Sustainable and actionable: An ESG study of climate and social challenge for Asia
Along with its wealth, Asia’s climate risks have been rising. Low-lying coastal cities are particularly vulnerable to climate change and regional population and economic centres—such as Bangkok, Ho Chi Minh City, Manila and Shanghai—sit upon that precipice. Yet in terms of green fixed income, Asia faces another risk: lack of issuance and uptake.
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Data drives ESG investing—but too much data inspires greenwashing
Greenwashing—falsely attracting capital by claiming it will be used for sustainable projects—is the “fake news” of investing. The term has roots in the 1980s when it was aimed at big corporations that made symbolic “green” gestures but were nonetheless culpable for net contributions to pollution, or what we today call “climate change” (a greenwashed term itself that displaced “global warming”).
But with the growth of environmental, social and governance (ESG) investing, which now accounts for about 20% of global assets under management (AUM),1 the stakes are much higher.
“Greenwashing is a big issue,” says Remy Briand, global head of ESG products at MSCI. The finance firm is a major provider of investment indices and data, much of which is ESG focused. “The way to resolve this is through transparency on dedicated use of proceeds and robust third-party validation of that use.”
The mention of “transparency”, however, raises the question of how it’s to be achieved. The old answer might have been “more data”. But one problem the financial world faces is a lack of a global ESG taxonomy which means there is no data “gold standard”. Information can therefore be highly inconsistent, making comparison of companies and projects difficult. In turn, that deters investors and helps greenwashers. Many of Asia’s largest investors—the asset owners—such as the Asian Infrastructure Investment Bank, the Hong Kong Monetary Authority and Ping An Insurance, China’s biggest insurer, share this view (their perspectives are shared in The Economist Intelligence Unit report, Sustainable and actionable: An ESG study of climate and social challenge for Asia).
A question investors are starting to ask of ESG is “What’s so green about it?”
About 600 organisations claim to answer that question, Mr Briand comments. The multitude of data then can muddy the waters more than it clarifies. These entities are all trying to convince investors that they have built the best ratings mousetrap and go on to ask listed and private companies for widely diverging ESG data, exhausting both corporate patience and resources. Such an over-proliferation “can be an excuse to do nothing,” Mr Briand asserts.
With no overarching taxonomy to define “green” and an excess of providers and methodologies, the space between problems and solutions only gets wider. So the answer can’t be “more data”.
“The important point is that investors need to be explicit about the problem they are trying to solve,” says Mr Briand. For instance, a listed fishing company that operates unsustainably will see its supply collapse—and its business with it. Translating the scenario into conventional financial metrics such as default risk is called “materiality” and is seen by many investors as a more applicable approach.
Focusing on metrics can do more to influence ESG investment strategies and outcomes than the heavy data burden associated with proving ESG credentials. A shift in focus should help to address issues such as cost of capital which has hampered green bond uptake. It’s not that investors shun the green aspect, but when issuers have to jump through too many hoops to get a bond certified, they walk away. Bureaucracy comes at a cost and it’s a common complaint among issuers that they reap no reward for the extra effort of issuing a green-labelled bond. Again, the extra data leads to fewer green investment opportunities (but more greenwashing ones).
However, Mr Briand believes change may be on the way. He explains how MSCI has analysed issuers within its own green bond indices and found a difference between those with high green credentials and those with low. “Investors put a premium on those bonds issued by the former. So, regarding the question as to whether investors discriminate between the two, the answer is yes.” Higher demand, when seen as truly accomplishing a green goal, does translate into a lower cost of capital.
Having a grasp on materiality benefits investors because such company-level transparency can flag risks—from exposure to floods to regulatory action or labour disputes—that negatively impact value.
Data used in this way could overtake the need for green-labelled financial instruments and the related greenwashing potential. Greenwashing is akin to a cigarette manufacturer touting a one-off charitable donation to lung cancer research. It might look good in the data but we all know what the root cause is. Progress in leveraging capital against climate change depends on better linkage between green goals and quantifiable key performance indicators.
Investors need the ability to apply standardised data all the way through portfolios so that all AUM can be green, not just those with the right boxes ticked.
Special thanks to Remy Briand, global head of ESG products, MSCI for his insight and expertise on the topic.
For a deeper analysis on ESG, green credentials and greenwashing see Sustainable and actionable: An ESG study of climate and social challenge for Asia
1 US$17.5trn out of the US$79trn of total estimate from Boston Consulting Group and the US SIF Foundation, cited in the Financial Times, February 26th 2020. https://www.ft.com/content/e969217c-f001-11e9-a55a-30afa498db1b?segmentId=47561bcd-230d-6768-b4a1-deb6edc93a7b

