Financial Services

Materiality of Asia: Investing away from climate risk

March 23, 2021


Materiality of Asia: Investing away from climate risk

March 23, 2021

Jason Wincuinas

Manager, Policy and insights

Based in Hong Kong, Jason covers Asia from Australia to India. His background includes managing publications, financial reporting and technical marketing as well as a decade of product-sourcing experience with mainland China factories. Some of his most formative work, however, has been as a stay-at-home dad and freelance writer, covering topics from perfluorocarbons to popcorn. Jason received a BA in English from the University of Massachusetts, Amherst with study at the University of Sheffield in Yorkshire, UK.

Materiality of Asia: Investing away from climate risk

What constitutes material climate risks remains under debate within the financial industry, with clarity and consensus on the topic elusive. It is clear, however, that unless parties agree on what needs to be measured, the consequence could be an irreversible breach of climate limits—such as those set out in the Paris Agreement.

The business risk and reality of climate change

Asia is on the front line of climate change. Six of the ten largest economic loss events in 2019 occurred in the region, all caused by extreme precipitation (typhoons or monsoons), according to insurance provider Aon.1 The McKinsey Global Institute estimates that, under some scenarios, the risk of extreme precipitation could rise by as much as fourfold in parts of East and Southeast Asia by 2050.2 “Flooding—the damage caused by it and spending to protect against it—poses the biggest climate risk in Asia from an economic perspective,” says Upmanu Lall, professor of engineering at Columbia University and director of the Columbia Water Center. “That risk is magnified by the fact that South Korea, Japan, Southeast Asia and southeast China are the global hub of manufacturing,” he adds.

When record-high floods inundated the Chinese city of Wuhan and surrounding towns in June and July of 2020, the waters disrupted the personal protective equipment (PPE) supply to global healthcare markets. Wuhan-based manufacturers’ operations were heavily disrupted, as were those reliant upon them. The ripple effects, and idled and stranded assets, were a manifestation of the material risks that extreme weather—often attributed to climate change—poses to business operations and supply chains in Asia.3 By some measures, businesses in Asia largely understand the impact that climate change has, or can have, on their operations. ESG (environmental, social, governance) reporting by businesses in the region has soared in recent years, according to the CFA Institute, a not-for-profit association supporting finance professionals.4 The covid-19 crisis does not appear to have put companies off from pursuing ESG practices. In a recent Economist Intelligence Unit study, 72% of Asia-Pacific CEOs said they increased their focus on ESG in the first stage of the crisis.And stewardship codes that guide investors in their ESG engagement with listed companies are proliferating across the region, according to the Principles for Responsible Investment, a UN-supported network of institutional investors, and “are now the rule rather than the exception”.6

The report was written by Denis McCauley and edited by Jason Wincuinas. The report includes sections of independent commentary from Fullerton Fund Management. Additional insights were obtained from in-depth interviews with the following subject matter experts and we thank them for their time: 

  • Emily Kreps, global director, capital markets, CDP
  • Upmanu Lall, professor of engineering, Columbia University; director, Columbia Water Center
  • Michael Tang, head of listing policy and product admission, Singapore Exchange Regulation (SGX RegCo)

1 Aon, Weather, Climate & Catastrophe Insight — 2019 Annual Report.
2 McKinsey Global Institute, Climate risk and response in Asia, August 2020.
3 The massive Three Gorges Dam, built upriver from Wuhan and in operation since 2006, was partly designed to control such flooding. That Wuhan and other areas suffered flooding (on this and previous occasions), and that the dam itself came under pressure, suggests that the pace of climate change has exceeded what engineers and climatologists expected one or two decades ago.
4 CFA Institute, ESG Disclosures in Asia Pacific, November 2019. The Institute’s assertion is based on a summary of estimates from other sources.
5 EIU, The Asia-Pacific CEO survey: Business leaders chart the road ahead, November 2020.
6 “Scaling up sustainable finance in Asia: highlights from PRI APAC Digital Symposium”, PRI website, September 22nd 2020.

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