SUNDAY, April 14, 2024

Forming the trust needed to drive sustainability: SMU experts

Forming the trust needed to drive sustainability: SMU experts

Trust is urgently needed to make significant progress on the global journey to achieve the Sustainability Development Goals, particularly the most needed fundamental, green finance, said three experts from Singapore Management University (SMU).

Speaking at a forum at the 3rd Annual Sustainability Week Asia organised by Economist Impact under the theme "Achieving Climate Targets Faster" in Bangkok, Thailand on March 12th and 13th, SMU's academics and experts shared their profound perspectives and exchanged knowledge with other active sustainability-minded individuals from various sectors to explore the most practical way for sustainability to be truly achieved. 

The topics discussed included green business transition, net zero emissions, addressing climate change and climate risks, developing the Asia Carbon Credit market, and monetary policies for sustainability and environmentally friendly. 

Joining the "Fostering Carbon Market in Asia" panel, Nikki Kemp, SMU Singapore Green Finance Centre Director and a long-time sustainable finance professional and advisor, pointed out that reducing carbon emissions is required now.

Meanwhile, monetary policies, along with other measures such as tax incentives and a carbon credit market, will be important mechanisms for combating climate change, particularly carbon credits. 

Carbon credit markets are a relatively new development in the world of finance, which is looking to integrate financial incentives into sustainability goals. Companies can buy and trade carbon credits from companies that reduce their emissions.

Forming the trust needed to drive sustainability: SMU experts

“I think it is highly feasible as evidenced in our Centre’s research.” said Kemp. “There is a real need for every country to move on this” 

Critics have pointed out that carbon markets merely introduced a “pay-to-pollute” system, where large companies can hoard credits that may or may not come from lowered emissions. 

“Markets only work when they have trust, transparency, and fluid price discovery.” said Kemp. “But we’ve seen questions raised about the transparency and disclosure or integrity at the carbon creation stage.” 

“And when a market loses confidence, that’s it,” she said.

Kemp outlined how price certainty and transparency were key to building a market. “At the end of the day, it's the companies and businesses we need to participate, no matter how big or small their budget. There's a lot of very, very small operations in this region that need to be targeted, particularly around the agricultural or nature-based end of the carbon markets.”

With almost a decade of specialied experience in driving sustainability in finance and investment in Asia, she also emphasised the importance of cross-border collaboration in order to reach a common agreement on market standards that all countries can share, which will help improve the carbon market's accuracy, reliability, and transparency.

Forming the trust needed to drive sustainability: SMU experts

Introducing financial incentives

During the 'Financing the Transition' forum, Hao Liang, Associate Professor of Finance and Co-director of SMU's Singapore Green Finance Centre highlighted the importance of financial tools for fundraising in achieving sustainability transition.

Although it is a significant positive sign that global investors have invested trillions of dollars in Environment, Social, and Governance (ESG) funds, more work remains to be done to create genuinely green businesses across sectors, including collaborations between public, private, and financial institutions.

Meanwhile, he noted that introducing financial incentives for sustainability is a difficult task, and that achieving sustainability goals is not inexpensive.

He also pointed out that in terms of sustainability, state-owned enterprises were more responsive to environmental concerns.

“The traditional wisdom is that state-owned enterprises are inefficient and should disappear over time. And that's indeed what we saw over the past many decades, in Europe and also in Asia, many state-owned enterprises, because of low efficiency, low economic performance, they were gradually privatized.” said Liang. 

“But on the other hand, we're not just talking about economics, we are talking about externalities. And, you know, environmental pollution is one of the most important externalities.”

Liang says that due to SOE’s backing from the government and their size, they have the gravity to shift market forces and dynamics. Private companies on the other hand, have a harder time convincing the public of their carbon offsets integrity.

“My view is that it's perfectly okay to tell people to make money. If you tell people you have to sacrifice profit to be sustainable, people won't buy the idea. But if you tell people, there is a good opportunity for you to make money by being green, by being sustainable, their capital can be more effectively mobilized.”

Liang added that green finance was about designing the funding structure, market mechanism, tools, the instruments to help firms make money along the way in achieving a green economy. 

Forming the trust needed to drive sustainability: SMU experts

Including nature and biodiversity

Participating in the "Climate Risk: Protecting Ecosystems and Biodiversity" panel on the second day of the event, Winston Chow, Professor of Urban Climate and Pillar Lead (Urban Infrastructure), emphasised the importance of protecting ecosystems and biodiversity in mitigating the effects of climate change.

The move, he explained, will help reduce the environmental costs of dealing with climate risks in the midst of rapidly expanding urban areas. 

"If you want to be resilient in a very risky world, you need to include nature and include ecosystems, as the important services they provide help in reducing those risks," he pointed out. 

He emphasised the importance of having these green spaces as a tool or strategy for addressing the issues caused by climate and environmental change.

Citing access to financial capital as one of the most difficult challenges for countries to achieve sustainability, he stated that natural capital should be counted, and scientists worldwide, including those at SMU, have devised methods of accounting for natural capital.

Since not all countries have the required conditions for the carbon credit market, biodiversity credit could be another option for reducing business operational costs as well as a country's sustainability journey and initiatives if established.

"The idea is that if other countries can have spaces for reforestation, soil management, marine forests and other ecosystem restoration projects, they can trade these conserved ecosystems as biodiversity credits from one country to another,” Chow said. “So, for example, if one country lacks the capacity for reforestation, they look to another country that does. They can then repay the other country and claim that this is sufficient to cover the credit.” 

He noted that all discussions for both carbon and biodiversity credits have been ongoing at multilateral United Nations Conference of Parties, and hopes for substantial progress for these frameworks over the next two years. 

"We hope that the frameworks can be put into place so that countries and businesses can therefore have the trust allowing for a fair trading of carbon and biodiversity credits," Chow said.

He then encouraged the inclusion of more green spaces in the cities. 

Green spaces are well known to lower temperatures, improve air quality and make people feel safer in parks or around their neighborhoods. Having more green spaces in the city will aid in carbon sequestration and, as a result, reduce urban carbon dioxide emissions to some extent, he explained. 

"If you have green spaces in the city’s natural capital, you also provide a habitat space for biodiversity such as birds that migrate from China to Thailand down to Singapore to Australia over the year. It's a great space for nature to thrive. And lastly, these green spaces, especially in cities like Bangkok, are a space for recreation and for people to play. It's a space for people to build community, bonds for families to go and visit," he added. 

Resilient Green Mindset

As an educational institution, Chow stated that Singapore Management University not only provides courses for students to understand the concept and its path to sustainability but also cultivates a sustainable mindset so that they can become future citizens who are resilient enough to live in an uncertain world. 

"We want to make sure that whoever graduates from SMU, they are prepared for this new vulnerable, uncertain, complex and ambiguous world," he said.

Meanwhile, he pointed out that he and his peers also conduct climate adaptation research and gather the necessary information to form a database that can support sustainable development efforts. 

Established in 2000, Singapore Management University (SMU) is recognised for its disciplinary and multi-disciplinary research that address issues of global relevance, particularly on sustainability, impacting business and society. SMU offers a wide range of bachelors, masters, PhD degree and professional continuing education programmes, many of which are to develop sustainability talent. Engaging with the region, SMU focuses on making meaningful impact through its partnerships with industry, government and academic institutions.