Institutional investors should ultimately aim for real-world decarbonization rather than portfolio decarbonization, agreed speakers at the inaugural Global Transition Finance Summit in Singapore on Nov. 1.
Portfolio decarbonization can be achieved quickly through divestment, said Liew Tzu Mi, chief investment officer of fixed income and multiasset and chair of the sustainability committee at Singapore's sovereign wealth fund GIC.
But as a long-term investor, GIC aims to contribute to and enable decarbonization in the real world, she said during the first panel discussion at the event, which was organized by Singapore Exchange and the Official Monetary and Financial Institutions Forum. It is important to work with companies and find a way that is pragmatic and constructive to help them transition their business, as opposed to imposing standards that are not achievable, she added.
GIC has estimated assets of more than $700 billion.
In another panel discussion later in the day, Thijs Aaten, chief executive officer of APG Asset Management Asia, echoed the same sentiment. "You can make your portfolio green by just diverting flows, but of course the hard work is in helping companies make this transition and to make a real-world impact," he said.
APG invests €580 billion ($614 billion) on behalf of its Dutch pension fund clients, including Stichting Pensioenfonds ABP, Heerlen.
Hong Kong-based Aaten added that Asia is important for the climate transition, accounting for 80% of global GDP, 70% of global growth and 60% of global emissions.
The concept of blended finance must come into play in order to scale transition solutions particularly in Asia, said Leong Wai Leng, Singapore-based managing director and regional head of Asia-Pacific at the C$424 billion ($309.1 billion) Caisse de Depot et Placement du Quebec, Montreal.
Local governments, private sector institutional investors including the financial banking sector, providers of developmental capital, and multilateral development agencies must come together with public pension funds to make the climate transition work, she said.
Each of these stakeholders must be accountable, be comfortable with the risk-reward, and be prepared to compromise, she added.
For the Indonesia Investment Authority, Jakarta, the two-year-old sovereign wealth fund with around $20 billion in assets, it made more sense to start investing in renewables off the bat, rather than invest in fossil fuels and enable a transition since the fund was relatively new, said CEO Ridha Wirakusumah.
However, he pointed out the importance of understanding a just transition. For instance, a country like Singapore has around $80,000 in GDP per capita, compared with Indonesia which has $4,900 per capita.
It would be unfair to expect developing countries like Indonesia to reduce their carbon footprint as much as other advanced economies, he said.
