A glaring knowledge gap regarding the effectiveness of green funding, as well as how these funds can be used, is making sustainability goals even more challenging for many large companies in Asia.
That’s one of the key findings in a survey called ‘From ambition to action; understanding ESG imperatives’, which was jointly conducted by the Hong Kong Trade Development Council (HKTDC) and EY China.
Jack Chan, EY China Chairman and EY Greater China Regional Managing Partner, presented the survey findings on the first day of the Asian Financial Forum (AFF), a major gathering of senior policymakers and business leaders co-organised by the Hong Kong SAR Government and HKTDC.
The research found that only 21% of surveyed corporates considered green funding effective in meeting their needs for sustainable projects. Close to half stated that green investment funding was either not applicable or were unaware how this could help.
Many corporates lack experience with sustainable financial tools, which often require companies to take additional steps, such as validating environmental initiatives, the accompanying research report said. Decision-makers are more likely to favour traditional financing options as a result.
At the same time, investors are also contending with capacity and knowledge constraints, the report noted. This is partly due to a lack of transparency in corporate sustainability disclosures, as well as the absence of standardised ESG metrics.
Consequently, sustainable portfolios may struggle to provide attractive returns for clients seeking to invest more.
More than half of the investors surveyed for the research hold a neutral rating on the transition plans for companies within their portfolio. This suggests that investors need more information from these companies to properly evaluate their ESG performance.
The joint survey also uncovered widespread concerns over greenwashing, where companies make inflated or misleading environmental claims.
More than half of investors suspect that their portfolio companies are engaging in greenwashing activities. Corporates, on the other hand, were worried that their sustainability linked actions would be seen as greenwashing.
Overall, only 44% of surveyed corporates believe they are highly likely to achieve their sustainability goals.
“More companies and investors are considering sustainability in their operations, yet barriers are still present due to lack of clearly defined frameworks and lack of available resources,” Mr Chan noted.
A challenging sustainability journey
Sustainability goals start to become more demanding as companies move beyond easy wins, such as buying renewable energy certificates and reducing business travel, into more challenging areas that can cost more and often require deeper internal alignment, the research report highlighted.
Nearly half of the respondents said that they struggled to show a positive financial impact from their sustainability activities, making it more difficult to allocate resources to these initiatives.
At the same time, corporates are becoming more aware of the shortfalls in their current ESG monitoring systems, as formerly voluntary sustainability reporting starts to become mandatory.
Many companies also have growth targets that are misaligned with their green agenda, often due to an inadequate understanding of sustainability’s implications across internal departments.
This can offset the balance companies must strike between short-term financial objectives and long-term sustainability goals.
The report made three main recommendations to help corporations and investors align their strategies with their ESG objectives.
First, corporates should invest in data and key sustainability metrics, to enhance reporting and communications.
Second, companies should formulate transparent and detailed transition plans, with clear targets and mitigation measures, to show their commitment to net-zero goals.
Third, investors should advocate for education and capacity building within portfolio companies to align with global sustainability frameworks.
Green finance was a major focus at this year’s AFF.
Sue Lloyd, Vice Chair of the International Sustainability Standards Board, participated in a panel of experts who delved into the adoption of financial disclosure standards to enhance confidence in Hong Kong’s capital markets.
Liu Zhenmin, Special Envoy for Climate Change of China, also gave remarks at another session on enhancing climate ambition and enabling financing action.
Other AFF sessions explored other relevant areas, including transition finance and sustainable investment.
