Tag: sustainability

Ecosperity – Over a decade, an Asian phenomenon

As I wrapped up my 5th year at Ecosperity last week, I couldn’t help but wonder how it has evolved over the decade from just being Temasek’s sustainability platform to now well and truly being the pinnacle summit for climate leadership in Asia. The transformation is quite phenomenal – from a half-day gathering of ~200 people (as per Gemini) to a week long conference across ~60 events, 40 partners and ~4,000 people! But what has stood out for me is the strong focus on implementation across some of the key themes driving climate action in our region – energy transition, decarbonization, technological innovation, transition finance, nature and carbon markets. Ending the conference every year, I have found myself richer in knowledge and replete with confidence that despite the enormous climate challenges, human ingenuity and tenacity will find us a way through this crisis.

Five themes dominated discussions this year:

1. Carbon Markets

After few tumultuous past years battling integrity carbon markets are gradually healing but still under-delivering. Overclaiming of benefits, community incentive structures, fundings gaps and integrity of credits continue to offer impediments to the development of a robust and scalable demand-supply market platform. Educating investors on risk/return dynamics of various carbon projects remains vital – a mangrove vs peatland project offers very different paybacks, time horizons, carbon removals and thereby prices. Usage of technology for MRV is becoming critical in establishing true integrity of credits. CDR (CO2 Removals) – both nature based and tech based – will be critical components of a balanced carbon portfolio, based on impact, risks, pricing and ultimately organization strategy of the buyers. Ultimately, both reductions and removals will need to go hand-in-hand and incentives to buyers through right policies may just help boost demand.

2. Nature for Business

Nature is gaining traction, increasingly (and rightly!) discussed as the other side of the coin opposite to Climate. But nature remains heavily under-invested: it’s tough to measure, is not priced effectively as an externality and is often not bankable. Singapore has taken the lead on Nature Based Solutions by focusing on 3 pillars: High integrity (core carbon principles), High demand (buyers coalitions, long-term offtake agreements) and High supply (robust project development, blended finance). For the private sector, nature needs to go beyond compliance and into the realm of value & resilience. FIs are adding nature into financing frameworks and linking it to adaptation & resilience in order to build a business case. Getting capital to target specific bottlenecks in the supply chain will lead to value creation.

3. Energy Transition to Security

Global geo-political upheavals have meant that past discussions on energy transition have now pivoted to focus on energy security instead – but that has only further validated that energy transition is actually the key driver to energy security! The world has witnessed first hand the risks of depending only on fossil fuels that have been subject to supply chain bottlenecks, and that is further accelerating deployment of renewable farms, battery storage systems, and grid transformation investments. With solar now cheaper than grid power in many regions, renewables are not just a supply-chain risk mitigation option, but a commercially superior energy alternative on their own. However, the biggest challenge lies with ailing grid infrastructure in most Asian markets, esp. with the need for smart grids to deal with multiple sources and intermittency. The ASEAN Power Grid aims to tackle that issue head-on and Multilateral Development Banks are working hard to scale this up.

4. Infrastructure for Resilience

Gone are the days when infrastructure alluded to transportation and energy as default – today, its data centres that are drawing huge investments globally. But with that come significant issues around grid interconnection deluge, behind the meter renewable solutions, water resilience as well as social license to operate. As per one of the comments, ~30-50% of DCs are delayed today due to grid permits. A much less appreciated fall out of this growth is the need for critical minerals, which are the ingredients for all latest chips and cutting-edge equipment needed to power the AI boom. I was shocked to hear that ~20-40 tons of copper are needed for each MW of AI DCs – so we need $60B of Cu mines that don’t even exist today.

5. Catalyzing Capital

As expected, this remains the biggest bugbear for climate action. The Monetary Authority of Singapore is doubling down on 3 levers: Getting concessionary capital through FAST-P blended finance initiatives, strengthening market frameworks like the transition finance taxonomy and building resilience through increasing climate adaptation financing. But emerging economies need $1.3T of transition financing vs $200B they get at present – and private sector needs to contribute 60-80% of that from 10-20% today. The other challenge is that 80-90% of today’s private capital is coming from debt and not equity, and Asian currencies have made achieving IRR thresholds even harder. All these point to the need for larger private equity play in hard to abate sectors, channeling more domestic capital, and balancing short term returns with long term decarbonization. Finally, much discussions are focusing now on climate adaptation and resilience bankability, with insurers and reinsurers taking centre-stage. One of them even highlighted that a 2-4% higher costs can lead to upto ~40% of reduced future losses. Despite this, making adaptation projects bankable remains a work-in -progress at best.

