Green finance is no longer viewed as corporate social responsibility (CSR) by banks and investors, but it continues to be underutilised by businesses. Many businesses face challenges transitioning to low-emissions operations. Many are not getting financing to transition from ‘brown’ to ‘green’. Today's significant investments in AI and crypto contrast sharply with the insufficient funding for climate initiatives, crucial for long-term economic resilience and societal benefits like longevity and improved quality of life.
This is the point made by Mr Vivek Pathak, Regional Chief Risk Officer and Former Global Head for Climate Business, International Finance Corporation, during his keynote at the Transition Finance Conference held at Singapore Management University (SMU) on 5 November. Organised by the Singapore Green Finance Centre and the Sim Kee Boon Institute for Financial Economics at SMU, the theme was ‘Raising the Ambition - Bridging Academic Research with Industry Reality to Drive a Credible Transition for Asia’.
Mr Pathak stressed that addressing climate change is not just an environmental imperative but also a matter of strategic economic importance. “A fair transition must consider the social and economic impacts on workers in carbon-intensive industries,” he said. “Developing well-functioning carbon markets and focusing on companies are critical steps.”
The importance of transition finance
Mr Iain Conn, Co-Chair of Singapore Green Finance Centre Advisory Board, also outlined the urgency of transition in his opening remarks, He said the world needs to double the investment levels going into the energy transition, and stressed the importance of interventions soon. As much of the next generation of technologies to do this are not yet market-ready, they require financing to scale at the pace necessary to address climate change.
A proposal for a state-owned enterprise in India
Following the keynote, Dr Rajiv Lall, Management Committee of SGFC, SMU, presented a proposal for financing State-Owned Enterprises (SOEs) to transition at scale, titled ’Accelerating the Transition of Strategically Important Energy Sector SOEs: A Proposal for India.’
His proposal focused on engaging NTPC Limited, India's largest energy conglomerate to accelerate transition at scale rather than a deal level. In a nutshell, he suggested structuring financing to encourage the SOE to reduce reliance on coal and focus on ambitiously developing renewables to drive the electricity sector transition.
He said, “As coal plants are retired in years to come, the company needs to develop and harness the benefits of renewables as the technology improves. This would reduce the risk of the company being stranded with conventional coal assets.”
He added: “Investing in the development of renewables requires blended finance, which is critical but is currently insufficiently available. Blended finance has to be a key catalyst for transition in Asia.”
The role of private capital in blended finance
SMU’s Associate Professor of Finance Hao Liang, who is also the Co-Director of SGFC, shared his insights on howblended finance, combining public, private, and philanthropic capital, can help mitigate risks in funding transition projects and provide returns for private investors. This was the main thrust of an ongoing study he presented, titled ‘Greening the Brown Sectors with Transition Finance: International and Chinese Evidence’.
Policymakers and the financial industry have noticed that moving capital towards ‘green’ firms is not as effective in addressing the global climate challenge as anticipated. His research indicates that lowering the cost of capital for ‘brown’ businesses can help them become ‘greener’. Assoc Prof Liang spoke of how he welcomes collaborations with the industry in this piece of research, as he seeks to collect more data on technology and renewable energy adoption, capital structures, and investor returns.
“The transition finance market is small but has a lot of potential and is growing, especially in countries like Japan, Italy, and China. China has started to focus on transition finance, with significant investments needed to decarbonise industries,” he said.
The role of AI
The final presentation by SMU’s Professor of Finance Hong Zhang, Director of Sim Kee Boon Institute for Financial Economics, was titled ‘Can AI Help Human Decisions: A Finance Perspective in Digital Transition?’ He dissected the rationale behind AI's success and how it exposes the limitations of human intelligence.
Using neural network tools, his research showed that AI can assist trading by aligning with the best human decisions and identifying key mistakes made by human traders. In interactions with the audience, he also touched on the characteristics of data used in neural networks, a comparison of AI performance with traditional investment methods, and the potential for AI to assist human decisions.
Ms Nikki Kemp, the Executive Director of the SGFC remarked, “Asia is at the epicentre of the climate crisis and the region’s continuing economic success is at risk. ‘Transition Finance – Raising the Ambition’ explored the essential elements of financing a credible transition in Asia. Examining data and case studies, we were shown that we can address the challenges of financing the transition and deploy actionable solutions if we seek progress rather than perfection. The academic research and finance industry insights together form a powerful exchange of thought leadership.”
With the generous support of industry partners, she looked forward to the creation of rigorous, evidence-based knowledge to build capacity in transition finance and other critical themes on green finance and investment.
