bank, commissioned the development of an ASEAN SDG bond toolkit as key market education and capacity-building resource. The toolkit is part of a wider effort of the ACMF to expand the knowledge and understanding of ASEAN market participants about how to issue sustainable finance-themed bonds.


4. ASEAN Taxonomy for Sustainable Finance (ASEAN Taxonomy)

The ASEAN Taxonomy for Sustainable Finance (ASEAN Taxonomy) is a collaborative initiative of the four ASEAN sectoral bodies that make up the ASEAN Taxonomy Board (ATB), namely the ASEAN Capital Markets Forum (ACMF), the ASEAN Insurance Regulators Meeting (AIRM), the ASEAN Senior Level Committee on Financial Integration (SLC), and the ASEAN Working Committee on Capital Market Development (WC-CMD).


The ASEAN Taxonomy represents the collective commitment of ASEAN Member States (AMS) to transitioning toward a sustainable region. It is designed to be an inclusive and credible classification system for sustainable activities and will be one of the key building blocks in attracting investments and financial flows into sustainable projects in the region.

The first version of ASEAN Taxonomy was launched in November 2021 in conjunction with COP 26. The members are currently refining the 1st version of the taxonomy based on the feedback received and are currently working on developing the threshold for the identified focus sectors for the 2nd version.


These initiatives are evidence that the capital markets regulators have been taking the lead and providing frameworks to support sustainability finance in ASEAN which will benefit both issuers and investors. The guidance will provide clarity and certainty. Addressing the key areas by not just looking at proceeds of financing but can also be used towards something that is green means facilitators are also looking at how to build an extremely important transition pathway. About the ASEAN Green Bond Standards, the ASEAN Sustainability Bond Standards, Asset Class and Social Bond Standards – To date, these standards which were issued at the end of 2017 and 2018 have been used to raise 26 billion USD in label bonds and then further 3 billion USD in specifically aligned bond. That is almost 30 billion USD of fundraising done using these standards.


On the ESG experience in Thailand, the Thai government has put in place many actions to prevent the acceleration of climate change and strongly supports the transition to a low-carbon economy. Some of the actions by Thailand include:


1. The Joint Statement Sustainable Finance Initiatives in August 2021.

In this joint statement, five key regulators in financial sectors including the Ministry of Finance, the Bank of Thailand, the Thai SEC, the Office of Insurance Commission and the Stock Exchange of Thailand have joint forces to set the direction and framework to drive sustainable finance across Thai financial sectors.


2. Announcement of Carbon Neutrality and the Zero Target by Thai Prime Minister during COP 26.


3. In November 2022, Thailand will be the host of the APEC Informal Senior Officials Meeting (ISOM). Sustainable Finance topic becomes one of the important agenda.


4. Announcement from Bank of Thailand that issued the Directional Paper on transitioning towards environmental sustainability under the new Thai financial landscape.


In August 2022, the members of the Thai Bank Association including Krungsi Bank pledge their intention to drive for a better and greener economy. Members of the Thai Bank Association realised the urgency of the bank’s involvement to help address the climate change action and their role in supporting Thailand’s National Sustainability commitment.

As for the capital market, there are collaborations across linear regulators in the Thai financial industry.


1. The Thai Ministry of Finance issued the first 15-year Sustainability Bond in August 2020.

The issue was timely to support the Covid-19 Relief Program under the Social Eligible Project and Clean Transportation for Thailand infrastructure. Today the outstanding of this benchmark transaction already exceeds 200 billion Thai Baht or almost 6 billion USD. The Sustainability Bond from the Kingdom of Thailand is also listed on the Luxembourg Exchange for the ESG Clearing Symbolic.


2. The Joint Statement on Sustainable Finance Initiative for Thailand where five key regulators in the financial sectors of Thailand have joint forces to set the direction and framework to drive sustainable finance across Thai financial sectors.


3. 43 leading financial organizations in Thailand including commercial banks, life insurance, asset management companies and policymakers signed the statement of commitment to Sustainable Thailand. This reaffirmed Thailand’s commitment to the achievements of the United Nations Sustainable Development Goals.


On the Global Development of Sustainable Finance, the Sustainable Finance market was growing rapidly with active green loans or bonds due to the increase in ESG awareness. Sustainable Finance extends far beyond the typical green bond that will introduce at the early stage and the market has expanded into other sustainable finance product categories including Social Bond, Sustainability Bond and recently the sustainability link type bond. The Covid-19 pandemic has been the key driver for the increase of Social and Sustainability Bonds issues volume to support the need for sustainable economic recovery.