It was humanely impossible to experience everything at Ecosperity in its fullest depth, given how diverse and concurrent most of the sessions were. But if there is one thing that I take away from the frenetic week, it is the deep gratitude for all the efforts that every actor, big or small, is putting in to ensure that environmental protection goes hand in hand with economic growth. After all – isn’t that what “Ecosperity” has always stood for since the beginning?

The Sustainability Maturity Curve

Having spent many years now not only leading large multinational corporate sustainability programs, but also observing how companies across different industries approach their ESG journeys, I have realized that organizations go through what I like to call a “Sustainability Maturity Curve“. While the curve may indicate where you are on your sustainability journey, I think a better way to interpret will be to look at it as an answer to the question: “Why are you doing whatever you are doing on sustainability?”. Framed this way, it removes any judgement on maturity levels of your ESG programs (which I admit is not the intent of the title!), but rather helps you align your efforts and investment of time and resources. When you honestly acknowledge the reasons behind your ESG strategy, it should give you clarity of mind and confidence in your response when confronting questions around how much should I focus on sustainability and what does it do to my business. So what this curve about?

I will give it 5 stages:

Compliance

In this stage, organizations respond to mandatory disclosure requirements often imposed by their local regulators. This gets them to start organizing relevant ESG data internally, assign ownerships to different teams, and start thinking about how to communicate their sustainability policies, approach and data to external stakeholders. This is also where Boards start paying keen interest to sustainability matters, given the need for their sign off on the sustainability reports.

Risk Management

Focus in this stage is on how to identify, manage and mitigate risks for the business arising out of sustainability issues. This can take various forms and shapes – risk of physical damage to assets due to climate events like flooding, risk of policy changes and customer expectations on the business, reputational risk due to negative impact of a company’s operations on the environment/society and so on. ESG occupies a place in the risk register of companies, and comes on the table of Board Risk Committees.

Operational Excellence

Now the rubber hits the road – businesses start realizing that there are cost savings and operational efficiencies to be had as a result of spending money on green capex. Think of lower utility bills due to a chiller upgrade in a building, cheaper power due to rooftop solar investments, IoT sensors that can automate irrigation and minimize water loss – I suppose you get the drift. Sustainability now becomes a driver of opex reduction, and the discourse moves from the corridors of sustainability and risk teams to the realms of operations and commercial management.

Value Creation

This is where sustainability starts getting truly embedded into business models. Teams now start identifying and pushing all levers where ESG efforts and investments can not only improve efficiency and reduce opex, but can also identify new revenue streams, differentiate existing products, help enter new business segments/markets, rewire supply chains, improve financing terms, win new customers and enhance business valuation among others – everything that can uplift EBITDA in the long run and improve ROIs.

Strategic Pillar

Companies in this stage have truly integrated sustainability as a strategic imperative. ESG factors are central to how business decisions are taken across the lifecycle from investments to operations and embedded into balance scorecards, systems, processes and policies. Every layer from leadership to management to all staff are trained to continuously look at how sustainability can provide a competitive edge in the market with customers, investors and suppliers alike, and how ESG is a core part of corporate strategy development and execution.

Many times simplistic articulation of complex topics can lead to misinterpretations and incorrect conclusions – so as we look at the curve and its stages, it is important to keep the following in mind:

  • Climbing the curve is almost never sequential in practice – you will always be overlapping across stages at different points in time, and in fact may even be at different stages for different business units.
  • Not everyone has to “climb” the curve! You may chose to stay at a particular stage for various reasons – market conditions, shareholder preferences, competitor dynamics and so on. So look at the curve not as a judgement on how much you care about the environment and society, but as a business decision on how you want to balance the various trade-offs.
  • Be aware of where you are on this curve and why are you there – that will makes your sustainability decisions more logical and easier to explain to your stakeholders.

Ultimately, corporate sustainability is a journey and not a destination, with nuanced layers of personal aspirations, business impact, stakeholder expectations and time horizons all intricately woven together. Visionary leaders are those who know how to untangle this delicately.