The COVID outbreak was a lesson for policymakers who had ignored earlier warnings of how ill-prepared the world was for a global pandemic. At the same time, it served as a clarion call for investors to pay greater attention to the risks within their portfolios where traditional risk models have not been able to predict or assess. While COVID brought much attention to social issues following the disruptions to work and education, we believe that climate concerns will take centerstage in ESG investing in Asia. By 2050, parts of Asia may see increasing average temperatures, lethal heat waves, extreme precipitation events, severe hurricanes, drought, and water supply shortages. These extreme weather events are expected to hurt agricultural yields, infrastructure, supply chains and productivity. McKinsey & Company estimates that the Asian GDP that is at risk from these events accounts for more than two-thirds of the total annual global GDP impacted by climate change. Korea and China are already world leaders in the areas of electric vehicles and renewable energy. In 2020, Korea overtook China to become the number one producer of the electric battery. Meanwhile, China manufactures 47% of all the electric cars in the world and is home to 99% of the world’s electric buses. These innovations can help to mitigate climate change risks.
Asia Pacific expected to see up to $250 billion in new renewable investments in the lead up to 2025, we are likely to see more investment opportunities within the renewables energy sector. Seven Asian countries rank among the world’s most attractive markets for renewable energy sources such as wind power, hydropower and solar energy. EY’s Renewable Energy Country Attractiveness Index (RECAI) ranks China, India and Japan the highest in Asia for their investment and implementation opportunities in the renewables space. China, currently the world’s largest carbon emitter has committed to turn carbon neutral by 2050. Chinese issuers, both State Owned Enterprises and Privately Owned Enterprises, are likely to rally behind the government’s goal and set equally ambitious environmental targets for their businesses, presenting significant opportunities for investors. In 2020, China was Asia’s largest green bond issuer ahead of Japan. It remains to be seen if China can continue to take the pole position in 2021. Meanwhile Singapore has also recently announced plans to issue up to $14 bn of infrastructure bonds to fund its ambitious Green Infrastructure programme.