Sustainable and actionable: A study of asset-owner priorities for ESG inves...
The world’s top 100 asset owners (AOs) represent about US$19trn in assets under management. The largest, and potentially most influential, proportion is in Asia—more than a third of the total. Out of the top 20 largest funds, three out of the first five and nearly half of the total are in Asia.
The Economist Intelligence Unit carried out interviews with some of Asia’s largest asset owner firms, development banks, sustainable investment organisations and influential industry advocates to determine how they saw the growth of environmental, social and governance (ESG) investing in Asia, as well as the AO role in it. In parallel, we review the latest research on ESG investing in the region to give an overview of sustainable investing in Asia. The main findings include:
There has been a significant change in the awareness, uptake and impact of ESG in Asia over the past three to five years. AOs are motivated by an increasing recognition that their investment decisions have material consequences for their environment and the lives of their beneficiaries. In terms of financial return, “governance” seems to be the most important ESG factor for most AOs, given its demonstrable link to optimising risk-adjusted returns. As in other regions, ESG investing began with a negative screening approach. While progress is accelerating, challenges remain.
The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.
Data drives ESG investing—but too much data inspires greenwashing
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Sustainable and actionable: An ESG study of climate and social challenge fo...
Along with its wealth, Asia’s climate risks have been rising. Low-lying coastal cities are particularly vulnerable to climate change and regional population and economic centres—such as Bangkok, Ho Chi Minh City, Manila and Shanghai—sit upon that precipice. Yet in terms of green fixed income, Asia faces another risk: lack of issuance and uptake.
Fixed-income plays a significant role in climate mitigation because its market is about 60% larger than its equity cousin which still attracts more media and investor attention. Global issuance of green fixed income has increased markedly since its inception, reaching US$350bn in 2019. Still, the amount is only about 5% of the global fixed income market and represents just over a tenth of what needs to be raised to meet Sustainable Development Goals (SDGs) in emerging markets alone.
Efforts to make Asia’s finance greener have marked a transformative effect on the relationship between companies and investors. Conversations about sustainability that were absent a decade ago are now happening and have been central to helping the region come so far in such a short time: Asia’s banks and corporates have gone from 1% of green issuance in 2013 to 45% in 2019.
Still, not all is rosy (or green) as many obstacles remain. Asia’s green fixed income originates from a narrow base. China is the dominant market regionally and credit quality is largely confined to supranational institutions and investment-grade issuers. That is not enough. Other markets, such as high-yield, assetbacked securities (ABS) and private debt are, at best, in infancy. Furthermore, developedmarket investors tend to underweight Asia.
Green fixed income data is also a persistent challenge. A profusion of providers use a wide range of methodologies, many of which can be opaque and defy comparison. Investors face difficulties in determining those which best suit their needs. The vast amount of data that issuers are required to provide can also be a deterrent to going green; or worse, it leads to “greenwashing”, a vexing problem of questionable categorisation globally. The emergence of more consistent taxonomies is helping, but the patchwork of approaches still forms a barrier. Market practitioners interviewed for this paper did find agreement on green fixed income limitations, but they also showed optimism that recent developments in debt-products indicate a positive direction, even if the needle measuring progress has yet to move as far as it should.
From consensus, the region’s green fixed income progress depends on the development of a consistent taxonomy—not just in Asia, but globally—as well as better linkage of Paris Agreement goals to quantifiable key performance indicators (KPIs). The result could create better incentives for issuers and asset owners alike.
Have green bonds—as the largest green fixed income competent—been enough? Despite the interviewees’ breadth of experience and varied professional functions, they are almost entirely synchronised in their response to this question: “no”.
So what’s next?

