The climate finance investment gap is limiting the integration of climate change for companies and the financial sector across Asia, jeopardizing the success of green finance globally, according to the Asian Infrastructure Investment Bank (AIIB) and Amundi, Europe's largest asset manager.
This assessment comes ahead of the imminent launch of the AIIB-Amundi Climate Change Investment Framework—a first-to-market tool aimed at informing targeted sustainable and responsible financing.
The AIIB-Amundi Climate Change Investment Framework launches September 9 and translates key objectives of the Paris Agreement into fundamental metrics to assess an investment's level of alignment with climate change mitigation, adaptation and low-carbon and climate resilient development objectives.
For climate-aligned finance to become mainstream, Asia must now come fully on board."
The relative absence of Asian financial firms from climate commitments and key international financial sector climate groupings has severe implications for the future of global green finance.
This is particularly stark given the region's scale and significance. Despite over a quarter of the world's heaviest-emitting firms located in Asia, the region represents a mere 5% of the signatories of Climate Action 100+.
Climate Action 100+ is one of the world's most prominent institutional investor initiatives using shareholder engagement to pursue climate goals, representing $40trn in AuM.
AIIB and Amundi said they identified areas where climate change investment risks and opportunity have already materialized, which is only expected to increase. For example, urgent physical risks to Asia include severe vulnerability to sea level rise, especially major cities and parts of China, Vietnam, Thailand, Indonesia and Bangladesh, with significant areas with dense economic activity to be below annual average flood level as soon as 2050. Increased typhoons and extreme precipitation leading to floods present a significant threat to Asia and disruption of its commercial activities.
Furthermore, compounding transition risks and a lack of regional climate finance leadership is in part due to a regulatory environment where there are no mandatory requirements for financial firms to provide climate reporting and less incentives to demonstrate climate commitments.
"This is an important wake-up call to the industry," said Stefen Shin, AIIB principal investment officer, Capital Markets and Structured Products. "For climate-aligned finance to become mainstream, Asia must now come fully on board.
"To mobilize action, asset managers and owners must be equipped with the tools and be incentivized to invest. Alongside our partners Amundi, AIIB will soon announce a Climate Change Investment Framework designed to help investors holistically assess climate change risk and transition opportunities at the issuer-level for the first time."
Jean-Jacques Barbéris, head of institutional and corporate clients division and ESG, Amundi added: "There is a vital need for investors to commit in climate-aligned ways to avoid losses from the materialization of both physical and transition risks. Strong performance in ESG and climate impact are increasingly considered alongside traditional performance metrics. Climate concerns should be treated as a priority as we emerge from the pandemic crisis."