The following is an interview Asilah Azil, Partner in McKinsey’s Singapore office, conducted with Rachel Teo, Head of Sustainability and Head of Total Portfolio Sustainable Investing at GIC. The article was originally published on 21 November 2022 as part of McKinsey’s Shapers of Sustainability series.
ASILAH AZIL: Given GIC’s global presence, what do you think are some of the key challenges in Asia’s transition to net zero?
RACHEL TEO: I think the climate-related challenges facing Asia are not unique. The scale of the problem is huge, and the entire energy system and its infrastructure need an overhaul. However, there’s a lot of inertia in the current system. For instance, in Germany, fossil fuels still account for 78% of the country’s primary energy supply, despite it being an early leader in climate policies and providing subsidies for clean energy for a number of years.
So Asia is not unique; it’s also very dependent on fossil fuels. Given its strong economic growth and increasing population, Asia is now the world’s largest consumer of energy. We need to decarbonise the region in a relatively short time, at lower per-capita income levels and with fewer technological capabilities compared to developed markets. We also need do it in a way that is equitable, inclusive, and in support of the sustainable development of the region.
The next challenge is obtaining robust carbon emissions data, which are lacking in many emerging markets, including Asia. Without this, it is difficult to model possible transition pathways and the trade-offs required to enable the design of suitable policies.
Finally, the last challenge facing Asia is the urgent need to invest in adaptation strategies due to the increased vulnerability of the region to the physical impacts of climate change, such as extreme weather events and natural disasters. This will place increased demands on public finance and policy capacity in Asia.
ASILAH AZIL: Based on your extensive experience in institutional investment management, what have been the most important developments in the last decade for sustainable finance?