Sustainable and actionable: A study of asset-owner priorities for ESG inves...
The world’s top 100 asset owners (AOs) represent about US$19trn in assets under management. The largest, and potentially most influential, proportion is in Asia—more than a third of the total. Out of the top 20 largest funds, three out of the first five and nearly half of the total are in Asia.
The Economist Intelligence Unit carried out interviews with some of Asia’s largest asset owner firms, development banks, sustainable investment organisations and influential industry advocates to determine how they saw the growth of environmental, social and governance (ESG) investing in Asia, as well as the AO role in it. In parallel, we review the latest research on ESG investing in the region to give an overview of sustainable investing in Asia. The main findings include:
There has been a significant change in the awareness, uptake and impact of ESG in Asia over the past three to five years. AOs are motivated by an increasing recognition that their investment decisions have material consequences for their environment and the lives of their beneficiaries. In terms of financial return, “governance” seems to be the most important ESG factor for most AOs, given its demonstrable link to optimising risk-adjusted returns. As in other regions, ESG investing began with a negative screening approach. While progress is accelerating, challenges remain.
The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.
A Whole New World: How technology is driving the evolution of intelligent banking in the Middle East and Africa
Respondents in the Middle East and Africa (MEA) are the strongest believers in a cashless society. According to a retail banking survey conducted by The Economist Intelligence Unit, a full 59% of MEA-based respondents think cash will dip below 5% of retail transactions in the next five years compared with a global average of 48%. But a big digital switch need not mean the end of face-to-face banking. Respondents in MEA are the least likely to believe that customers will forgo human contact (42% vs a 51% global average) even if digital services are free or low-cost.
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A Whole New World: How technology is driving the evolution of intelligent b...
Across the Asia-Pacific region, governments and regulators are already implementing new strategies to digitise their economies and boost social inclusion. Faster payment networks are spreading, facilitating the adoption of mobile payments and the development of open banking. With mobile payment infrastructure and services already embedded in major economies, Asia-Pacific banks are looking to the next challenge. Digital technology regulations lag other regions but are under review (37% of respondents believe that emerging data regulation will have a major impact on the banking sector) as Asia looks to modernise, diversify and dilute its dependence on international trade.
The race is on
In markets where mobile payments have already taken root, banks and payment processors are battling tech companies on two fronts. They are working to retain their own retail card and current-account customers and attract new users to their apps and e-wallets. They also need to get and keep merchants on their side if they are to reap the economies of scale from a high-volume, low-margin sector.
Competition is intensifying between payment solutions based on application programming interfaces (APIs) and pre-loaded and credit card e-wallets. That may explain why survey respondents see an immediate need to master digital engagement and marketing (37% for 2020) to pull in users and merchants. They also need to be able to respond quickly when Alipay, WeChat Pay, Google and WhatsApp introduce new features (31% for 2020).
In India, app providers are already offering cashbacks, discount vouchers and other features to gain and retain market share. This may leave the smaller players vulnerable, particularly when all that is required to switch services is downloading an app. It is therefore likely that consolidation of this sector will follow. As Vijay Shekhar Sharma, founder and chief executive of Paytm, has pointed out, payments are merely the moat around other, more profitable services. The players with deep pockets will outlive their weaker competitors.
The Monetary Authority of Singapore was met with similar concerns that disruptors would leave the banks unprofitable when it first suggested the introduction of open banking. When the regulator pointed out that tech and fintech firms could already offer faster, simpler and cheaper transaction services, the banks agreed to collaborate on upgrading the banking system, providing all stakeholders operated within the same regulatory environment.
Singapore is set to follow Hong Kong with virtual bank licences; ride-hailing app giant Grab is likely to be among the first applicants. That may worry established banks, but the question remains whether the big tech providers have the capacity to tie up capital in establishing their own bank operations. It is also not clear if they really want to expose themselves to the reputational risks that service interruptions or bad service present if they are the sole provider of such services. Grab already offers loans through a Japanese bank and recently signed up with Citibank to offer branded credit cards.2 If either of those services fail to deliver to consumers, the banks, not Grab, face the wrath of consumers and regulatory authorities.
Yet all Asian regulators are acutely aware of how Alipay and WeChat Pay were able to create an effective duopoly in an unregulated market. Chinese authorities are now bringing in new laws to level the playing field. Other authorities want to lay down the rules first, before such corrective action needs to be taken. As a result, the Chinese payment giants may find new markets tougher to crack when they must operate under tighter licensing and data protection rules.
As Steve Weston, co-founder of Australia’s Volt Bank, says of the Australian Prudential Regulation Authority: “The regulators are focused on ensuring that all banks, including new entrants, are operating in a prudent manner.”

A Whole New World: How technology is driving the evolution of intelligent b...
In Europe, as in the rest of the world, technology is setting the agenda for the banking sector. This year, European respondents to The Economist Intelligence Unit’s global retail banking survey identify new technologies as the primary driver of change for retail banks, both in the coming year and up to 2025, overtaking changing customer behaviour and demands for the first time.
Unlike the rest of the world, however, technology-driven change in the banking sector is following a very particular agenda, in the short-term at least: the EU’s revised Payment Services Directive (PSD2).
For citizens, the open banking mandated by many of PSD2’s provisions promises a new world of intelligent, intuitive and accessible banking services. New features and services will depend heavily on data to manage spending and personal budgets, and encourage long-term savings.
For banks, it offers long-term opportunities but, as the survey reveals, short-term challenges too. Competition from the digital sector is hotting up: a quarter of respondents believe tech giants will be their biggest non-traditional source of competition by 2020; 31% believe that will be the case by 2025.
European banks know they have no time to waste. Making open banking work, both practically and strategically, is the order of the day.
Short-term headaches
Unsurprisingly, given the mandate of PSD2, launching an open banking strategy is a top priority for the coming year for 29% of European respondents, second only in prevalence to talent acquisition and retention (30%). Open banking will still be a priority in 2025 for 26% of respondents, although more expect to be prioritising responding to regulation (35%), migrating clients to digital channels (29%) and mastering digital marketing (29%) by then.
Furthermore, the largest share of European bankers sees embracing openness as the future of the industry: 35% of respondents see acting as a true digital ecosystem—offering both banking and non-banking services that originate either internally or from third parties to customers and other financial services providers—as the primary direction in which their organisation’s business model will evolve.
But the minds of Europe’s bankers are also occupied by the short-term technical challenges that open banking presents, the survey reveals. Banks in the EU are due to deliver fully operational portals for their application programming interfaces (APIs), intrinsic to open banking, by September 2019. However, three in ten respondents from Europe identify a lack of international standards for APIs as their greatest concern regarding regulation and standards.
Indeed, the introduction of APIs in the European banking sector has not been smooth sailing so far. Banks had until June 14th 2019 to prove they had dedicated APIs available for testing by third parties. If they missed the deadline, they may have to offer fallback options and spend more IT money on secure screen scraping.
“Whether the third parties test [our APIs] is out of our control,” says Matt Cox, head of open banking at Nationwide Building Society, one of nine UK banks charged with leading the open banking push, called the CMA9.
“For us, testing is still in early days. We were one of few of the CMA9 to have the full suite ready for the March deadline. We are working with two to four different third parties and are only just at the beginning of testing payment journeys in any meaningful way,’” he says.
Mr Cox feels that the majority of European banks are further behind than the UK. He may be right; a recent survey found 41% of banks1 failed to have API testing sandboxes ready in March to allow third-party providers the chance to test them for six months.

