Jane: [00:00:00] Hello and welcome to the LSEG Sustainable Growth Podcast, where we talk to leading experts on topics right at the intersection of sustainability and finance. I'm Jane Goodland, and this week I'm talking to Yuki Yasui, who's the managing director of the Asia Pacific Network of GFANZ, otherwise known as the Glasgow Financial Alliance for Net Zero. As you may know, GFANZ is a global coalition of leading financial institutions committed to accelerating the decarbonisation of the global economy. It was launched in 2021 by UN Special Envoy for Climate Action and Finance, Mark Carney and the Cop 26 presidency in partnership with the UNFCCC Race to Zero campaign. Before we hear from Yuki, a quick reminder to follow us so you don't miss any future episodes. And also, don't forget to rate us on Spotify, Apple Podcasts, or any other platform you use. Right? Let's see what Yuki had to say.
Hello, Yuki. Thank you so much for joining us on the LSEG Sustainable Growth podcast. I believe you're in Singapore today. So, I've been really looking forward to speaking with you. And I know that you've been involved in sustainable finance for a really long time. Can you tell us a bit about that and also how you've come to be working with GFANZ?
Yuki: [00:01:17] Thanks very much Jane, for having me. So yeah, I've been in sustainable finance for over 20 years. So actually, it will be my 22nd year now in sustainable finance. So, I started at UNEP Finance Initiative in Geneva. So, 16 years in Geneva and then four years in Bangkok during the APEC, the Asia Pacific part of the UNEP Finance Initiative. So, I joined GFANZ in June 2022. So, one and a half years into this role, which is based in Singapore, as you introduced.
Jane: [00:01:53] So GFANZ has got over 675 members across 50 countries. Tell me about that membership in the Asia Pacific region and what's the participation like there?
Yuki: [00:02:05] Yeah. So, we've got, as you say, over 675 globally. And in Asia we are about 65 plus. It's actually concentrated in just a few countries in Asia. So, Australia, Japan, Korea, Singapore are probably the main countries where we've got the majority of the market players involved in GFANZ. But Asia is such a big region and it's got lots of other important countries, like China, India, Indonesia. So, these are the countries where, they're not net zero, the country is not committed to net zero by 2050, but they've got other goals like 2060. But they are nonetheless a really important country in terms of our net zero journey globally. So, we look at them as very key priority countries for our engagement, not necessarily to recruit them but more to really share our work and try and make sure that the world is not too fragmented and that we have a common approach to net zero.
Jane: [00:03:24] Yeah, and that's really important, isn't it? In terms of obviously there are going to be country by country differences but it's really important to keep some degree of consistency and coherence. But as you quite rightly point out, Asia Pacific is incredibly diverse in terms of, the region's huge with so much difference and variation of countries across that part of the world, that it must be quite difficult in some respects for you to engage with all parts of the region. So, you've definitely got your work cut out for you. So, tell me about your work. Obviously, it's quite early days. The Asia Pacific Network only launched in June 2022, but how are you thinking about your work programs? How do you organise yourself?
Yuki: [00:04:08] So right now globally we kind of explain our role as GFANZ in trying to support the solutions around three gaps that the finance sector faces. They are data gaps, action gaps and investment gaps. So, we do that at the APEC level as well, at the network. So, the data gap is basically that as and probably all the listeners know, we are faced with a lot of information gap around net zero. Starting from like basic information, like what is your client's Scope 1, 2, 3 and Scope 3 being the most difficult to find. So, data gap, we try and solve this by supporting more of the disclosure activities like, you know, ISSB, TCFD, but also increasingly we think that net zero transition plans are really important in filling that information gap and data gap for financial institutions and we encourage net zero transition planning across all stakeholders. So, we start from governments, having a government to do in country energy transition plan and the net zero transition plan would really be useful for corporates to do their own net zero transition plan. And then for financial institutions who rely on the corporates and the governments transition plan to do their own. So, we're doing a lot around promoting the importance of net zero transition planning and promoting the GFANZ framework around net zero transition plan. So that's like a data gap, then there is the action gap.