On the development of ESG Bond in Thailand, the forecast for the Thailand ESG Bond market has experienced strong growth over the past 3-4 years. The ESG issuance by sovereign and commercial banks paved the way for other leading types of corporate and in 2021 the ESG issuance volume rational record high at 173.8 billion or about 5 billion USD and in July 2022 released of Thai Baht 98 billion or almost 2.8 billion USD.


Last week, The Thai Exim (The Export & Import Bank of Thailand) and Bangkok Expressway and Metro issued in total the additional Thai Baht 10 billion or almost 300 million USD. So in 2022, Thailand has reached 100 billion issuances in total. However, if compare the ESG new issuance as a percentage of total new bond issuance each year in the Thai market, the percentage is still less than one per cent. Thus, it will be a golden opportunity for ESG Bond in the Thai Bond Market given the increasing awareness of the people as well as the collaborative effort between regulators and leading corporates in Thailand who strive together for a greener economy.


In terms of Sustainable Finance products, Thailand has caught up with global trends quickly and have almost all kinds of sustainable finance product category from the Green Loan, Green Bond, Social Bond, and Sustainability Bond. Last year in May, the Thai SEC announced the sustainability link for regulation with the Thai Union as the first issue issuer under the new regulation for Sustainability Bond. It is good for the company that does not have specific green or social underlying projects and the proceeds can be used for general corporate purposes.


The bond characteristic will be linked to the achievements of the pre-defined sustainable performance target with the corresponding adjustment of coupon in bond characteristics whether they achieve or do not achieve the target that they’ve set.


Krungsri Bank has so far three issues that issue Sustainability Bond in Thailand. For the new Transition Bond to support the company that is in the heavy or bioindustry that wants to be greener, is still under development and discussion with the local regulators.


The Thai Union’s Sustainability-Linked Loans and Bonds is the first-ever Sustainability-linked Bond (SLB) issued in Thailand. It is the only Asian Corporate that has issued both Sustainability-linked loans and bonds in the local and international markets in 2021 totalling THB 27 billion or almost 1 billion USD refinancing in the sustainable finance area.


With regards to SLB case studies in Thailand, there are three main issuers which are Thai Union, Indorama and BTS. Each issuer has its own respective KPIs. Some of the benefits for companies to have Sustainable Finance in their business includes helping to create their company’s positive corporate profile, the focus on UN SDGs alignment broadening the company’s strategic corporate direction for management to implement and create a positive impact as well as helping with internal staff empowerment by creating a culture that focuses on sustainability and environment. On the financial benefits, companies that have a strong commitment to ESG Finance can attract the attention of investors and lenders.


On the standards or guidelines for ESG Finance Products that green citizens can use as a reference; they can refer to International Capital Market Association (ICMA) or ASEAN Capital Market Association (ACMF) for the bond transaction and Asia Pacific Loan Market Association (APLMA) or Loan Market Association (LMA) for the loan transaction. These standards and guidelines provide details of best practices for the specific use of proceeds, project evaluation and reporting. Although the guideline mentioned the requirements will be voluntarily but investors in the ESG environment would require and consider as a need for them to make an investment decision.


To assist its client in the sustainability journey, Krungsi Bank developed a step diagram on how companies can be part of Sustainable Finance (The diagram is available in the slides)


Discussion Topic 2: How do you see the capital markets evolving against the backdrop of climate change?


The climate change agenda is not the only factor that changes the shape of capital markets but the capital markets are also shaping the climate change agenda as well. From the perspective of an investor like the Government Pension Fund (GPF), investors have an investment process where they integrate the financial factors and ESG factors into analysis before they invest. Currently, there is a shift in the bond market. In social bond and sustainability bond. GPF for example invested in Covid-19 and green transportation-related bonds. For sustainability link bonds, GPF invested in the Thai Union with KPIs attached to it. GPF also invested in Green Bonds in other ASEAN countries and will continue to invest in ESG-related bonds.


As for the regulators, climate change and anything towards sustainability are shaping the capital markets and from a retail point of view, something must be done in response to this. Along with the traditional market, all parties have to adapt to new things with climate change in capital markets. This requires change from investors and issuers. Facilitators also need to study and possibly change the rules to adapt to the new development.


Discussion Topic 3: What are the regulators’ most important roles today? Is a regulator a driver or a facilitator?


DG Dzung believes that the regulator plays a role as a facilitator.