A Whole New World: How technology is driving the evolution of intelligent b...
North American bankers sense danger more than most when new entrants join their market, according to a global retail banking survey conducted by the Economist Intelligence Unit. In anticipation of 2020, nearly a third of local respondents (33%) are feeling pressure from the changing competitive environment, compared to 28% globally. An even more pressing issue for North American bankers is keeping on top of changing customer behaviour and demands (cited by 34% for 2020 and 33% for 2025).
As banking clients increasingly seek speed and convenience, and with Google the latest tech giant to announce plans for “smart” checking accounts linked to the Google Pay app, new technologies are understandably seen as high impact trends on the sector for both the short- (40% for 2020) and medium-terms (43% for 2025).
In the long-term, emerging regulation of digital technology is viewed as a prime source of disruption for North American bankers (36% for 2025). Over a quarter (26% for 2025) cite open banking as a key trend.
Lessons learnt
Challenger banks are also making their presence felt in North America, be they domestic startups such as Chime or Simple—now part of Banco Bilbao Vizcaya Argentaria (BBVA)—or overseas brands such as Monzo and Revolut which are now expanding their footprint. But as in Europe, a comparable developed market, banking customers are often hesitant to switch their primary banking relationship, even when a better deal is on offer.
However, the number of banks choosing to develop new greenfield initiatives has increased from 13% in 2018 to 29% in 2019, coming closer to the worldwide average (36%).
There are success stories, but also less fortunate examples when it comes to large banks creating new digital brands. JP Morgan Chase closed its fee-free mobile bank, Finn (which even offered limited access to physical branches), after reportedly attracting fewer than 50,000 customers.
Goldman Sachs has been more successful in attracting customers to its new savings brand, Marcus. The online savings and loan platform has no checking account and no app, and has attracted around 4m accounts and nearly US$50bn in deposits.
Despite advantages in data analytics and the freedom afforded by entering the market with a clean slate, it is worth nothing that big tech’s move into banking may not always be a smooth experience. Apple has faced criticism for alleged gender bias for its new Apple Card, operated by Goldman Sachs.
Customer demands
These events beg the question: what do American customers want? Finn did not offer the high rates that Marcus does, and its app may not have differentiated itself sufficiently from JP Morgan Chase ’s own mobile offering. A 2018 S&P Global survey suggests fees are the key consideration for recent and potential switchers, with incentives and interest rates ranked ahead of the mobile app experience for those likely to move in the next 12 months.
But creating a better experience with lower overheads is hard when mobile platforms are built on old architecture, as Finn’s was. Colin Walsh, founder and CEO of start-up Varo Money, hopes to avoid the same traps.
“A new build is much easier than a renovation,” he says. “In terms of the technology, [corporate] cultures that are not in a growth mindset and a legacy of regulatory issues, it is impossible [for traditional banks] to focus on customers and innovation.”
The innovation angle may explain why payment players are seen as a far greater and more immediate competitive challenge (cited by 41% of respondents for 2020), than the neo-banks (16% for 2020). Banks are also conscious of the upcoming threat posed by big tech firms teaming up with fintechs to create hybrids (cited by 29% for 2025) where the app provider has no need for a banking licence, and is not required to comply with regulatory capital ratios. Survey respondents also note the emergence of robo-advisers as an issue in the medium-term (23% for 2025).
Regulatory developments
Although tech firms may be more than capable of launching new services that fully replicate the banking experience, they appear to be holding back. North American respondents are the least likely to agree that sandbox collaboration between banks and fintechs will be mainstream by 2025 (48% vs 56% globally).
Federal regulation of fintechs, e-money providers and data has lagged behind much of the rest of the world, although Canada is ahead of the US in developing an open banking framework. In fact, Canadian banks have launched initiatives to study opportunities around open banking and are starting to use application programme interfaces (APIs) in partnership with fintech firms to deliver new products.
As things stand in the US, it may simply be too difficult for tech giants to offer a consistent datadriven service with a relatively low regulatory burden across 50 states and 10 provinces until the rules are set. Federal agencies and state supervisors continue to argue, often in the courts, about who should have jurisdiction.
The primary focus for North American banks is to become far more agile (cited by 38% of respondents for 2020) and better-equipped to bring new features and products to market, but that is complicated when the rules of engagement have not been set.
Therefore it comes as no surprise that, when it comes to regulatory matters, North American bankers worry about a lack of international API standards (27%) and inconsistent data protection (27%). There are particular concerns about the regulatory risks of cloud-based services (41%). With a plurality of local respondents planning an open banking strategy (37% for 2025), the need for greater regulatory clarity will only become more pressing.