Yuki: [00:06:00] So this is where we do a lot of the outreach activities into Southeast Asia countries, but also increasingly to China. And we want to start our India outreach this year as well. So, this is really to make sure that we have the ambition and then more importantly the actual implementation of their ambition and commitments to work together and to work individually around the net zero journey. So that's the action gap. And then lastly, just the investment gap. So, investment kind of is the natural actual implementation of that action when it comes to financial institutions. So, there it is very much about understanding, in Asia especially, really understanding what are the financing that we need to deliver? Everyone knows that there's a huge gap, investment gap across the net zero journey. But in Asia, I think there are two big gaps. One is making sure that there is enough money that goes towards emerging markets and developing economies. And secondly, that we need to make sure that enough money is going into the transition from the brown to the green transition. So, it's all very well to try and pump in money towards the green stuff, the green projects and green companies. But if you don't support the brown companies and the brown economy to transition, we'll never get to net zero.
Jane: [00:07:38] Yeah, and that's why we're hearing more and more about transition finance, specifically in terms of mobilizing or ways to mobilise finance into those transitioning traditional economies, if you like, particularly in the energy sector, which we're going to come on to shortly. But before we do, I wanted to understand a bit more about we talked earlier about the fact that you've got a huge region, a great deal of diversity. But can you help us understand a little bit about which countries are perhaps more advanced? And presumably that's some of the ones that you've talked about who are already with membership of GFANZ, but also perhaps thinking about why those countries are further ahead and therefore, what we can learn and perhaps replicate elsewhere in the region.
Yuki: [00:08:26] I wouldn't like single out so many like country specifically that are more advanced or less advanced, but rather I think what really helps the country to move on the net zero efforts is whether they kind of understood this as an opportunity as a growth opportunity for them and a market development opportunity. And so, it's about reskilling workers and the economy, reskilling the economy, developing new models that would boost their exports or get more foreign investment into the country. And they see decoupling of their growth with CO2 growth as an opportunity rather than a cost. I think if they see any of those, it does tend to make the government more excited and the corporates and the FIs more excited in doing it. So, in Asia there's a growing population with growing energy demand. So, it's not like a mature economy although parts of Asia are in the mature economy. But a lot of the countries in Asia are still fast growing. So, we need to make sure that it is a decoupling of that growth and the net zero.
Jane: [00:09:50] And do you think, I mean, different countries presumably are at different stages of that perception over the challenge. Right. So, some of them must be thinking some countries are looking at this as an opportunity while others are still kind of thinking this is a massive risk and cost, which frankly is difficult to absorb. And so is that where GFANZ then seeks to engage, to try to demonstrate that this can be an opportunity and this can be a growth story actually all in the same effort.
Yuki: [00:10:24] Yeah, I think that's what we're trying to do. There's a couple of different ways that we are doing it. One could be the example of the JETPs that we are involved in. So, it's the Just Energy Transition Partnership that is going on in Indonesia and Vietnam. And these are G7 country to country partnerships traditionally. But what's quite interesting about JETP is that they've decided to involve private finance from the start. So GFANZ is involved together with financial institutions in making sure that private finances already seen as a key kind of capital mobilisation partner of this government to government partnership. And it provides that message that Indonesia and Vietnam can really attract foreign investment and very good quality investors into the country that are going to be supporting their growth into new industries and new export opportunities as well.
Jane: [00:11:32] And specifically, what do those partnerships actually fund, what sorts of things is that finance going towards?
Yuki: [00:11:39] It's called Just Energy Transition Partnership. So, it is very much focused on the energy transition. The idea is really to support, the governments of Indonesia and Vietnam to accelerate their transition through both private and public finance. And traditionally, these kind of G7, government to government would just directly do some public financing of government activities but here we are talking about, easing government and public finances as leveraging private finance to come in and to do much more than, what the government can do by themselves. So, I guess here the role of the government is to provide support the Indonesian government and the Vietnam government with putting up an accelerated energy transition plan that can then identify where their investment needs are and what capital, I guess then we're trying to respond with saying this kind of capital can fund this type of project. So, everything it can include anything from very green projects like renewable energy to some of the more frontier type of transition finance, which is like how do you accelerate the retirement of coal fired power plants so that then transitioned from coal fired power plants to renewable energy can be accelerated.
Jane: [00:13:21] And then in terms of thinking about other challenges specific to the Asia PAC region, we've already talked about the fact that you've got different stages of economic maturity in the different countries and also that there's a perception around whether or not this is frankly just a cost or whether it's an opportunity, but are there any other specific challenges associated with transition in the region which are unique to the region?
