SPI Journal, Summer 2023
Mobilising transition finance in the Asean region
Kelvin Lester King Lee, commissioner, Securities and Exchange Commission, Philippines, spoke with Edward Maling, research analyst, OMFIF, on unlocking finance for transition.
This is a transcribed and edited part of the roundtable ‘Unlocking finance for the transition: Asean taxonomy framework’ hosted on 19 June 2023.
Edward Maling: How would the Securities and Exchange Commission assess the need for sustainable finance measures in the Asean region? What has progress been like?
Kelvin Lester King Lee: The issue of sustainable finance used to be about whether there is enough sustainable finance initiatives and projects. Now it’s about the speed of deploying sustainable finance. As of May 2023, the total amount of GSS bonds purchases that have been issued within Asean is roughly around $40bn-$45bn. Of that amount, roughly $9bn is from the Philippines, which makes up about 20%. Those numbers may seem like a drop in the bucket, but they came from almost zero just a few years ago. The growth has therefore been substantial.
EM: What role is the Asean taxonomy trying to play to progress this field?
KLKL: The Asean board is cognizant of the different places or starting points of the different jurisdictions which is why inclusivity and context is a priority. We are also aligned in the need for having one overarching taxonomy that will lead to the legitimacy of Asean as an asset class and projecting to the public that the taxonomy is credible and the sustainable finance is material. We have been particularly focused on making multiple issuances on green bonds, sustainable bonds and sustainability-linked bonds – having approved the latest framework for sustainability-linked bonds in the Philippines recently, as well as blue bonds, based on the International Finance Corporation standards and guidance from the International Capital Market Association.
EM: In the first draft of the taxonomy issued two years ago was its multi-tiered design concept and the foundation framework with qualitative criteria and the plus standard, which incorporates a number of layers to categorisations. Could you elaborate on that multi-designed concept and how it relates to the taxonomy of the group’s principles?
KLKL: This taxonomy was designed as a multi-tiered framework, aimed at building on common principles as a foundation. The other tiers contain more criteria to cater to the different states of readiness of different Asean member states. The Asean taxonomy is a principles-based framework which first outlines the environmental objectives. It assesses member states and classifies the different economic activities into green, amber or red. The second tier, the plus standard, is a more threshold-based screening criteria and it is where most of the discussions on the board happen.
EM: In terms of the energy pathways for the Asean member states, how significant is the coal phase-out?
KLKL: The phase-out is a priority. We wanted to avail of it, which was why it was included in the latest version of the plus standards since no official programmes have been rolled out successfully. Now the ACEN (AC Energy) deal is being brought about in public as a good example of private sector finance in relation to this space, running along the lines of the Energy Transition Mechanism. The general idea of the framework has already been presented to the public. So far, Indonesia and Vietnam have been using the ACEN energy example as a template for how private finance projects were spearheaded on their own. And then the Asian Development Bank is now trying to issue funding in relation to that under the ETM mechanism. I understand that it’s already functional now in Indonesia. I foresee that there will be a lot of ETM-related transactions in the future. While I understand that we might use it here in the Philippines, there may be other countries beyond the two who want to avail of it. It is not an official policy, but I’m supportive of the concept.
EM: Indonesia, Malaysia and Singapore have published national taxonomy frameworks. How do the national frameworks factor into the design considerations for the Asean taxonomy? How do we ensure that there’s interoperability between those natural frameworks?
KLKL: Locally and domestically, we are making sure that our own sustainable finance taxonomy aligns and is interoperable with the Asean taxonomy itself. We are aware of the issue of fragmentation, that every entity will have its own sustainable finance framework and taxonomy, may lead to difference of categorisations or identification of certain activities, which could in turn, lead to greenwashing and other issues. There are different working groups now that are focused on this and one working group, which the Philippines sits on, is the outward-facing public communications and co-ordination group, which is chaired by Securities Commission, Malaysia. This working group is active in terms of promoting and co-ordinating with the different private sector and public sector entities within the Asean member states, with the aim to ensure that everyone is aware of and works on the interoperability aspect of the different taxonomies that are applicable now, precisely to avoid fragmentation.
EM: Is there a trade-off between the international alignment with more technical or firm international frameworks, such as European Union taxonomy measures? How does the taxonomy board marry up that potential trade-off and how much of the international frameworks factored into the latest update?
KLKL: It is top of mind. There are lessons in the creation of the EU taxonomy that we have learned from and there are certain aspects that we want to emulate. But there are certain aspects of the EU taxonomy that we were not comfortable with. As I understand it, the latest green bond principles, issuances that had come out from the EU might suffer from the same issue because in the attempt to try and avoid greenwashing, it’s very prohibitive and difficult to issue something that is tagged as a green one within the EU. We take these experiences as guiding lights to help us determine what we want to do as well within Asean and within our own local jurisdictions. Then we contextualise it as we cannot take the whole EU taxonomy and apply it here. That would never work. You would essentially crush the sustainable finance as a whole already within the Philippines. We try to make sure that everything is aligned to the extent possible taking into consideration local context, local laws, and frameworks.