In the meantime, North American banks are focusing their attentions on becoming digital ecosystems which offer bank-related and non-financial services from third parties (44%). Only a few are attempting to build niche propositions (16%) or opting to become a third-party aggregator (12%).
Enhancing user experience
Digital investment in North America focuses on cyber security (45%), with significantly more respondents citing it than in Asia, Europe, the Middle East and North Africa. In line with the global average, almost seven in every ten (68%) survey respondents expect cyber-security rules to be tightened in the next five years following a systemic bank failure.
North American bankers are also investing in cloud-based technologies (36%) and artificial intelligence (AI) platforms (30%).
More specifically, North American banks are most interested in customer micro-segmentation (15%), hoping that AI will reveal new sell or up-sell opportunities. Deemed equally important, banks are seeking to boost their anti-money laundering and “know your customer” (AML/KYC) capacities when financial products are applied for or used (15%). Many also believe AI technology will help them enhance user experience by developing voice recognition features (14%) and greater customer personalisation (14%).
However, uncertainty about the security of personal financial information is cited by nearly half (45%) of North American bankers as their customers’ top concern when it comes to the use of AI.
The Bank for International Settlements recently highlighted that data-driven big tech firms could be a force for good in terms of financial inclusion. But it also underscores the downsides to a purely data-driven banking model, warning that there are “some signs that big techs’ sophisticated algorithms used to process personal data could develop biases towards minorities”.
Islamic fintech: Reaching the next generation of Muslims
Muslims make up about a quarter of the world’s population and are said to be the fastest growing religious cohort.#_ftn1" name="_ftnref1" title="">[1] As such, the potential market for Islamic financial services is enormous. The median age for Muslims globally is just 24 years old, making a majority of them “digital natives” ready for digital Islamic financial solutions.
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A new shade of green: Sukuk for sustainability
The first green bonds were issued a little over a decade ago by multilateral institutions and municipalities. Green bond issuance is now growing by about 50% annually according to Sean Kidney, CEO and co-founder of the Climate Bonds Initiative, an investor-focused NGO based in London. Last year, green bond issuance reached a record of US$258bn, much of it coming from the US, France and China. “For investors, green bonds are a great way to address concerns about climate change and to put money in assets that they think are going to be lower risk,” says Mr Kidney.
The first shoots of a similar “green” instrument in the Islamic finance sector emerged not too long ago. In 2017, renewable energy group Tadau Energy issued the first “green” sukuk, raising US$59m to finance a solar power plant in Malaysia, the birthplace of conventional sukuk in the 1990s. Indonesia issued sovereign green sukuk worth US$1.25bn in 2018 and US$750m in 2019 to fund environment-related projects.
There is activity in the Arabian Gulf countries as well. In 2019 Majid Al Futtaim, a UAE-based retail company, raised US$600m with the region’s first corporate green sukuk. This was followed by a €1bn (US$1.12bn) green sukuk by Saudi-based Islamic Development Bank to finance renewable energy, green transportation and pollution control in its member countries.
Figure 1: Sukuk defined Conventional sukuk A financial certificate similar to a bond that compiles with sharia law. Proceeds are used to purchase an asset, which the investor partially owns. Investors receive a share of the profit generated by the asset instead of interest payments. The issuer promises to buy back the instrument at a future date at par value. Green sukuk A sukuk to finance renewable energy or other environmental assets. Sovereign green sukuk A green sukuk issued by a government entity. Corporate green sukuk A green sukuk issued by a private-sector organisation. Sources: Investopedia; Climate Bonds Initiative
A suitable match
Compared to conventional sukuk, the market for green sukuk is tiny. Conventional sukuk issuance totalled US$162bn in 2019, while the total outstanding debt for green sukuk amounts to only US$7.9bn, according to Mr Kidney. Yet some view it as a natural solution for low-carbon investment. Islamic finance is based on assumptions of fairness and social responsibility, and—while it has not always been observed—environmental stewardship is intrinsic to sharia principles.
“The fundamentals of Islamic finance share a lot with sustainable finance in terms of custodianship of the earth and responsible and ethical financing,” notes Michael Grifferty, president of the Gulf Bond and Sukuk Association.
Since sharia forbids the receipt of interest, sukuk are backed by assets and investors are paid an agreed share of the profits before being returned the principal at maturity. This structure gives them confidence that their capital is being used for a particular purpose. Assets eligible for green sukuk range from solar parks and biogas plants to renewable transmission networks and electric vehicles. They could also be used to finance green government subsidies.
The handful of issuances to date have been well received. Majid Al Futtaim’s sukuk was five times oversubscribed according to Hamed Ali, CEO of Nasdaq Dubai, the exchange on which it is listed. As Mr Kidney explains: “There are investors in Islamic countries who would never have invested in a green bond, but green sukuk is getting their attention. At the same time, there are international investors who invest in green bonds and like green sukuk as an extension of that market.”
