Thijs Aaten (CEO of APG Asset Management Asia) recently attended the summer edition of the World Economic Forum in Tianjin, China. During a panel discussion, he spoke about the role of financial institutions in the transition to a net-zero future.
In this rapidly changing geopolitical landscape, energy security appears to be taking precedence over the energy transition for governments. This is one of the key takeaways from the discussion, according to Aaten. “There seems to be a regression in this area.” To illustrate how much still needs to be done, he pointed out that over the past ten years, have been invested globally in the energy transition. “Despite this enormous investment, the percentage of energy generated from fossil fuels has only decreased by 2%, from 83% to 81%. Every little bit helps, of course, but without collaboration between governments, further greening of our energy needs will become problematic. This is a concern I took away from the discussion in Tianjin.”
Asia
Another factor is that about 70% of global economic growth takes place in the Asia Pacific region. “This means that energy demand in that region will keep rising accordingly. As people become wealthier, they generally consume more energy. Hence, Asia has a significant role to play in reducing CO2 emissions. At the same time, numerous innovations in the energy transition also come from this continent. However, Asia is more successful in implementing decisions related to the energy transition compared to Europe, where there is a lot of talk about what is needed, according to Aaten. “In that regard, Europe can still learn from Asia Pacific.”
Another point raised during the discussion was the role of regulators. The panel at the World Economic Forum, also known as the ‘Summer Davos’, was titled “Feeling the Heat: Financial Stability under Pressure.” Promoting financial stability is an important task for regulators, Aaten argues, referring to the banks that collapsed in the U.S. in the spring. But regulators should also push the market in the right direction. The market on its own won't fully transition towards renewable energy and a more sustainable society. If a company is currently responsible for significant CO2 emissions, you don't see that reflected in its profit and loss statement. Once that changes, alternative energy sources will suddenly appear to be much less expensive. Regulators can take the lead in advancing the development of pricing carbon emissions.”
Challenge
Even for an institutional investor like APG, there is still a challenge. “We're fortunate that our pension fund clients don't wait for regulations to take action against climate change,” says Aaten. “They give us the mandate to invest in projects that accelerate the energy transition. But it's still challenging to find sufficient investment opportunities of a certain scale. There are plenty of small projects, but we won't quickly invest one or two million euros in a project. With the size of our impact investing mandate, we're truly looking for larger projects.”