MARTIN: Our research demonstrated that every one in ten dollars of global bond funds is focused on ESG investing. There are about US$1 trillion of real estate bonds in Asia-Pacific but less than 2% focused on green bonds. What are some of your thoughts about how to bring the entire ecosystem of investors, issuers, and financial intermediaries towards accelerating the pace of ESG-related investing?
JEFFREY: The fact that there are so many funds that are set up specifically targeting ESG investments gives us a glimpse of the mindset of savers and investors today. The population at large thinks that this is a moment-defining issue and want their fund managers to be doing the right thing and to be invested in these industries.
The problem is that the number of really good green investments that the money can go into is still somewhat limited. For many companies, it doesn’t represent an existential threat yet. It’s not as if all governments have a regulation saying that by year 2030 you need to be out of this business, or you need to have net-zero carbon emissions by this year otherwise the fines will come or the cost of carbon will increase.
For most companies, there isn’t a real need to put [transition policies] in place yet. So long as that need isn’t there, then the technologies that can help, or the capital expenditure that can help, won’t get spent. The opportunities for which ESG funds can go into is still somewhat limited. I think that’s the difficulty. There is a timing consistency problem between the desire to do good today and the number of opportunities to put that money to work.
At GIC, we are taking the approach of saying, ‘[Even though] some of the technologies are not yet at commercialisation stage, we are so convinced that this is a trend that will pick up that we’ve gone earlier in the process.’ We’ve gone to venture firms that are focused on environmental sciences, green technology, and agritech. We don’t know which technologies will win but we know that the tailwind is behind them and it’s better to get in early so that we can get to know the company. Then we can understand whether or not this is a likely winner, whether they will be able to take their cost to a commercial level where they can compete with non-green, and to also put ourselves in a position to give them growth capital in future rounds.
And we’re not the only people who are taking that approach. I think large investors, thoughtful investors, are doing that more and more.