Efforts to safeguard the credibility of sustainable finance are making waves in Asia Pacific
Asia Pacific is in a strong position to help protect the credibility of green investment claims amidst the region’s evolving regulatory regime and a greater availability of data. In this article, we take a look at some of these developments and the importance of reliable data in enhancing transparency and accountability in sustainable finance.
As sustainability becomes an increasingly mainstream investment consideration, there are growing concerns about misinformation of green products and their sustainable investment claims.
For instance, the misrepresentation of an investment portfolio’s credentials as green, sustainable, or responsible is a longstanding issue. Such is the prevailing risk of greenwashing that a spotlight is cast on it globally.
In Asia Pacific, where the region has witnessed significant growth in capital appetite to support sustainable development, a survey by consultancy Kearney showed that 84% of business leaders in the region’s financial services sector are concerned about false or misleading information[1]. In this regard, initiatives that foster governance, compliance, and protect and improve transparency in sustainable investment products ensure that the broad credibility of all sustainability efforts are strengthened.
Developments in regulations and enforcement efforts
Regulations are important in protecting and guiding the actions of investors and corporates. They help set expectations about what sustainability can achieve while establishing trust in the markets.
Deceptive claims, including those associated with greenwashing, clearly present a challenge to the financial industry’s drive to realise a more sustainable world.
Over the last year, we have started to see regulators in Asia Pacific take a firm stand against greenwashing. In Australia, regulators have successfully taken court action against two financial services firms, with another one still ongoing, and 16 infringement notices in relation to alleged ESG misconduct. The government in South Korea is also pursuing a case with the potential for significant penalties.
There is a global trend towards developing a regulatory framework to govern sustainable finance. The EU, for example, already has put in place the landmark Sustainable Financing Disclosure Regulation (SFDR). Asia Pacific is also establishing a regulatory regime that oversees sustainability, and despite the fragmented nature of the region, policymakers are generally following the broader international frameworks such as Task Force on Climate-related Financial Disclosures (TCFD) or International Sustainability Standards Board (ISSB).
The rise of taxonomies across the region shows this trend in action. These classification systems specify which economic activities can be described as “sustainable”, thus providing a definitional foundation for sustainable investing that protects against misrepresentation.
In 2021, Malaysia was the first jurisdiction in Asia Pacific to introduce a taxonomy for sustainable finance. Since then, it has been followed by Thailand, Singapore, Indonesia, mainland China, and most recently, Hong Kong. ASEAN and Australia have taxonomies under development, while similar rules are under consideration in India and New Zealand.
Another regulatory development to prevent greenwashing is in fund labelling. The aim is to show a commitment to transparency and ensure that sustainability claims are robust, independent, verifiable, and justified by the disclosure of methodologies, evidence-based indicators, and strategies. A third-party assessment of an investment product’s green credentials can as well add credibility so that consumers can be confident of the product’s sustainable activities.
In Asia’s two major international financial hubs, Hong Kong and Singapore, there are already rules in place that require retail funds to justify the use of terms like “green” or “social”. There are also similar standards in Japan, South Korea, and Taiwan. In fund labelling, there is a strong emphasis on promoting data standardisation so that consumers can easily compare products.
Challenge of cloudy ESG data quality
One key factor in ensuring the integrity of ESG-related claims is data and its quality. Data is a consistent theme among sustainable regulations, as they require parties across the entire value chain, from corporates to investment firms, to disclose more information about their activities.
This practice builds greater credibility as an increase in the availability and access to reliable data can demonstrate sustainable activities. However, limited data quality remains a big barrier to ESG investing, according to BNP Paribas’ latest ESG Global survey. It found that 71% of respondents said that inconsistent and incomplete ESG data is a significant barrier to the greater adoption of ESG, with 65% of respondents citing the need to use and compare multiple sources of data[2].
What we propose at BNP Paribas
Integrity, transparency, and robust data are key to building trust and credibility in investment products. With more accurate data to hand, investors and corporates can demonstrate that their activities are genuinely sustainable.
But first, investors need to acquire data, which can be a challenge due to the wide range of sources available. Investors can make the collection process simpler by utilising a banking partner’s solutions.
For example, Manaos, a BNP Paribas investment services platform, simplifies how institutions and asset managers centralise their investment data, access ESG information, and report on the sustainability of their investments. It is an open marketplace for data enrichment and reporting, enabling investors to connect their portfolio data to a wide range of ESG data and analytical tools (more than 20 providers, 260 applications and 63,000 indicators) according to their budget, their specific targets, as well as asset classes and geographies that they are interested in.
As the industry continues to innovate and expand its offering in sustainable finance within the context of ESG standards, solutions like Manaos empower investors to assemble the data they need to comply with Asia Pacific’s evolving regulations covering sustainability.
Bottom line
Over recent years, regulatory initiatives have accelerated along with scrutiny of ESG claims aimed at anti-greenwashing regionally and internationally. These efforts are manifested acutely in Asia Pacific. We can expect further significant developments in regulations and enforcement efforts to ensure credibility of ESG products or services. As more is done in this space, Asia Pacific has emerged as a significant hub in the development of more transparent and efficient environmental markets.
