The idea of companies promoting “selfless values” is not new; corporate social responsibility (CSR) initiatives as we know them have been around since the 1960s at least. More recently, though, companies are focusing more on environmental, social and governance (ESG), which furthers the concept of ethical and socially responsible behaviour and makes it measurable and visible to investors. More defined criteria were conceived to rate companies, creating a whole ESG ratings industry. But as sustainability reporting often overlaps with ESG ratings, there can be confusion as to what investors should refer to or what criteria companies should strive to meet.

Thankfully, the confusion is being slowly untangled. International negotiations at the United Nations Climate Change Conference (COP21) in December 2015 produced the Paris Agreement, giving all 196 participating nations a common climate goal to strive towards. A legally binding treaty, the Paris Agreement spells out the global commitment to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels— which, according to the scientific consensus, is the point at which irreversible changes would alter the conditions for life on Earth.

Since then, more regulators have revised their rules to align with the International Financial Reporting Standards (IFRS) S1 and S2, a set of sustainability and climate reporting criteria formed at COP26, which took place five years after the Paris Agreement and is implemented by the International Sustainability Standards Board (ISSB). “The IFRS is seen as a harmonised framework of a lot of existing guidelines and standards,” explains Ellie Tang, director of sustainable investing at Fidelity International and a Tatler’s Asia’s Most Influential honouree. In most cases, when a listed company adheres to global reporting requirements, it enlarges its reach to global investors.

“In time, I think there will be more consistency in judging what good ESG looks like,” Tang says. For institutional investors with a global reach, such as Fidelity, being able to see what companies are doing in every region can really help inform sustainable investment decisions. “As investors, we need companies to have a very clear roadmap to give us the confidence to put our clients’ money into them so they can drive their climate action,” she adds.

As the IFRS makes climate reporting easier across the globe, how does it actually benefit the climate? At the very least, reporting helps to keep companies accountable for their actions and provides guidance to become more sustainable. As the reporting criteria become more standardised with the IFRS and more companies adhere to them, investors will have more options outside traditionally climate-friendly or “green” companies—they could also consider the less climate-friendly “brown” ones too, according to Eugenia Koh, global head of sustainable finance for consumer, private and business banking at Standard Chartered Singapore.

Mitigating the climate crisis will require efforts from all companies, especially the ones who emit the most. Koh thinks that this is the key to transitioning to a low-carbon economy: we need to invest “not just in the green companies but in the brown-to-green [companies] too. It means looking at the leaders in the high-carbon industries who are making headway with climate—how they are pivoting to new business models to continue to win in a low- carbon economy,” she says. “I think that’s one really interesting area to look at as a climate investor.”

Standardising reporting criteria across the globe also helps to level the playing field among regions and unlock more funding for sustainable endeavours, which will ultimately benefit the climate. “Generally speaking, I think we can agree that Asia is catching up to sustainability as a movement,” says Tang. Koh agrees: “What differentiates us in Asia is that there is a bigger appetite to look at a broader suite of ideas, including transition.” While Europe is focused on investing in climate- positive initiatives, Asia is more open to investing in brown-to-green companies, she adds.

Looking at the bigger picture, mobilising investments in companies that strive to become more sustainable could change the way our economy affects the environment. Capital is desperately needed to incentivise this change, according to Dr William Yu, an energy economist and founder and CEO of the Hong Kong NGO World Green Organisation, who has been sounding the alarm on climate action for decades. “If you look at recent extreme weather events—earthquakes, hurricanes, floods—economic losses are in the billions, not to mention the tragic loss of life,” he says. “This not only affects our social system but our economies as well.” Yu explains that because of our current economic system—which is short-sighted and tends to cut costs where possible— companies and governments are unwilling to spend on long-term disaster prevention. When extreme weather events strike, the costs of repair are usually higher than the prevention costs. “Climate risk is no longer a kind of environmental issue—it’s a financial risk.” When asked about what it would take to convince governments and corporations to feel this obligation towards the climate and change their ways, Yu simply shrugs. “Disaster will convince them.”

Even for climate deniers, it is near-impossible to ignore the increasing costs of our changing climate and increasingly difficult for investors to exclude climate- conscious considerations when adding to their portfolios. The World Meteorological Organization (WMO), a United Nations agency, has been closely monitoring extreme weather events. In its report Global Climate 2011-2020: A Decade of Acceleration, published on December 5, 2023, the WMO found that events such as marine heatwaves are becoming more frequent and that the number of casualties from extreme events has declined, associated with improved early warning systems, but economic losses have increased. State of the Global Climate 2023, a WMO report published on March 19, 2024, even states that the “cost of climate inaction is higher than the cost of climate action”.

If extreme weather events and the disruptions they cause to the economy continue, demands for strategies and services mitigating these climate risks will increase. Insurance companies will need to rethink their climate-related plans and premiums; and the construction sector will need to worry about the health and safety of contractors who work in increasingly hot weather, says Yu. Farmers will have to adapt to unpredictable changes in season. Already overwhelmed healthcare systems will have even more to deal with as air pollution causes more respiratory diseases.

But while all of this sounds grim, it also comes with many opportunities for climate-attuned businesses and investors to seize. Climate reporting, ESG ratings and other green financial instruments such as green bonds and carbon credits are all ways to mobilise capital towards climate action. A well-drafted climate report, transparent in outlining the impact of activities and sustainability goals, speaks to a company’s commitment to combating climate change.

But there are still concerns about trustworthiness: some companies have been found to misrepresent their environmental claims, which is known as greenwashing, or are selective about what to report and what to keep quiet about, something that is known as greenhushing. RepRisk, a Swiss ESG due diligence and risk consultancy, reported that the number of greenwashing cases in the banking sector jumped 70 per cent in 2023. “Fundamentally, greenwashing is linked to transparency in communications and marketing,” says Koh. “A lot of times, the risk of commotion comes about when there is a bit of an exaggerated claim, or perhaps the company is not as transparent about what goes into a sustainable product. Different asset managers may construct sustainable products in different ways, but they need to be very clear about what goes into that construct from a risk management perspective.”

Despite best efforts at scrutiny, there are, of course, legitimate cases of fraudulent misrepresentation in the green investing space—just as there are in any investment. In January 2024, the European Parliament approved a directive requiring member states to enact stricter laws on the use of environmental claims. After all, regulating greenwashing is still a relatively new endeavour and increased scrutiny from regulators at the start may initially drive more cases to be uncovered.

Ideally, though, companies stand to gain more from genuine reporting—and the planet will as well. “I think sustainability and profitability can go hand in hand if it’s strategically and purposely aligned to the mission of the business,” Kwan says. Sustainability may just be like any other investment: it needs a lot of research. Luckily, the world is more and more in agreement that immediate action needs to be taken—and there are plenty of benefits across the board. “There’s nothing better as a marketing tool than being green or sustainable or environmentally conscious. These things can align really well if they’re authentic, and I do believe they can coexist, but it has to be much more thoughtful than just superficial.”

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