Yuki: [00:13:50] Yeah. I think there is definitely because in Europe a lot of these like high emitting assets like coal fired power plants or the steel factory or so forth, they're already at maturity or even they're at the end of their use of life or they've actually surpassed it. And people are just extending it. And there ready to be replaced by renewable energy or other low carbon technologies, whilst in Asia, a lot of the fire power plants are in their early teens, so they're like 13 years old even like Asean, it's about 11 years old. And then in like Japan and Korea, they're still about 15 years old or something very new. And in Europe, it's over 30 years old. US it's over 40 years old. So that means that the energy transition looks very different between Europe, US, North Asia and Southeast Asia, for example, and in Southeast Asia, people will be tempted to just keep on using them for the next 30 years until it gets to maturity and end of life. But if we do that we'll be burning all our carbon budget, two thirds of the carbon budget is stuck with them. So, it will be burning out carbon budget, which means that accelerating that retirement and replacing it with renewable energy is going to be one of the key priorities for the region, which doesn't exist in Europe, it does exist in other markets, like in Latin America, there are some countries that have a similar challenge as well.
Jane: [00:15:41] I think that's a really useful example actually, of how energy transition has to be really tailored regionally because we're quite obviously we're not all at the same position, but it really does change the dynamic of what's required for that specific transition in that area. So, thank you for sharing that because it's I think it's really, really useful. So, we've talked about energy transition and retirement of fossil fuel related sources. So, let's move on specifically to coal because I know that in December of last year, the network published recommendations for the financing of managed phase out of coal fired power stations in Asia Pacific. So, can you tell us more about those recommendations, why they're needed? I think we've alluded to the fact, but why are they needed and what did the recommendations actually say?
Yuki: [00:16:34] Thanks very much for introducing this. This has been our like, flagship project for our inaugural year at the Asia Pacific Network at GFANZ. And yeah, we already talked about the significance of it. And so, what we tried to address is the challenges that finance faces when it comes to financing and accelerated retirement of coal. There are two things that we thought was really important to address. One is the credibility question. So, what is a bit difficult about financing brown stuff to go green, as it were, is credibility. Is one of the first things that people have a challenge with. Because if you're starting from something that is green you know that it won't have any carbon activities involved. So, you're fairly safe on that aspect. Whilst if you're supporting something that is currently brown and you are supporting them to go green, the question is greenwashing because you could be pretending to support their transition, or the company could be saying that they're going to be transitioning and you just pump money into it. And in ten years’ time, they might not have gone anywhere as well. Who knows? Because you are supporting a brown company after all. So, what is the credibility of saying that you're supporting an early retirement of coal? What is it that you are standing on? What is the credibility based on? So, there are three things that usually we in the recommendation we said that we need to look at. It's the credibility of the country that the plant is based. Does it have its own commitment to come out of coal and go into the low carbon net zero journey and the company as well? What is the company's own ambition and plans and its ability to implement and manage phase out? And then lastly the characteristic of the coal fired power plant that is in question itself. So, the individual asset level credibility of it as well. So, there's three things that need to be I mean, not all of them need to be perfect. You can have like depending on the country, the word of the company could be enough for the financiers to see it as a credible many phase out, even if the country itself might not have such a fantastic Net zero, coal phase out plan itself because a lot of countries actually don't. They are still in the process of coming up with an energy transition plan that clearly states that there is no new coal.
Jane: [00:19:26] I can understand the complexity because let's say, for example, you might be providing transition finance to a particular company and some of their assets to finance transition. But if the government just moves that coal production elsewhere or creates the possibility of another power station fired by coal then the net gain, if you like, is not really where we're trying to achieve. So that's why you need the kind of country and company level consistency. Right?
Yuki: [00:19:59] That's right. Yeah. There's a leakage problem where you are like, even if you try and get one coal power plant to retire early. Yeah. If another coal power plant pops up in another part of the country, we're still back to square one. So yeah, that's the problem. Although if the company is committed and the company has influence in the market, it might still be good enough to say that at the portfolio level, if the company is committed in doing this, it will provide enough message to convince the country also to do so. And if it has enough shares in the market, if they're replacing a coal power with renewable power that might already deter any new coal power plants to be built as well.
Jane: [00:20:53] So the country context is hugely important here. So, you've talked about the credibility issue. What were the other parts of the recommendation.