[1] Regenerate: an Asia Pacific study on sustainability and beyond | Kearney
[2] BNP Paribas ESG Global Survey
DISCLAIMER
The information contained within this document (‘information’) is believed to be reliable but neither BNP Paribas nor any of its branches or affiliates (hereinafter collectively, “BNP Paribas”) warrants its completeness or accuracy. Opinions and estimates contained herein constitute BNP Paribas’ judgment and are subject to change without notice. BNP Paribas and its directors, officers and/or employees shall not be liable for any errors, omissions or opinions contained within this document, nor for any direct or consequential losses arising from any action taken in connection with or reliance on the information. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service, and is not intended for retail investors. The information does not constitute legal, financial, tax or professional advice, is general in nature and does not take into account your individual objectives, financial situation or needs. You should obtain your own independent professional advice before making any decision in relation to this information. For the avoidance of doubt, any information contained within this document will not form an agreement between parties. Additional information is available on request.
The contents hereof may not be reproduced (in whole or in part) without the prior written consent of BNP Paribas. The use of any trademarks and logos displayed herein is strictly prohibited unless written permission for such use is obtained from BNP Paribas and/or, where relevant, such third party, which may own the trademarks and logos.
BNP Paribas is a credit institution that is authorised to perform banking activities and investment services under the law applicable in France and is subject to prudential supervision on a consolidated basis by the European Central Bank, in cooperation with the Autorité de contrôle prudentiel et de résolution. As a public listed company and as an investment service provider, BNP Paribas is also in France under the supervision of the Autorité des marchés financiers. Its registered office address is 16 boulevard des Italiens, 75009 Paris, France, and its website is www.bnpparibas.com.
Services described in this document, if offered in Australia, are offered through BNP Paribas acting through its Australia Branch ABN 23 000 000 117 (“BNP Paribas”) and/or BNP Paribas Fund Services Australasia Pty Ltd ABN 71 002 655 674 (“BPFSA”). BNP Paribas is licensed in Australia as a foreign authorised deposit-taking institution by the Australian Prudential Regulation Authority and delivers financial services to clients under its Australian Securities & Investments Commission Australian Financial Services License (AFSL), No. 238043. BPFSA is an Australian-incorporated company which is a wholly owned subsidiary of BNP Paribas and delivers financial services to clients under its AFSL No. 241080. The Information is directed at wholesale clients only and is not intended for retail clients (as both terms are defined by the Corporations Act 2001, sections 761G and 761GA).
Services described in this document, if offered in Hong Kong, are offered through BNP Paribas acting through its Hong Kong Branch, which is registered as a Licensed Bank under the Banking Ordinance and regulated by the Hong Kong Monetary Authority. It is also a Registered Institution regulated by the Securities and Futures Commission for the conduct of Regulated Activity Types 1, 4, 6 and 9 under the Securities and Futures Ordinance. Furthermore, where the content relates to regulated products/ activities, the Information is directed at “professional investors” as defined in the Securities and Futures Ordinance.
Services described in this document, if offered in Singapore, are offered through BNP Paribas acting through its Singapore Branch, which is licensed by the Monetary Authority of Singapore under the Banking Act 1970 as a qualifying full bank. It is also a clearing member and depository agent of The Central Depository (Pte) Limited (CDP), a trading member of Singapore Exchange Derivatives Trading Limited (SGX-DT), and a clearing member of Singapore Exchange Derivatives Clearing Limited (SGX-DC). Singapore dollar deposits of non-bank depositors placed with the Singapore branch are insured up to $75k by the Singapore Deposit Insurance Corporation. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
Services described in this document, if offered in New Zealand, are offered through BNP Paribas Fund Services Australasia Pty Ltd (“BPFSA”) acting through its New Zealand Branch, NZCO registration number 1010736. BPFSA is an Australian-incorporated company which is a wholly owned subsidiary of BNPP. BPFSA is registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. BPFSA is not licensed by a New Zealand regulator to provide financial services and BPFSA’s registration on the New Zealand register of financial service providers does not mean that BPFSA is subject to active regulation or oversight by a New Zealand regulator. NO BNP PARIBAS ENTITY IS A REGISTERED BANK IN NEW ZEALAND. The Information is intended for wholesale clients only, as such term is defined in the Financial Markets Conduct Act 2013.
Services described in this document, if offered in the People’s Republic of China (“PRC”, which for these purpose excludes the Hong Kong or Macau Special Administrative Regions or Taiwan), are offered through BNP Paribas China Limited (“BNPP China”), a subsidiary of BNP Paribas. BNPP China is a commercial bank regulated by the China Banking and Insurance Regulatory Commission. This document does not constitute an offer to sell or the solicitation of an offer to buy any financial products in the PRC to any person to whom it is unlawful to make the offer or solicitation in the PRC.BNPP China does not represent that this document may be lawfully distributed, or that any financial products mentioned herein may be lawfully offered, in compliance with any applicable registration or other requirements in the PRC, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by BNPP China which would permit a public offering of any financial product or distribution of this document in the PRC. Accordingly, no financial product mentioned herein may be offered or sold, directly or indirectly, and neither this document nor any advertisement or other offering material may be distributed or published in the PRC, except under circumstances that will result in compliance with any applicable laws and regulations.
Services described in this document, if offered in India, are offered through BNP Paribas acting through its branches in India, which is registered as a Scheduled Commercial Bank and is regulated by Reserve Bank of India. It is also a registered custodian under the SEBI (Custodian of Securities) Regulations, 1996 and is regulated by the Securities and Exchange Board of India.