In Ms Jamjun’s point of view, the regulator not just be the facilitator, they are the key driver that has been shaping the revolution of the Thai capital market. Not just the regulator but key investor like GPF also wants to see the positive impact and higher commitment to climate action by the corporate and financial institution. The local regulator also increased the ESG Disclosure as well on the regulatory fund. For example, the Stock Exchange of Thailand requires ESG Disclosure as part of the Annual Report. In the Debt Capital Market, the Thai SEC also grant the referral of SEC Filling for any new ESG Bond Issuance and on the Issuer side, the company that has early adoption of ESG in their corporate strategy seems to enjoy and get good support from both investor and lender.


For bankers, they have to be up to date in terms of ESG Regulatory Framework both locally and internationally. Bankers need to learn and become sustainability finance experts to help the Issuer. Information can be obtained from counterparts or visit IGMA, CBI and ABD websites to get the listed ESG information on how other markets have developed sustainable finance. There are a variety of sustainable finance products that underline the company’s ESG commitment from the green bond that was launched in Thailand in 2018 to the sustainability link Bond in 2021. Sharing sessions with corporate and investors to ensure they understand the best practices and part of the ESG development in the Thai market is important and all are welcome to be involved in this ESG journey.


Discussion Topic 4: If a corporate is not aligning itself to the climate change agenda, it can be excluded from the supply chains? Do you think that using sustainable finance can help bolster a company’s credibility and sustainability? How can intermediaries help their customers/clients use sustainable finance to bolster the company’s credibility?


Sustainable finance does help support the company to raise its bar and the company’s credibility in the long run. To take part in the sustainability journey, the company require good disclosure and this will benefit the stakeholders who are interested to understand the sustainability development, credibility, and transparency that align with UN SDG which will give a good framework for the sustainable purpose and the objective of the company.


Lenders can help companies by sharing guidelines and best practices. Help the company to have clear goals on what it wants to achieve in the short and long term. A Series of sharing sessions and one-on-one meetings conducted will allow the issuer to share their ESG study and strategy with investors before making any investment decision. Data is the key ingredient to the right ESG investment decision. Therefore, investors need a full set of ESG information. The successful sustainable finance issue normally regained good attraction from the public, as well as the regulator, who have recognised the extra effort of those who took part in sustainable finance need to be put in place. For the Thai Bond Market Association, where Thai Bond might want to be listed on this type of BMA, they also set up another award category on their sustainability bond award and as the lender, Krungsri Bank helps the issuer to pitch for the award to gain market recognition.


Discussion Topic 5: There is a big debate going on that fund managers should be focusing on maximizing returns for their investors and not promoting green/sustainability agenda. What is your view on this?


A pension fund is a long-term investor, it is a universal owner as they invest in many types of asset classes around the world and also do a cross-generation investor. GPF used to have a single objective of maximizing return for the portfolio but moving forward GPF put an objective in their investment policy statement to optimum return. It is good when compared to the risk. It is a balance between financial return and ESG. There is integration process equity. Financial scoring is important at around 65% and ESG is about 35% but it is different among industries. i.e banking and finance are more focused on governance while energy companies focus on the environment. For equity financial and ESG, they are a win-win situation because a good company, a good ESG security going to give a higher return so it is but for bonds. If we want to have a portfolio on ESG bonds, we should create a fair benchmark, so ESG focused on corporate bonds is going to be increased a lot in future.


Discussion Topic 6: What do you think is the most important thing for regulators today to bring the investors and the issuers closer together?


Regulators are facilitators for the green agenda and most importantly the role of the regulators today is to set up a standardised level playing field for all market participants. The standards must be transparent and credible. The ultimate beneficiaries are the environment and the public. We have funds management companies that are a responsible investment and market intermediaries but a level playing field for all market participants with standards, transparency and credibility is the most important for the green agenda.


Discussion topic 7: What is the biggest motivation for access to financing? It is because it helps provide companies with the guide rails for discipline for their ESG agenda what about the challenges the issuers faced and how they have been overcoming them?c


The biggest motivation is the ESG megatrend and the ESG culture. There is an increasing number of stakeholders that talking about ESG that wants the corporate and financial institution to take climate action responsibility. ESG is no longer a choice, especially for companies that have a global presence or doing business overseas. Companies that are not in it may lose their competitiveness with their competitor.


Obstacles in the supply chain also pushed the importance of ESG and companies who are exporting must have an ESG development plan.


The challenges faced by issuers in helping the companies going through sustainability is that many corporates do not know how to start and see this as CSR activities which are not. Thus issuer must guide the companies and share a case study, bringing the expert from MUFG or ADB to provide advice on how other companies in the same industry do it. However, the process may take time for the company to take part in the ESG journey.

Another challenge is requirements and cost. As it is costly, most companies are reluctant to take the initiative. Thus, approval and participation from senior management are crucial for companies to incorporate ESG into their corporate strategy.


