Nachhaltigkeit ist heute der Haupttreiber des BIP-Wachstums in Asien

Talking Heads podcast with Crystal Geng

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing the latest developments on sustainability in Asia. I’m Daniel Morris, Chief Market Strategist, and I’m joined by Crystal Geng, Asia ESG Research Lead. Welcome, Crystal, and thanks for joining me.

Crystal Geng: Thank you, Daniel.

DM: Asia has become a pivotal player in the world’s sustainability agenda. What is driving its greater efforts particularly in terms of decarbonisation, nature conservation, and equality? Maybe you can enlighten us on how BNP Paribas Asset Management has reacted. Have we stepped up our presence and activities in the region, including stewardship?

CG: As you mentioned, Asia has taken a leading role in the world sustainable agenda. The push on sustainability comes from a confluence of regulatory mandates, fundamental economic needs, and the geopolitical shift. If we look deeper at the economy, it’s relying heavily on agriculture, fishery and many [other areas], which is super-dependent on nature At the same time, this region is seeing high-speed urbanisation and industrialisation. We also have [a] persistent poverty issue in developing or undeveloped regions. Together with the lack of fundamental healthcare as well as educational resources, all those things are affecting a large number of households.

The sustainability theme [is] now the core driver of GDP growth in this region. For example, in Indonesia, NI [nickel] based product export is contributing 2.5% of local GDP, which is a huge number. It is a critical mineral for the renewable energy industry. If you look at China, the clean energy sector is contributing over 10% of GDP in 2024.

We have put emerging markets, especially Asia, as the key focus of our sustainability strategy. We have different entities in different key countries. All those things make it possible for us to really make a difference in terms of sustainability in this region. We have set up local ESG analysts in key countries like China and India to have deeper on-ground insights and to get a better evaluation of the performance of the [security] issuer. This enables us to launch a few ESG products, so that we can provide the opportunity for investors locally. All these things make it possible for us to have a deeper conversation with policymakers as well as to have [a] direct dialogue with local companies, so that we can contribute to the sustainable transition in this dynamic economy.

DM: Crystal, if we zoom in on decarbonisation as part of the efforts to mitigate the effects of global warming, carbon trading is one solution, but systems need to be aligned. What’s happening in Asia?

CG: 2025 is a significant year for Asian countries to advance their carbon trading to the next level with expansion in the compliance market as well as the voluntary market, so that they can be more aligned with the global standard. We can start with China. Starting from this year, the national ETS (emissions trading system) is going to expand to include six more sectors. We are going to include steel, cement, and aluminium. In total, we are going to cover 60% of overall emissions. This is quite high in terms of coverage compared with other countries and regions.

In India, starting this year, the Carbon Credit Trading Scheme is rolling out to cut the GHG [greenhouse gas] intensity by 2030. That is a very ambitious move because it provides a granular target on individual companies, which is impressive. Indonesia, Vietnam, Thailand, Malaysia, and also the Philippines have a common carbon framework which is trying to harmonise the rules.

DM: We talk a lot about climate mitigation, but we’re also seeing that climate adaptation is becoming more prominent in global sustainability efforts. Southeast Asia faces unique challenges. Can you describe some of those and what are the strategies to address them? And perhaps most importantly, what can investors do?

CG: Adaptation is definitely another hot topic. Asia stands as one of the worst physical climate change risk area. It has been warming nearly twice as fast as the global average. APAC is home to over 70% of the global population. The hazard could lead to significant asset damage and loss in Southeast Asia. Annual GDP loss is projected to be 2-5% GDP by 2030 and 7-11% by 2040, which is a huge figure. Why it is so high, because of the geo location. If we look at Southeast Asia, this area’s economy is largely agriculture, fishery, et cetera. They are super-vulnerable.

There is a projection saying in developing economies alone, the investment needs for climate adaptation can reach 130-415 billion per year by 2030. So, that is a huge opportunity for not only public capital, but also the private side, to chip in.

DM: You mentioned technology and of course that’s on everyone’s lips these days, artificial intelligence in particular. As a technology supplier, Asia benefits from the boom around AI and tech. But there are sustainability implications. For example, water stress caused by chip-making industries. How do you see companies in the region navigating the complexities and what are some of the implications for asset managers who are stewards of investors’ money?

CG: At almost every client meeting or seminar, we discuss the booming opportunity on AI and tech. In Asia, the tech boom is a double-edged sword for sustainability as well as the local economy. It is driving innovation, efficiency for different sectors, but also energy and water demand. It’s really creating a critical environmental bottleneck and a social challenge.

Let’s take the example of water stress. We all know the chip manufacturing industry is water-intensive. It is requiring highly purified water, which makes the problem even worse. [South} Korea and Taiwan are relatively high water-scarcity regions. So, the overall expense is extremely high for chip manufacturing. For example, we take TSMC, the Taiwanese semiconductor manufacturer. Water consumption surged 70% from 2015 to 2022. But after implementing recycling and conservation, TSMC achieved an 87% recycling rate, saving more than three million US dollars annually in operational cost.

So, as a sustainable asset manager, what do we do? We incorporated all the discussed topics into our fundamental ESG research. We are adapting the policy for Asia because of the local context. At the same time, we conduct stewardship and engagement to help the companies we invest in to identify the relevant risk earlier, and also to express our specific requirements. Eventually, our mission is to allocate investor capital towards the region’s resilient transition by capturing the economic upside without falling into the new era’s pitfalls.

DM: Thank you, if I can highlight some of the topics and points that you shared with us. You highlighted how in Asia is a challenge when it comes to ESG, climate change and so on. You pointed out that Asia is a high climate change risk area. When we think about AI, how is the region, how is BNP trying to address some of these challenges? You talked about how in the region, carbon trading is undergoing a lot of improvement this year and hopefully next and as BNP looks to engage with companies, for example, to promote water use efficiency. Crystal, thank you very much for joining me.

CG: Thank you, Daniel.

DM: That’s it for this week’s episode of Talking Heads. If we would like more information about our sustainability initiatives in Asia, please reach out to your BNP Paribas Asset Management contact. Just before we go, I’d like to mention that the Talking Heads podcast is available on Spotify and on YouTube. For YouTube, visit youtube.com/bnp/playlist and tap or click on Talking Heads. You’ve been listening to the BNP Paribas Asset Management Talking Heads podcast with me, Daniel Morris,  and Crystal Geng, Asia ESG Research Lead. Please do join me next week. Until then, take care.