To meet collective global climate goals, we believe it’s key to invest in transition leaders, especially in Asia Pacific. These are companies that may not meet the strictest sustainability standards of today, but have strong transition plans in place.
Some investors object to investing in companies that aren’t “green”. So in a panel discussion at abrdn’s second annual Sustainability Summit in Singapore, we sought to explore whether investing in “brown” companies can help to accelerate transition in the real economy.
At the outset of our discussion, a poll of the audience highlighted that transition activities were not well defined and that there was a lack of consensus on what a “just” transition looked like.
One of the panellists responded to the poll by reading out a Chat GPT definition of the terms green, brown and transition.
Green activities, the AI chatbot noted, referred to projects and/or investments that had a positive impact on the environment, mitigate climate change and reduce greenhouse gas emissions.
Brown activities, on the other hand, were associated with negative environmental impact, including those that were environmentally unsustainable, polluting and contribute to the depletion of resources.
Lastly, transition activities filled the gap between green and brown in sectors undergoing transition to more sustainable practices. These activities could have both a positive and negative environmental impact but were viewed as essential for transition to a sustainable future.
One panellist working in the power sector said green meant activities that were not carbon-emitting – largely solar and wind power and storage capacities supporting renewable energy generation. He argued that reducing portfolio emissions also fell under transition activities.
While it’s understood that renewables are core to energy transition, he pointed to the need for capital as a critical element. “Ultimately this is about investing in capital expenditure and that has to be affordable for the societies we are providing [renewable energy] into,” he said.
“One of the things we have done is align our activities to using largely green and sustainability-linked financing. To our surprise, that has been very well received by investors, who liked the clarity of our strategy.”
All the panellists agreed that regulators were integral to accelerating transition, while acknowledging that they were at different stages of readiness across Asia Pacific. One speaker stressed he kept extremely close tabs on what was happening with regulators.
The panellists also suggested that regulation represented a huge opportunity for Asia Pacific given second-mover advantage, with Europe and North America having done much of the groundwork in terms of introducing regulations and compliance in sustainable investing.
Asia is agile and there’s an opportunity to turn this [emerging regulation] into something that creates value.
But when it came to the issue of a “just” transition, the three panellists suggested there were more questions than answers.
Earlier in the debate, it had been argued that the climate-change battle would be won or lost in Asia Pacific. One speaker noted that while some regions had industrialised faster and drawn down their carbon quota, industrialisation was still growing in others.
“The reality is many Asian economies are powered by coal,” he said. “Advocates of energy transition will say, ‘shut down coal plants.’ But if we shut down fairly young coal plants in Asia, there could be capital losses. So who bears those losses? I don’t think we are close to answering that question.”
Staying on this topic, he questioned whether governments, regulators, asset owners and financiers were prepared to work together to achieve a just transition. “Possibly [they will], but there are more questions than answers,” he said.
One consistent theme that underpinned our panel discussion was the immense need and strong appetite to invest in transition. Nonetheless, what transition means and, crucially, what a credible and just transition will look like remain open questions.
In Asia Pacific, it’s up to regulators, companies and the broader industry to work together to find answers to these questions.
From our perspective, we believe we will best be able to bring about a real-world reduction in carbon emissions by engaging with and investing in companies that are actively working towards transition, even if they don’t meet the strictest green standards today.