rethink sustainability
The shift to a Net Zero economy brings questions to all businesses
The world is increasingly turning towards net zero and now companies need to ask themselves whether their business model is properly targeted towards reaching carbon neutrality, according to experts at the virtual ‘Sustainable finance, carbon markets and Artificial Intelligence’ conference.
Powerful forces around the globe are focusing on net zero, which means that governments and companies need to be able to quickly adapt to realign their ambitions and business models and get on the path to a net zero economy.
Comments came from Dr Christopher Kaminker, Head of Sustainable Investment Research, Strategy and Stewardship at Lombard Odier, who said that companies need to set net zero emissions goals and assess and then disclose whether their business models will be profitable in this climate transition.
CO2 emissions need to be reduced by 50% by 2030 and to net zero by 2050 in order for the goals of the Paris Agreement to be reached, a shift that could create investment opportunities worth $5.5 trillion annually over the next fifteen years.
Shifting markets
Organised by SGInnovate and the Embassy of Switzerland, the online conference in Singapore, focused on how AI technologies and innovation can improve transparency in global carbon markets.
Such is the effect of the shift in global focus towards more positive practices that sustainability is now shaping the financial markets. Fabrice Filliez, the Swiss ambassador in Singapore, explained that Switzerland is a global leader in digital technology for sustainability and that collaboration between the two countries amounts to a significant contribution towards the future of the planet.
Amb Filliez told the audience that a market in helping companies erase their carbon footprint, through carbon credits, had emerged. In recent years, many carbon-offset schemes have emerged allowing companies or individuals to invest in sustainable or environmental projects to balance out their carbon footprints. Dr Kaminker, however, warned that these offsets are an important component of the climate transition, but that caution should be exercised as they are not always credible.
“Carbon offsetting, if done properly, can contribute to net zero strategies, especially in hard-to-decarbonize sectors such as aviation and agriculture. However, offsetting, if not done well, can result in greenwashing and create negative unintended impacts.,” he said. Marion Verles, the Chief Executive Officer of certification body SustainCERT said the role of offsets is changing since the Paris Agreement and they need to be used differently. In the future we will be able to use adapted technology to make the processes of carbon offsets more efficient and accurate. They will be of a very different nature to what they have at the moment, she said.
There has been increased collaboration in decarbonisation goals, said Dr Lim Jui, Chief Executive, SGInnovate. This can be seen as proof that the world has acknowledged there is a problem and people not only want to do something about it but are acting to alleviate it. In Singapore, a plan was recently launched to create a global maritime decarbonisation system, he said. Singapore's Maritime and Port Authority (MPA) have made plans to outline long-term strategies for the sector and a maritime decarbonisation blueprint to 2050.
At Lombard Odier, said Dr Kaminker, the risk and return decision-making process looks at climate change as a real material factor. “So adaptation to climate change and working to mitigate it will be a key component of profitability and a source of significant investment returns, as we see it,” he said.
Switzerland paves the way
Switzerland is a leader in the field of sustainable finance, Dr Jui told the audience, and it is considered a leader in green FinTech, along with Singapore.
Christoph Baumann, the Deputy Head of Insurance and Risks at the Swiss State Secretariat for International Finance, said Switzerland wants to increase its leading position in this area and has three pillars it focuses on to do so - carbon pricing, transparency and green FinTech.
“The climate transition leads to opportunities and can have great benefits for SMEs and start-ups. This is the era of fintech and startups. We need to promote an ecosystem in which small companies can thrive,” he said.
Sopnendu Mohanty, the Chief Fintech Officer of the Monetary Authority of Singapore (MAS), said Asia is at a different starting place compared to Europe when green finance is concerned. For instance, in some parts of the region, people are still without electricity.
The MAS recently started work on Project Greenprint, a technology platform aimed at promoting a green financial system for SMEs and FinTechs who often face difficulty in having access to capital. Mr Mohanty said this could result in a marketplace where these firms can find investors, seek advice and their sustainability targets can be monitored,
What’s next for a green future
Ms Verles said that full acceptance of a green future has not yet been achieved. “Public acceptance is also very important and there is a long way to go … we need to spread this message,” she said. Her hope is that the next stage of sustainable finance will be raising a collective level of acceptance by being associated with better jobs, improved health and a greener society.
Dr Kaminker explained we have not yet achieved international harmony on certain issues such as avoided emissions. Avoided emissions are emission reductions that occur outside of a product’s life cycle or value chain, but as a result of the use of that product.
“Important calculations are required concerning such avoided emissions. We need to take these into account. For example, a company that has a large carbon footprint but produces something that helps other fields reduce their carbon footprint. This is an important matter to be aware of,” he said. However, while avoided emissions are useful to identify companies that may provide climate-relevant solutions, they cannot be treated as offsets, and require detailed analysis to ensure consistency – with the claims of some companies regarding avoided emissions often subject to exaggeration and unrealistic assumptions.
In closing, the panellists were asked what they thought was next in the field of sustainable finance. For Dr. Kaminker, it will be about natural capital, biodiversity and other forms of nature-related assets. “Many aspects of natural capital are inextricably linked to climate change but I think that we’re going to see a lot more attention from investors and from the market and possibly even from regulators focused on biodiversity, deforestation and the quality and stock of our natural capital, which really is the foundation for most of our economic activity”.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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