Overcoming challenges in sustainable finance

BUSINESS TIMES Sustainable investing has ebbed and flowed along with market sentiment and political winds.

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Why are investors hesitant, and what needs to be done to get climate-aware investing into the mainstream?

HELGE MUENKEL We have witnessed continuous improvement and strong efforts to transition our global economies to a net-zero future. According to the International Energy Agency, last year's global investments in clean energy were around double the amount going into fossil fuels. Ten years ago, fossil fuel investments were about 20 per cent larger than clean energy investments. Meanwhile, India is projected to achieve a major milestone in 2025, with renewable electricity providing for more than half of the country's power capacity, while China added more renewable power capacity in 2024 than the rest of the world combined.

Notwithstanding this, current investment flows are still insufficient to allow us to meet the goal of the Paris Agreement. Furthermore, complexities in the macroeconomic and geopolitical landscape have understandably made investors more cautious in recent times.

Importantly, sustainable investing is not a short-term but a structural trend. Climate risk is increasingly recognised as a major driver of financial risk. Hence, most major investors integrate environmental, social and governance (ESG) considerations into their overall decision process.

Encouragingly, Asian regulators are stepping up. Across the region, many policies and regulations have been put in place that create an enabling environment, which supports climate action and related financing flows. This includes green and transition taxonomies and ESG disclosure standards.

These developments bolster investor confidence and embed greater transparency in sustainable investing - important steps in shifting these financing flows into the mainstream.