Financing a greener future
Sustainability was the watchword at the Belt and Road Summit and Global Forum.
25 September 2019
Green and sustainable investment was a recurring topic at the fourth Belt and Road Summit, along with the official theme “Creating and Realising Opportunities”.
The summit, jointly organised by the Government of the Hong Kong Special Administrative Region (HKSAR) and the Hong Kong Trade Development Council (HKTDC), brought together more than 5,000 political and business elites from over 60 countries and regions at the Hong Kong Convention and Exhibition Centre. The two-day summit invited over 80 government and business leaders from Hong Kong, Mainland China and countries and regions around the world to discuss the opportunities available in different sectors based on the latest developments under the Belt and Road Initiative.
At the Belt & Road Global Forum Annual Roundtable 2019 (main picture), which ran during the summit, many of the speakers highlighted green issues. Richard Shirreff, Co-founder and Managing Partner at Strategia Worldwide, described environmental concerns as a key risk factor going forward for Belt and Road companies and economies, while another forum speaker, Hannah Routh, Vice President and Special Advisor to Chairman, Hong Kong Green Finance Association, was impressed that so many of the speakers before her had brought up the issue of ESG (environmental, social and governance) investment. She also pointed out that the mainland was leading the world in decarbonising its economy – despite also being the top carbon dioxide emitter.
Sustainable finance in infrastructure
Sustainable finance has attracted growing attention in infrastructure development given its beneficial impact on investors, financiers, project owners and the project location, delegates heard. The Hong Kong Monetary Authority’s (HKMA) Infrastructure Financing Facilitation Office (IFFO) is an active player in facilitating infrastructure investments and financing, and the IFFO recently set up the Centre for Green Finance (CGF) to build capacity and experience, as well as acting as a depositary for knowledge and expertise.
A panel at the summit, comprising both public and private stakeholders, looked into the business case for adopting sustainable finance in infrastructure projects and shared insights on the latest industry trends and offerings in this aspect.
Darryl Chan, Executive Director (External) at the HKMA and Deputy Director, HKMA IFFO, chaired the session and pointed out that following ESG allows for risk-adjusted return.
Neil Johnson, Managing Director, Macquarie Infrastructure and Real Assets, Macquarie Asset Management, said his firm put ESG at the centre of its business. ESG should not just be seen as a cost, but as a bringer of opportunity, he said. Renewable power is likely to soon outdo fossil-fuel power in economic terms, creating many opportunities.
Michael Barrow, Director General, Private Sector Operations Department, Asian Development Bank (ADB), said ESG is in the bank’s DNA, and that all projects are screened for acceptability. ADB is needed to fill in gaps where the private sector will not step in, such as financing a 10-megawatt solar power plant in Kandahar, southern Afghanistan. The bank also creates unusual partnerships for innovative projects such as a link-up between mainland petrochemical firm Sinopec and a geothermal company from Iceland to develop geothermal heating. Corporations also seek ADB as a partner to enhance their ESG credentials, as European oil giant BP did when it was carrying out a development in West Papua, Indonesia.
Mr Barrow pointed out that the switch to renewable energy means many investors fear that coal-based power-generation facilities could become stranded assets, so many investors have started to steer clear of coal.
Mukhtar Hussain, Group General Manager, Head of Belt & Road Initiative and Business Corridors, Asia Pacific, HSBC, said much of the motivation to adopt sustainable principles comes from customers who want to know whether HSBC sticks to these principles. Driving the transition to a low-carbon economy is a key objective and the Belt and Road offers an opportunity to do so, creating an opportunity to develop open, clean and green policy.
Herbert Hui, Finance Director, MTR Corporation Limited, said the MTR is by nature a green firm – each train carries 1,500 passengers, cutting the need for a great deal of road traffic. A railway company that also has an extensive property portfolio, the MTR has to invest sustainably, he said, because it has a longtime horizon – up to 50 years.
Mushtaq Kapasi, Managing Director and Chief Representative, Asia Pacific, International Capital Market Association (ICMA), said his group is a pioneer in green finance standards. Green bonds are defined based on four principles – use of proceeds, degree of disclosure and process for project evaluation, management of proceeds, and reporting. ICMA’s principles have influenced the mainland’s decision-making on green bonds.
The European Union (EU) is also set to introduce a green bond standard.
At a panel discussion titled “Facilitating Regional Co-operation through Five Areas of Connectivity under the Belt and Road Initiative”, Gabor Gion, Minister of State for Financial Policy Affairs, Ministry of Finance, Hungary, said his country is small – at just 10 million, its population is the same as that of a mid-sized city in Mainland China. Hungary has a very open economy, however, and grows at more than 5% a year. The government is seeking to diversify from its current heavy dependence on trade with fellow EU members, which accounts for 75% of the country’s exports, through an “Eastern Opening” towards Asia. The country is well-positioned for a bridge role between Asia and Europe, especially since the Hungarian Magyars trace their roots to Asia. He said that while predictions on just what might happen are futile, it is still necessary to prepare for a volatile future.
Mr Gion said Hungary hoped the Belt and Road would help it achieve its goal of keeping economic growth two percentage points over the EU average. The initiative also tied in with regional strategies, such as improving north-south transport links within the country, as was the case with the Belt and Road-financed Belgrade to Budapest railway line modernisation.
Abdulla Al Saleh, Under Secretary of the Foreign Trade and Industry, Ministry of Economy, the United Arab Emirates, said his country’s position, as an open economy in a strategic location on the Persian Gulf, made it a key player in the Belt and Road. As with Hong Kong, the UAE is a hub for investment and connectivity. The country now hosts 4,000 mainland companies with some 200,0000 Chinese people living in the UAE.
A consensus among panel delegates was that clarifying and harmonising regulations is necessary to streamline processes.
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