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2024 ESG finance leaders forum

The ECCT's Low Carbon Initiative co-hosted the 2024 ESG Finance Leaders Roundtable Forum together with the Bankers Association of the ROC (BAROC, 中華銀行公會) and the Taiwan Academy of Banking and Finance (TABF, 台灣金融研訓院). The event, held for the fourth consecutive year, began with opening remarks by guests of honour Dr Chen Yen-Liang, Vice Chairperson of the Financial Supervisory Commission Republic of China (Taiwan) (FSC, 金融監督管理委員會副主委 陳彥良); Han Cheng, Vice President of TABF (台灣金融研訓院院務委員 鄭翰); Wang Tsong-Ming, Secretary General of BAROC (中華民國銀行公會祕書長 王聰明) and Jennifer Wang, ECCT LCI Co-Chair. This was followed by presentations by Stoney Hsia, Head of the Corporate Coverage Group at BNP Paribas Taiwan (法商法國巴黎銀行執行總監/企業金融部主管 夏雁峰); Aaron Lei, Executive Director and Head of Financial Institutions - Coverage at Credit Agricole Corporate Investment Bank (CACIB, 法商東方匯理銀行台北分行法人金融處執行董事 雷明峰); Ronald Young, Head of Sustainable Finance Asia at Societe Generale (法商法國興業銀行亞太區可持續金融部董事 楊永航) and Chen Shu-Chin, Senior Vice President at Mega International Commercial Bank (兆豐國際商業銀行企金業務處協理 陳淑勤). The event concluded with a panel discussion featuring all of the guest speakers that was moderated by Jerry Lin, Chief of the Center for Sustainable Finance Development at TABF (台灣金融研訓院 永續金融發展中心主任 林士傑).

In his presentation, Stoney Hsia noted that French banks like BNP have been at the forefront of driving sustainable finance, especially since the Paris Agreement was signed in 2015 in Paris. Another initiative that has sped up climate action was the launch of the RE100 initiative in 2014 by the Climate Group and CDP, to which over 400 influential global corporations have now signed up.

Taiwan is also playing its part, especially since the government committed to reach net zero by 2050 and the government released its blueprint to get there, focused on 12 areas of action. The speaker noted that Artificial Intelligence (AI) is not really a new concept since it has been evolving for years and is actually at the heart of industry evolution. Taiwan is playing a central role in AI evolution given the extensive supply chains on the island. Given the enormous energy needs of AI, green energy will be essential to enable sustainable AI development in Taiwan. He noted that the AI industry's top player, Nvidia, takes sustainability seriously and asks its suppliers to commit to becoming more sustainable.

The role of the financial industry is to provide sustainable financial products. In terms of transactional solutions, these include green deposits and labelled guarantees. In terms of asset/liability management services, they provide operating working capital financing, supply chain financing, project financing, corporate bond issuance, convertible/exchangeable corporate bonds and asset-backed securitization. To assist with risk management they can provide interest rate swaps, cross currency swaps and carbon trading.

BNP has already reached net zero in is scope one emissions (its own operations) and is committed to providing sustainable finance to help its clients. To support the implementation, Hsia said that investment/financing management standards should be incorporated into sustainability indicators and risk management assessment mechanisms and the relevant personnel education and training should be supported.

In his presentation, Aaron Lei reported that in 2022, the Crédit Agricole Group identified ten priority sectors to set net zero trajectories, which represented more than 75% of the group's GHG emissions and 60% of its exposure. The first five, namely oil and gas, power generation, automotive, commercial real estate (because investors in this sector tend to have deeper pockets than residential real estate), were targeted for action first because cuts in emissions in these sectors would have the most impact. According to the speaker, decarbonisation targets for the oil and gas sector set for 2030 at the end of 2022 were already reached, eight years ahead of schedule, following a 40% decrease in financed emissions at the end of 2022, well ahead of the 2030 target of 30%. There was also a 17% reduction in Crédit Agricole CIB's exposure to oil extraction in 2022 compared to 2020. In terms of power, there was a 16% decrease in the carbon intensity compared to the 2020 baseline, in line with the target. The group significantly increased its exposure to low-carbon energy, including through its clients. In the automotive sector, there was an 8% decrease in the carbon intensity of financed emissions in 2022, in line with the 2030 target. In the commercial real estate sector, the carbon intensity of financed emissions was stable in 2022 compared to 2020. In cement, however, there was a slight increase of 3% in the carbon intensity of financed emissions in 2022 compared to 2020.

In December 2023, the group announced new decarbonization trajectories for its financing portfolios to achieve carbon neutrality by 2050. This will be done by financing and investing massively in renewable energy, low-carbon infrastructure, clean technologies and energy-efficiency projects, supporting all its customers in their social and economic transitions, by halting the financing of any new fossil fuel extraction projects and adopting a selective approach to support energy players engaged in this transition, which will consequently reduce green-house gas emissions of this sector twice as fast as the net zero 2050 scenario defined by the International Energy Agency. In particular, the group plans to triple its annual financing of renewable energy, translating into an increase of 80% of Crédit Agricole CIB's exposure to low carbon energies between 2020 and 2025, reaching €13.3 billion in 2025. It will also reduce financed emissions linked to the oil & gas sector by 75% by 2030 (vs 2020) and refrain from financing of any new fossil fuel extraction projects.