Yuki: [00:21:01] So the other parts is actually the impactfulness. So, there are three types of impacts that we were looking at. One was of course the CO2 impact. So, what difference does it make if you retire a coal fired power plant five years early or ten years early. So, we need to make sure that there is a real CO2 benefit there. The second one is the financial viability. You know, after all this if private finance is supposed to come in here, it needs to be commercially viable. So that's the second one. And the third one is the just transition. So, is it socially viable as well? Does the company and the country have a just transition plan that is associated with the managed phase out, so that the community and the workers have an exit plan and are well prepared to leave this coal fired power plant to retire and that they can move on.
Jane: [00:22:01] So I think this sounds like a great set of recommendations. The question is, is what do you do with them now? And that kind of leads into my final question really is about what does the go forward plan look like for the network? And I'm assuming promoting the recommendations is part and parcel of the next 12 months plus for you guys.
Yuki: [00:22:18] Yeah, so for our next set of activities. So, we're currently in year two of the network. And then we'll be starting year three from July this year. And so first of all, we'll be holding the Asia Pacific Summit of GFANZ in April the 12th to 17th of April. And Singapore will be talking about these three gaps the data, action and investment gaps, and how that how GFANZ is working globally on this and how the APAC network is responding to this challenge. And will be having quite an exciting program for these four days during 12th to 17th April. And then the other things are like, you know, China, we've started our work in China, and we need to continue that and build momentum. India is the new country that we want to add to our outreach engagement for our year three. And the other thing that is coming up by June this year is a set of case studies around net zero transition plans in the region. So last year we published a set of case studies on the components of net zero transition plans for financial institutions in Asia Pacific. So, at the time, there weren't that many financial institutions that were thinking of net zero transition plans. People had different things that they were doing within TCFD, within sustainability reports that we would see as good components of a net zero transition plan. So we were featuring these components and saying that net zero transition plan might be something new that you're hearing these days, but it actually comes from and builds upon a lot of work that you've already been doing. So, we compiled a case studies report around that last year. This year is like our second iteration. And here we are actually now seeing the first set of net zero transition plans end to end. And some are already calling it net zero transition plans. Some are still not calling it that, but it has all the elements of it. So, we're featuring those especially in Asia so that people can reference and learn and it's a way of sharing experience. And we find that case studies are actually a really attractive tool for many, many people. So, we'll be issuing that at the end of June. The other things are like, as you say, managed phase out of coal is going to be still very important for us then we now have this principle based recommendations on what good looks like on managed phase out, but we want to try and apply that to specific markets in Asia. So, we're going to be applying it to the Japan market to see what kind of role does manage phase out have in Japan. Well, first of all is whether they've got a role in Japan and if so how, what is the role and what is the role of financial institutions in that managed phase out. So, we'd be doing a market study in Japan and then hopefully that will feed into our work with the Monetary Authority of Singapore's initiative called Traction, which is the transition carbon credits initiative that they have. Meaning that we think that the financial viability that I was talking about can be solved, possibly through carbon credits, that quite a lot of that financial viability question is something that the carbon market may be able to absorb. But the question is, you know, there again, you know, there's a whole new set of questions about what is the carbon credit’s integrity and credibility. So that's a whole new question. That is on top of, what is the credible phase out. So, we'll be working on understanding, the carbon credits of managed phase out. And then there is the Southeast Asia policy engagement that we want to do. Basically, this is to try and engage and speak with financial regulators around net zero transition plans. So, we want them to be excited and support their domestic financial institutions in doing net zero transition plans, because we think that is really good for their market development, both the financial market development but also their economic development overall as well.
Jane: [00:27:09] Wow, Yuki, you really do have a huge amount on your to do list. And frankly, I'm exhausted just listening. But I do think that you're doing some incredible work. So, thank you so much for everything you do in the region, and I absolutely look forward to seeing how you get on over the next 12 months.
Yuki: [00:27:26] Yeah. Thank you Jane. Look forward to coming again.
Jane: [00:27:31] That's it for this week's episode of the LSEG Sustainable Growth Podcast, and what incredible work Yuki and the team are doing there in Asia Pacific. I hope you found that conversation both informative and inspiring. If you've got questions, comments, or someone you'd like us to talk to, then do get in touch by email at fmt@lseg.com. That's all from me but watch out for the next episode very soon.