To overcome these challenges, all parties need to embrace ESG Culture in the organisation and all to be involved in the process and get good recognition.


Closing the gap between local and international standards is another way to overcome these challenges. Issuer to find the right ESG advisor or verified ESG partner who is willing to take and understand their business and Thai industry landscape.


Discussion topic 8: Climate change is relatively new to everyone, how can issuers and intermediaries make it easier for investors, is there something they can do to help investors make decisions faster and better?


The first thing issuer should do is to declare their policy statement, what is their plan and if they had done some ESG projects they should disclose all the relevant figures to investors. Not every company can complete ESG issues because of economic scale but at least show the analysis on the cost-effectiveness, and affect the company so investors can understand and try to help the company.


The taxonomy. How much effect of each aspect of ESG so investor know how much discount investor can share with the issuer. A reliable taxonomy will provide a good benchmark and a good cost of capital. They need good data from an issuer, third parties and a broker to help investors make investment decisions.


The ecosystem must have 3 key pillars:


1. Taxonomy for a common language

2. Clear transition approach.

3. A good disclosure.


Discussion topic 9: As a regulator, how do you see the taxonomy and transition being able to support decision-making for sustainable investment?


Regulators need to develop a matrix standard that is internationally and regionally recognised even for disclosure. For directors, we need to have a diverse range of tools to support and increase transition finance. Taxonomy is a very good solution for all these challenges because it is a good standard, matrix and referral for the second opinion or third-party reference. It is a standardised framework that issuers and investors can understand.


Discussion topic 10: The transition for different countries will be different, so different sectors in different countries will be different as well. How does this affect a company with regard to taxonomy? Does the taxonomy provide different options or different pathways for transition or does it only have one threshold and you either qualify or you don’t. What are the ASEAN regulators looking at?


Regulators are looking at different officials because we have to accept the different levels of development and different period for the total destination, and different times of commitment of the ASEAN member states. As long as we will come to the final common destination of all member states it is acceptable. Member states may set a series of thresholds that are fixed and then member states choose which threshold they want to adopt.


Discussion topic 11: How useful do you find instruments like the SLLs and the SLBs?


SLB is the new development of sustainable finance products. Everyone can use SL & SLB to support their corporate strategy and if they have transparency sustainability credentials and incorporate the forward-looking ESG in their corporate strategy, that would be a big plus to take part in sustainability link loans or bonds. To take part in SLL or SLB companies must set the key performance indicator and justify the sustainability performance target. The KPI set by the company should be measurable- and quantifiable.


Discussion topic 12: There are a lot of people who say transition financing gives a lot of room for greenwashing. What is your view on this?


From an investor’s point of view, there are main challenges when it comes to transition finance. The challenges are:

1. Data Transparency

2. Reliable taxonomy

3. Greenwashing


As an investor, we can compare the total premium or total cost for all ESG. If there is a standard taxonomy, every fund manager will report the same language and do a better comparison.


Discussion topic 13: How can banks and financial institutions help guide and partner with companies involved in the fossil sector to transform themselves and what are the key steps they have to take to have a positive impact on the environment?


To develop ASEAN members into transition finance standards, the regulators from Thailand are checking and discussing with the Thai SEC to produce a handbook similar to the international country on transition finance handbook so that those companies in the brow industry can be part of the transition finance journey as well. From the issuer side, the potential borrower is advised to check and engage a kind of external valuer to understand the development of the new technology i.e carbon capture storage that they can explore to enhance their production facility to be a cleaner company or invest more in the renewable energy and make the commitment toward the transition. Issuer tries to educate and suggest the company seek second party opinion and engage MUFG networks from the sector team to provide details of other countries’ transition standards or study how other countries do it.


From the investor’s point of view, even though GPF are not a company that has direct action on those issues, GPF is an institutional investor, but they do support these activities to happen. They can allocate investment according to the scoring. That was the investor’s duty to support and also the main engagement for the company that they are invested in.

From the regulator’s point of view, to ensure the standard is applicable and facilitates the business. If the company are greener, it is beneficial for investors, companies and the public. The regulator must make sure that the rules are in place.


Conclusion: Any advice to corporate what action they need to take now if they are going to continue or planning to tap the capital markets for funding


Do it right now because carbon emission and net zero is an irreversible processes. Directors need to prepare to take part in the ESG journey. The team and the management need to put in additional work and effort to avoid greenwashing if they have solid ESG data analysis and foundation.


Enjoy your journey don’t it back and wait for others. You can learn from the journey.


Please find the recording here


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