BNP Paribas: Climate disclosures and transition finance

January 20, 2025 12:22 am

Climate disclosures and transition finance: APAC’s path forward

By Shanny Basar, Senior Writer, Markets Media Group

2024 has been a pivotal year for climate, marked by record-breaking hurricanes, devastating floods, and the looming milestone of surpassing the 1.5°C warming threshold, a benchmark set by the Paris Agreement representing a tipping point for avoiding the severe impacts of climate change. It has also been a turbulent year in global politics with governments and multi-nationals slowing down on climate action. On a positive note, convergence has been achieved around the disclosures set by the International Sustainability Standards Board (ISSB), including in the Asia-Pacific (APAC) region. The region has witnessed landmark transition finance deals, such as the world’s first sovereign climate transition bonds from Japan, but challenges remain around the availability and quality of ESG data.

Disclosures – a global baseline
The ISSB was formed in 2021 at COP26 in Glasgow to develop global standards for high-quality, comprehensive sustainability disclosures focused on the needs of investors and financial markets. Although ISSB sets a global baseline, the progress in sustainability has differed across regions. Jules Bottlaender, Head of Sustainable Finance in APAC, Securities Services at BNP Paribas, said innovation and regulation around sustainability have moved very quickly in the European Union, while in contrast, there has been a backlash in the US. He described the progress in APAC as being in the middle of the latter two regions and more government-driven, as there is fragmented regulation across different countries in the region.

“APAC is on a good track, closely monitoring industry’s developments to implement swiftly the successful formulas,” he added. For example, following a public consultation, Singapore Exchange Regulation (SGX RegCo) has said it will incorporate the ISSB climate-related requirements into its sustainability reporting regime. From the financial year 2025, all issuers will have to report Scope 1 and Scope 2 greenhouse gas emissions. Boon Gin Tan, Chief Executive Officer of SGX RegCo said in a statement that this is an important step to enable larger issuers to report their Scope 3 GHG emissions from financial year 20261.

Similarly to Singapore, the Australian Government’s Treasury has released a Sustainable Finance Roadmap and mandated sustainability reporting aligned with ISSB from the beginning of 2025. The Australian Sustainable Finance Institute (ASFI) has launched a second round of public consultation on the development of an Australian sustainable finance taxonomy. ASFI is seeking feedback on the climate change mitigation criteria for all six priority sectors for development (including electricity generation and supply; minerals, mining and metals; buildings; manufacturing and industry; transport; and agriculture and land use), a Do No Significant Harm framework, minimum social safeguards and ways in which the taxonomy can be used2.

New Zealand was the first country in the world to legally mandate climate change reporting for financial institutions in October 2021 and has required sustainability reporting since the beginning of 2023. The country also has a 2030 roadmap, which includes plans for a sustainable finance taxonomy which have been published by the industry-led Aotearoa New Zealand Sustainable Finance Forum3.

New Zealand’s External Reporting Board (XRB), the country’s standard-setting authority, has implemented climate-related disclosure standards for specific companies, drawing from the Task Force on Climate- Related Financial Disclosures’ (TCFD). The board plans to review the country’s climate standards by December 2025 to assess whether updates are necessary to align with current or upcoming requirements4.

In November 2024, the XRB published a consultation on proposed amendments to its climate and assurance standards and approved three of the four proposals. XRB authorised a one-year extension to the adoption provision for Scope 3 GHG emissions disclosures due to current data challenges; a one-year extension to the adoption provision for anticipated financial impacts disclosures and a new one-year adoption provision relating to the assurance of Scope 3 GHG emissions5. However, it did not adopt a proposal to delay transition planning by an additional year due to strong user demand for this information.

“Data has now become critical for firms in New Zealand. As a local custodian, our role is to help these firms by providing the necessary data and reporting services to meet these obligations,” said Iain Martin, Head of Securities Services, New Zealand at BNP Paribas.

