This year looks set to be pivotal for investment in climate change mitigation around the world with the release of new environmental, social and governance (ESG) reporting standards.
The International Sustainability Standards Board (ISSB) issued its inaugural standards in June. Creating a global baseline for sustainability-related disclosure, IFRS S1 and IFRS S2 are expected to help improve trust and confidence when companies report their ESG progress internationally.
Concurrently, the United States, Europe, and Asia Pacific authorities are seeking to leverage the new ISSB standards to enhance local climate-related reporting, support investment decision making and promote the raising of green capital in their markets. The Stock Exchange of Hong Kong Limited has also recently issued a consultation paper for climate change disclosure in alignment with the new standards.
It is now evident that companies must raise their game in mitigating climate change and enhance their ESG and climate disclosure methods if they plan to attract further investment and stay compliant with regulators.
It is no longer sufficient for companies to only propose ambitious climate target plans. Investors and regulators increasingly expect that companies will disclose the risks and opportunities they see concerning climate change in their financial statements.
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Firms will need to demonstrate measurable progress towards their ESG commitments on a regular basis. This means that not only are companies adopting green and sustainable solutions, but they are also improving both the quantity and quality of the data they collect and disclose to investors and regulators.
Where technology and sustainability meet
When it comes to companies combatting climate change and creating a more sustainable world, technology is a game-changer. It can help companies reduce emissions by improving efficiency, switching to cleaner alternatives, and recycling materials. It can also generate reliable ESG data while reducing compliance costs.
ESG data collection, analysis and reporting can be prohibitively expensive, especially for smaller companies, but calculating the impact of the company’s operations and using analytics to make green decisions is vital today.
Technology can also help investors identify opportunities that align with their ESG investment strategies. With IFRS S1 and S2 moving markets towards standardised reporting formats, investors can more easily compare companies and make faster and better investment decisions.
They can also take advantage of artificial intelligence, machine learning and cloud computing to perform data modelling and analytics to better understand their risk exposure to various companies and industries.
Regulators across the globe are also leveraging technology to support the growth of green finance. For example, the Hong Kong Monetary Authority (HKMA) is collaborating with the Bank for International Settlements and the UN Climate Change Global Innovation Hub to explore the use of blockchain, smart contracts and other technologies to improve the transparency and traceability of green bonds. HKMA issued its first tokenised green bond, a HK$800 million (US$102 million) one-year bond that uses blockchain to record legal ownership, in February earlier this year.
Nurturing the greentech ecosystem
These ongoing shifts all create substantial opportunities for innovators and entrepreneurs with solutions, services and technologies that help the business community mitigate climate change, reduce pollution, save resources, and meet their reporting obligations.
Creating the right environment for the greentech ecosystem to flourish is vital. But what are the right ingredients?
- Supportive government policies that nurture the development of startup incubators and accelerators offer financial subsidies, invest in education and infrastructure, support common green standards, protect intellectual property, and attract foreign capital and talent. Governments can also enable public-private partnerships and create networks and startup events that encourage cross-sector collaboration.
- Opportunities to raise capital at different stages of growth and access to green financing encourage potential customers to adopt sustainable solutions. Venture capitalists who understand the challenges for greentech companies can provide insights and mentorship to help entrepreneurs reach the next level, while a mature financial ecosystem consisting of global banks and private equity firms can provide support at the commercialisation stage. Listing rules that ease the journey for new-economy firms ready to go public can be a boon for pre-revenue or growing tech companies.
- A deep talent pool, with world-class universities and research institutes, an educated workforce and a culture and lifestyle that makes it possible to attract and retain top overseas talent. The presence of a greentech cluster within a vibrant startup community will enable synergies and mentorship, while a strong corporate sector can offer opportunities via open innovation platforms and dedicated investment funds. With more than 100 greentech ventures within its ecosystem, Hong Kong Science and Technology Parks and Cyberport are two good examples. It has sparked a cluster effect that fast-tracks innovation and enables productive partnerships between startups and universities, enterprises, and investors.
- Ready access to growing markets. A greentech hub near manufacturing capabilities and markets that are prioritising sustainability is an ideal launchpad. Mainland China is among the most promising markets globally, with the national goal of carbon neutrality by 2030 spurring investment in energy efficiency, and the Guangdong–Hong Kong–Macao Greater Bay Area provides a gateway to the vast mainland market in addition to those in neighbouring Southeast Asia, and beyond.
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Hong Kong is already on its way to becoming a greentech hub because it currently has several leading startups in the space that are applying innovative technologies in their work.
For example, one of the city’s startups has invented bionic materials that were inspired by the biological structure of ants living in the Sahara Desert. Such materials can be used on buildings that decrease room temperatures by five to six degrees Celsius.
In addition, one of Hong Kong’s startups is combating factors that are creating a global food shortage problem by developing cell-based meat with a focus on fish. In late 2020, the firm debuted Asia’s first cultivated fish fillet and plans to launch more cultivated meats over time.
With these ingredients in place, startup founders, investors, and entrepreneurs can be confident that a supportive community is being created in Hong Kong. As it grows, the momentum of green innovation and investment will continue to build, positioning startups to meet rising demand for ESG-related solutions and helping usher in a greener and more sustainable world.
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