Sustainable funding is key to global decarbonisation efforts – and has huge potential for economic growth
- IEA and IMF predict investment in energy efficiency could add 4 per cent to global GDP by the end of the decade
- DBS Group says sustainable investment will help the drive towards net zero
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Sustainable investment products that fund the acceleration of decarbonisation worldwide have a huge potential for growth. According to the International Energy Agency (IEA) and the International Monetary Fund (IMF), investments in clean energy could add 0.4 per cent to global GDP annually, while a jump in spending in energy efficiency, as well as in sectors including engineering, manufacturing and construction, could add 4 per cent to global GDP by 2030.
Ambitious pledges by the international community to achieve net-zero carbon emissions by 2050 increasingly include countries in Asia, with regional nations formalising ambitious plans to decarbonise their economies.
China plans to hit the peak of its carbon emissions no later than 2030 and achieve carbon neutrality by 2060. South Korea and Japan aim to reach net zero by 2050. Singapore, the Asia-Pacific’s front runner in net-zero commitments, has outlined its ambitious Green Plan 2030, which aims to halve the city state’s carbon emissions by 2050.
The urgency of acting on these pledges is clear. The Intergovernmental Panel on Climate Change reports the average figure for annual greenhouse gas emissions between 2010 and 2019 was higher than in any other decade. Climate Action Tracker, which assesses global pledges and decarbonisation targets, predicts the world is still heading towards a mean end-of-century warming of 2.1 degrees Celsius.
“Climate change is a collective problem that requires global action,” says Carol Wu, DBS head of private banking, Greater China.
“To achieve net-zero carbon emissions by 2050, we need massive transformational changes to propel us to a zero-carbon and digital future. The IEA estimates we need to invest around US$4.5 trillion per year in decarbonisation solutions, every year from now until 2050, to achieve net zero by 2050.”
Financing the decarbonisation agenda
Sustainable finance has so far largely focused on green business activities, such as renewable sources of energy. But investment in the decarbonising of traditional “brown” industries, like transportation and steel production, is essential if the world is to reach net zero.
Banks such as DBS Group have been supporting the global push towards sustainability.
It says it is prioritising action on climate change, given its urgency and potentially catastrophic effects on the environment and society worldwide. It was the first Singaporean bank to join the Net-Zero Banking Alliance, with a commitment to align its lending portfolios with net carbon emissions by 2050. As a group, it expects to raise S$50 billion (US$36.2 billion) in sustainable financing by 2024.
In April, Temasek and BlackRock set up a partnership that will invest in four key areas that help the drive towards decarbonisation: electrification of mobility, industry and buildings; clean and reliable energy generation and storage; green materials; and a resource-efficient, circular economy. The move will allow investors to participate in the drive towards decarbonisation.
Accelerating change
Looking ahead, a concerted effort from governments, companies and individual investors is crucial in sustaining the push towards decarbonisation.
DBS Group is also the first commercial bank in the world to publish a Sustainable and Transition Finance Framework and Taxonomy. The initiative aims to guide the group’s interactions with customers involved in carbon-intensive and heavy industries as they establish transition strategies to decarbonise, as well as build resilience against climate change.
Its private banking arm has also taken steps to inform its high-net-worth clients about Environmental, Social and Governance (ESG) investments when constructing their portfolio. To facilitate their choices, DBS Private Bank uses an ESG portfolio-weighted rating methodology that helps clients achieve their desired level of ESG rating – which helps evaluate a company’s resilience to ESG-related financial risks in the long term – for their entire portfolio. They can do this by curating a combination of ESG-rated and non-rated investments.
In Hong Kong, DBS Private Bank is the private banking division of DBS Bank (Hong Kong) Limited.
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