To support its customers in various industries to reduce their emissions, the group will prioritize financing of low-carbon steel production technologies, low carbon shipping technologies, fourth generation aircraft, energy-efficient property renovations and sustainable agricultural practices. To ensure the implementation of the group's climate strategy, it has strengthened its governance structure, created a Climate and Sustainability Committee and implemented quarterly monitoring of decarbonisation trajectories.

In terms of instruments, the group has introduced the use of transition bonds, an instrument where the proceeds are exclusively used to fully, or partly finance, or refinance new and/or existing eligible transition projects. Transition bonds are intended for companies which are in greenhouse gas-intensive industries such as materials, extractives, chemicals and transportation, and which currently do not (and for the foreseeable future may not) have sufficient green assets to finance but do have financing needs to reduce the GHG footprint of their business activities, as well as their products and services.

A number of governments have implemented emissions trading schemes (ETS or cap & trade) to help them achieve their GHG emission reduction objectives. Around 18% of global carbon emissions are regulated under ETS. The most established system is in the EU (since 2005). South Korea implemented a system in 2015, California (in 2012) and China (since 2021). Voluntary carbon market (VCM) schemes have also gained traction. The main purpose of VCM initiatives is to serve businesses, individuals, NGOs, and other entities that want to reduce their carbon footprints. Over 600 of the largest publicly traded companies have set (or reached) net-zero targets. The taskforce on scaling VCMs (including IFF research and McKinsey) estimates that the market could be worth between US$30 billion and US$50 billion by 2030. Based on the corporate net-zero pledges, corporate offset demand could reach at least 1 GtCO2e by 2030 (four times today's yearly supply).

However, there are inherent challenges that need to be addressed: The method of measuring carbon credits is complex and difficult to verify or replicate. Without regulations, market standards could vary, and a company may choose those favouring them. Meanwhile, independent scientific verification of carbon reduction claims generally lags behind the issuance of carbon credits and the methodology used and qualifications of independent auditors may vary in a loosely regulated environment. Carbon credits and the carbon market should not become a tool or avenue for greenwashing. Nor should they be used as an excuse for corporations to slow down efforts to reduce GHG emissions. Systematic governance and serious methodology/product scrutiny is needed to minimize the negatives and deliver real results.

The EU Green Bond Standard is a practical and secure financing tool to ensure the real economy investments create environmental impacts that fulfil Europe's climate goals and other long-term environmental objectives. The standard requires the financed green investments to follow taxonomy criteria, issuers to publish a green bond framework, allocation and impact reporting and verification. It ensures a clear and direct connection with real economy investments and their intended positive impact on climate change mitigation, adaptation and the other EU environmental objectives. France has gone a step further by introducing “solidarity-based finance” as far back as the 1980s. In solidarity-based investment funds, at least 25% (and up to 100%) of excess returns made by the fund are donated to an NGO or an association. Crédit Agricole CIB has introduced the concept in Taiwan to support efforts to reduce plastic in the ocean.

In his presentation, Ronald Young said that his bank has committed to aligning its financing with its net zero targets. For the oil & gas sector, it targets a cut of 70% to its portfolio of financed carbon emissions by 2030 versus 2019, for cement a reduction of 20% carbon emission intensity by 2030 versus 2022, a 51% carbon emission intensity reduction for the automotive sector by 2030 versus 2021, a 43% carbon emission intensity in the power sector by 2030 versus 2019 and reduction to zero for thermal coal by 2030 for companies in the EU and OECD Countries and by 2040 elsewhere. It has also pledged to stop financing upstream pure oil and gas players and new greenfield projects.

The bank has 400 staff from various key regions and business lines are working on 15 strategic activities to create synergies and to engage all 2000 frontline staff on ESG issues. It is using a cross-sectorial approach and life cycle analysis to take a holistic view of its clients' business, supporting emerging leaders and creating new product offers for small scale asset financing and nature-based solutions and advising clients on sustainability issues to help them reinvent their businesses and accelerate their own ESG transitions.

Among other initiatives, SG has acted as financial advisor and mandated lead arranger for the Formosa 2 offshore wind farm in Taiwan and acted as the exclusive financial advisor to the Clean Hydrogen Infrastructure Fund, involving Air Liquide and TotalEnergies. It is also supporting carbon capture and storage, “round the clock” projects (that combine solar, wind and energy storage to provide 24-hour power) and floating offshore wind initiatives. The firm has set a sustainable financing target of US$300 billion between 2022 and 2025.

In her presentation Chen Shu Chin gave a comprehensive overview of Mega International Commercial Bank's ESG financing initiatives.

The event concluded with a panel discussion moderated by Jerry Lin that included all of the guest speakers as panellists.