Mr Grifferty says green sukuk can help issuers reach new investors. “It’s a great opportunity to access an investor-base which is much larger than the natural Islamic investor-base,” he explains. “Tapping into the sustainable and ethical investment-base could be helpful in terms of broadening the whole size and scope of the sukuk market.”
What’s holding the market up?
Still, green sukuk have not come as thick and fast as some proponents would like. This may be because issuers have been constrained by a shortage of certifiable green projects, notably in the oil-reliant economies of the Middle East.
“The big hurdle is in finding projects that are appropriate,” explains Mr Grifferty. “That means not only that they are sustainable, but also that they are measurable and appropriate in size and scope for capital markets financing.” In the Arabian Gulf, he sees more opportunity to invest in the transition to more sustainable economies—financing mitigation efforts such as reducing gas flaring or investing in carbon capture.
There are complexities in certifying the “green” credentials of an underlying asset and reporting on its performance, notes Debashis Dey, a UAE-based partner at the law firm White & Case. “I think there will be international investor demand for it [but] the question is whether GCC issuers are prepared to do the hard work to create these instruments,” he says. “You must have internal green policies, a proper framework of governance, say what you're going to do with the proceeds that qualifies to make it ‘green’, and report to investors as you use those proceeds.”
This may deter issuers, particularly in the Gulf where few companies have been pressured by regulation or shareholders to make environmental disclosures before. “If that changes, then there will be the drivers to push the market forward,” says Mr Dey.
A lack of pricing incentive may also have discouraged some issuers. “There’s a modest price benefit, a few basis points, but nothing massive,” Mr Kidney observes, though he adds that issuers favour green bonds “not for price, but [for] the strength of investor engagement”.
Growing the asset class: Leading by example
Mr Kidney hopes that more national issuance may pep up the market for green sukuk. “We are encouraging sovereigns to enter the market, like Indonesia has done, because that can play a pivotal role in benchmark pricing and growing liquidity,” he explains.
A sovereign green sukuk “is cooking” in Malaysia, he says, although it is unclear when it might be issued. Meanwhile “the Islamic Development Bank is actively encouraging its clients to do green sukuk, which is why they did their own as a demonstration,” he adds. Although the market is at a nascent stage, there are signs that it is gaining momentum. Mr Kidney is optimistic, estimating that issuance may double in size in 2020.
On the demand side, green sukuk growth will depend partly on that of the broader sukuk market. As Mr Ali of Nasdaq Dubai observes, “you need a thriving sukuk market to create a green version of it”. For conventional sukuk, he says there is demand from Western markets such as the US and Europe. The combination of investors seeking sharia-compliant investments and those with growing environmental, social and governance (ESG) priorities provides a wide investor base for green sukuk.
Mr Dey adds: “If you look at international funds, most of them now have some ESG component to their investment strategy. So if as an issuer you are wondering, ‘how do I create greater demand for my instrument?’, you could do something green, because that ticks a box for institutional investors.” If issuers can match investors’ intent with robust reporting—to demonstrate that funds are truly driving sustainable initiatives —green sukuk can play an important role in the race against climate change.
This is the first article in a series by The Economist Intelligence Unit on “Innovation in the Islamic Economy”. The next article will look at how fintech firms are reaching the next generation of Muslims.
[1] “Financing Climate Futures: Rethinking Infrastructure; Policy Highlights”, OECD/The World Bank/Un Environment, 2018. https://www.oecd.org/environment/cc/climate-futures/policy-highlights-financing-climate-futures.pdf [2] Akhilesh Ganti, definition of “sukuk”, Investopedia, last updated April 30th 2019. https://www.investopedia.com/terms/s/sukuk.asp [3] “2019 Green Bonds Market Summary, Climate Bonds Initiative, Februrary 2020. https://www.climatebonds.net/files/reports/2019_annual_highlights-final.pdf [4] “Helping Malaysia Develop the Green Sukuk Market: Facilitating Sustainable Financing”, The World Bank, January 7th 2019. http://documents.worldbank.org/curated/en/586751546962364924/Helping-Mal... [5] “Indonesia issues world’s first green sukuk bond”, Financial Times, February 23rd 2018. https://www.ft.com/content/e38ea51c-184c-11e8-9376-4a6390addb44 [6] “World’s 1st Benchmark Corporate Green Sukuk”, Majid Al Futtaim, May 15th 2019. https://www.majidalfuttaim.com/en/media-centre/press-releases/2019/05/ma... [7] “Islamic Development Bank Achieves New Milestone with Debut Green Sukuk Worth EUR 1 Billion for Green Financing in its Member Countries”, IsDB, November 28th 2019. https://www.isdb.org/news/islamic-development-bank-achieves-new-mileston... [8] Kudakwashe Muzoriwa, “Sukuk market to continue expanding in 2020, S&P Global”, Banker Middle East, January 13th 2020. https://www.cpifinancial.net/bme/news/sukuk-market-to-continue-expanding-in-2020-sp-global [9] “IIFM Publishes Its Annual Sukuk Report 2019, USD 123.2 Billion Sukuk Issued Globally In 2018”, International Islamic Financial Market, July 31st 2019. https://www.iifm.net/iifm-publishes-its-annual-sukuk-report-2019-usd-123... [10] “Green Sukuk”, Climate Bonds Initiative, 2020. https://www.climatebonds.net/projects/facilitation/green-sukuk