Martin said: “For Securities Services at BNP Paribas, we have been focused on ensuring our organisation has a positive impact on the world. This has meant embedding ESG features into our core solutions, sharing ESG insights globally and giving clients access to market leading ESG and sustainability reporting.”

Transition finance
It has been estimated that USD $3 trillion a year by 2030 is needed to support the global transition to a net-zero economy by 2050. More than half of it is needed in APAC, and especially in emerging markets6. Bottlaender said: “You can only improve what you can measure. ISSB filled this gap by framing climate disclosure in jurisdictions covering over half of the world’s GDP. The next big challenge is to transition our economies.”

There was a landmark in transition finance this year when the Japanese government issued the world’s first sovereign climate transition bonds in February and raised JPY 1.6 trillion7. The Hong Kong Monetary Authority has also announced that it wants to extend its Green and Sustainable Finance Grant Scheme and expand the scope of the subsidy to cover transition finance instruments8.

Data challenges
However, Bottlaender highlighted that APAC lacks data on the energy transition and in addition to the lack of availability, there are challenges around quality and consistency. He said: “Countries in APAC such as Indonesia, India, Thailand have significant populations and need to create an ecosystem to gather transition data.”

Nearly three quarters, 71%, of respondents in BNP Paribas’s 2023 ESG Global Survey of 420 asset owners and managers, hedge funds and private equity firms said that inconsistent and incomplete ESG data is a significant barrier to the greater adoption of ESG, an increase of 17% from 2021. To overcome these data challenges the majority, 65% of respondents, said they use and compare multiple sources of data, while more than one third, 37%, conduct their own research methodologies9.

To help institutional investors with their ESG data challenge, Securities Services at BNP Paribas allows them to store their fund data on a central platform, Manaos (a fintech which is a subsidiary of BNP Paribas), to obtain a comprehensive and transparent view of their investments and estimate their ESG footprint. The platform was developed to meet the advent of regulation in Europe around the Sustainable Finance Disclosure Regulation (SFDR), and so can now benefit firms in APAC. Manaos can seamlessly connect clients’ portfolios with a wide range of third-party ESG data vendors and fintechs, all secured by bank-level security standards.

In October 2024, BNP Paribas’ Securities Services also launched an ESG investment compliance monitoring service in Australia and New Zealand to support local clients and avoid potential compliance breaches. The service, which has also been successfully deployed in Europe, includes a wide range of ESG criteria and delivers external assurance that funds are meeting their ESG commitments through automated post-trade assessment10.

Martin said: “BNP Paribas’ ESG monitoring solution can help each client screen their portfolios against customised and flexible criteria using a range of data feeds from external and internal sources. They can include or exclude specific activities, compare portfolios to ESG ratings and benchmarks, review carbon intensity against a benchmark and review adherence to global standards.”

Embracing a wider path going forward
Now that climate disclosure has been enforced in many parts of the world, there needs to be more specifics about the distinctions between green finance and transition finance, as well as between climate mitigation and adaptation.

Indeed, by focusing solely on green assets, the fact that most of the economy needs to transition is overlooked. Similarly, by concentrating only on mitigation, the necessity to adapt to the physical risks of climate change is neglected, and becoming more pronounced every year.

Additionally, 2024 will be the first full year since the establishment of the TNFD (Taskforce for Nature related Financial Disclosure). It will be interesting to see the outcomes of the first disclosures. Meanwhile, the Taskforce on Inequalities and Social (TISFD) was created in September 2024, tasked with the challenging mission of developing a framework to address the most overlooked aspect of sustainability.

While the journey toward full adoption and implementation will require collaboration between governments, businesses, and financial institutions to address regional nuances and challenges, it also presents an opportunity to drive meaningful change. For APAC, a region rich in diversity and economic dynamism, embracing these standards not only aligns with global ESG trends but also positions businesses to lead in sustainable innovation and resilient growth.