The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.

Fintech in ASEAN
To better understand the opportunities and challenges in developing a fintech business in seven ASEAN markets, The Economist Intelligence Unit conducted wide-ranging desk research supplemented by seven in-depth interviews with executives in Australia and ASEAN.
Download report and watch video interview to learn more.
Global executives express severe pessimism amidst covid-19 pandemic. As society-wide lockdowns ensue, the Economist Intelligence Unit reveals private-sector sentiment through its Global Business Barometer.
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The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.

Fintech in ASEAN
To better understand the opportunities and challenges in developing a fintech business in seven ASEAN markets, The Economist Intelligence Unit conducted wide-ranging desk research supplemented by seven in-depth interviews with executives in Australia and ASEAN.
Download report and watch video interview to learn more.

Risks and opportunities in a changing world
Read our Taxing digital services, U.S. tax reform: The global dimension, & Planning for life after NAFTA articles by clicking the thumbnails below.
Why coronavirus will accelerate the fourth Industrial Revolution
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The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.

Fintech in ASEAN
To better understand the opportunities and challenges in developing a fintech business in seven ASEAN markets, The Economist Intelligence Unit conducted wide-ranging desk research supplemented by seven in-depth interviews with executives in Australia and ASEAN.
Download report and watch video interview to learn more.

Risks and opportunities in a changing world
Read our Taxing digital services, U.S. tax reform: The global dimension, & Planning for life after NAFTA articles by clicking the thumbnails below.
Covid-19 concerns could accelerate digital currency adoption. Awareness and use trends already high, according to a new Economist Intelligence Unit (EIU) survey.
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The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.

Fintech in ASEAN
To better understand the opportunities and challenges in developing a fintech business in seven ASEAN markets, The Economist Intelligence Unit conducted wide-ranging desk research supplemented by seven in-depth interviews with executives in Australia and ASEAN.
Download report and watch video interview to learn more.

Risks and opportunities in a changing world
Read our Taxing digital services, U.S. tax reform: The global dimension, & Planning for life after NAFTA articles by clicking the thumbnails below.
Untapped Capital: understanding the retail investor pool
Untapped capital: Understanding the retail investor pool is written by The Economist Intelligence Unit and sponsored by PrimaryBid. In-depth interviews with financial market experts were conducted in addition to extensive desk research and data analysis.
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• Europe has witnessed a recovery in retail ownership of listed companies since the 2008 financial crisis. European households own 15.6% of listed shares across EU and UK stock exchanges, up from 13.3% in 2013 and 12.7% in 2007
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The shifting landscape of global wealth: Future-proofing prosperity in a ti...
In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs) brought up in an era of globalisation. Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.
Despite rising economic concerns and a tradition of investor home bias in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing. The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Click the thumbnail below to download the global executive summary.
Read additional articles from The EIU with detail on the shifting landscape of global wealth in Asia, Canada, the U.S. and UK on RBC's website.

Fintech in ASEAN
To better understand the opportunities and challenges in developing a fintech business in seven ASEAN markets, The Economist Intelligence Unit conducted wide-ranging desk research supplemented by seven in-depth interviews with executives in Australia and ASEAN.
Download report and watch video interview to learn more.

Risks and opportunities in a changing world
Read our Taxing digital services, U.S. tax reform: The global dimension, & Planning for life after NAFTA articles by clicking the thumbnails below.
A new shade of green: Sukuk for sustainability
The first green bonds were issued a little over a decade ago by multilateral institutions and municipalities. Green bond issuance is now growing by about 50% annually according to Sean Kidney, CEO and co-founder of the Climate Bonds Initiative, an investor-focused NGO based in London. Last year, green bond issuance reached a record of US$258bn, much of it coming from the US, France and China. “For investors, green bonds are a great way to address concerns about climate change and to put money in assets that they think are going to be lower risk,” says Mr Kidney.
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The Covid-19 pandemic has exposed a wealth of interconnections – between ecological and human wellbeing, between economic and environmental fragility, between social inequality and health outcomes, and more. The consequences of these connections are now filtering through, reshaping our society and economy.
In this setting, the need to integrate environmental, social and governance (ESG) factors when investing has become even more critical. Institutional investors must employ ESG not just to mitigate risks and identify opportunities, but to engage with companies to bring about the positive change needed to drive a sustainable economic recovery in the post-Covid world.
In order to understand how ESG could be both a new performance marker and a growth driver in this environment, as well as how institutional investors are using ESG to make investment decisions and to assess their own performance, The Economist Intelligence Unit (EIU), sponsored by UBS, surveyed 450 institutional investors working in asset and wealth management firms, corporate pension funds, endowment funds, family offices, government agencies, hedge funds, insurance companies, pension funds, sovereign wealth funds and reinsurers in North America, Europe and Asia-Pacific.
Download the report and infographic to learn more.

Charting the course for ocean sustainability in the Indian Ocean Rim
Charting the course for ocean sustainability in the Indian Ocean Rim is an Economist Intelligence Unit report, sponsored by Environment Agency Abu Dhabi and the Department of Economic Development Abu Dhabi, which highlights key ocean challenges facing the Indian Ocean Rim countries and showcases initiatives undertaken by governments and the private sector in the region to address these challenges.
Click here to view the report.

Fixing Asia's food system
The urgency for change in Asia's food system comes largely from the fact that Asian populations are growing, urbanising and changing food tastes too quickly for many of the regions’ food systems to cope with. Asian cities are dense and are expected to expand by 578m people by 2030. China, Indonesia and India will account for three quarters of these new urban dwellers.
To study what are the biggest challenges for change, The Economist Intelligence Unit (EIU) surveyed 400 business leaders in Asia’s food industry. According to the respondents, 90% are concerned about their local food system’s ability to meet food security needs, but only 32% feel their organisations have the ability to determine the success of their food systems. Within this gap is a shifting balance of responsibility between the public and private sectors, a tension that needs to and can be strategically addressed.
Financing sustainability | Insights video
What is driving the strong demand for financing sustainability in Asia Pacific? How can companies increase supply and start to see the benefits of sustainable finance in the next three years? We interviewed Richard Brandweiner, CEO of Pendal Australia, and Sophia Cheng, CIO of Cathay Financial Holdings and chair of Asia Investor Group on Climate Change, to find out.
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Financing sustainability: Asia Pacific embraces the ESG challenge
Financing sustainability: Asia Pacific embraces the ESG challenge is an Economist Intelligence Unit report, sponsored by Westpac. It explores the drivers of sustainable finance growth in Asia Pacific as well as the factors constraining it. The analysis is based on two parallel surveys—one of investors and one of issuers—conducted in September and October 2019.
If the countries of Asia Pacific are to limit the negative environmental effects of continued economic growth, and companies in the region are to mitigate their potential climate risks and make a positive business contribution through improving the environment and meeting the UN's Sustainable Development Goals (SDGs), large volumes of investment in sustainable projects and businesses need to be mobilised. A viable sustainable finance market is taking shape in the region to channel commercial investor funds, and both investors and issuers say they are achieving a financial benefit from their investment and financing activities. The market is still in the early stages of development, however, and must expand and mature to meet investor needs.
The chief constraint on sustainable finance growth in the region has been the limited supply of bankable sustainable projects. Our research suggests supply is increasing, but with investor demand continuing to grow apace, the gap will remain an obstacle in the short- to medium-term. Among the organisations in our issuer survey, only 7% have used sustainable finance instruments to fund projects. However, nearly nine in ten (87%) said they intend to do so in the next year, which should begin to bridge the gap between supply and demand.
Based on issuers’ stated intentions, investors will have a range of instruments to choose from, including green loans and bonds and sustainability loans and bonds. Large numbers of investors indicate that they intend to deploy a greater proportion of capital to these over the next three years.

Financing sustainability | Infographic
Financing sustainability: How do investors and issuers in APAC's sustainable finance market view the present market opportunities and constraints?
To learn more:
Download report | Watch video
Fintech in ASEAN
To better understand the opportunities and challenges in developing a fintech business in seven ASEAN markets, The Economist Intelligence Unit conducted wide-ranging desk research supplemented by seven in-depth interviews with executives in Australia and ASEAN.
Download report and watch video interview to learn more.