CLSA-U-BlueBook - Asia's Green Mandate

Blue Books Experts’ views for expert investors

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Global

Infrastructure

15 September 2016

Charles Yonts Head of Sustainable Research

[email protected] +852 2600 8539

Guest authors

Ian Callaghan Climate finance consultant

Tessa Tennant

Green/responsible finance consultant

www.clsau.com

Green mandate A combo of nature, policy and cash

CLEAN

GREEN&TM

Tessa Tennant

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Blue Books

2 www.clsau.com 15 September 2016

Straight to the source with CLSA When industry innovations change as quickly as they are created, your

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Ian Callaghan Ian Callaghan is a consultant and financial intermediary. In the former capacity, he

was the author, in 2015, of Climate Finance after COP21, a report which analysed

the financing implications of the first 47 INDCs submitted to the Paris climate summit. He has also recently worked for a major multilateral development bank

on strategy to support country climate plans following the Paris agreement. A

banker by background, his career ranges from project finance to SME and impact investing (including microfinance and finance for other 'base of pyramid' products

and services, including clean energy). Ian works with fund sponsors, microfinance

banks, institutions and networks and with companies active in sectors ranging from renewable energy to water and sanitation and agriculture. He has developed

a wide network of contacts with investors, at all points of the investment spectrum

from DFIs to institutional investors, foundations and family offices and individuals. He has sat on a number of boards and the investment committee of a major

impact investing fund. He is presently a Senior Adviser to two London-based

corporate finance advisers and arrangers.

Tessa Tennant Tessa Tennant has worked in green and climate finance since the late 1980s. She

co-founded the UK's first green investment fund in 1988, the Jupiter Ecology Fund. She is a founding director and President of The Ice Organisation, creator of the

environmental rewards programme myice.com, and is a Non-Executive Director of

the UK's Green Investment Bank. She has served on numerous fund, company and not-for-profit boards, including the US Calvert Funds, Syntao (current) and is an

Adviser to Carbon Tracker and other initiatives. She led the creation of the

Association for Sustainable and Responsible Investment in Asia based in Hong Kong (ASrIA, now part of PRI), and The Carbon Disclosure Project CDP, which works with

3,000 of the largest corporations in the world to reduce their carbon emissions. She

is now focused on financing the Paris climate agreement INDCs.

CLSA U® logo, CLSA U® (word mark) and CLSA University are registered trademarks of CLSA in the USA and elsewhere.

Tessa Tennant




http://www.clsa.com/

Blue Books

15 September 2016 www.clsau.com 3

Foreword Your planet still needs you! The global financial crisis may have distracted us

from the urgent issues facing our natural world, and the Copenhagen Summit

in 2009 may have dealt a heavy blow to serious debate about climate-change

mitigation, but our polluting human ways are still having a dreadful impact on

the environment. Fortunately, the Paris Agreement means we can once again

use terms like “climate change” and “carbon finance” in polite company. The

destructive force of burgeoning humanity has forced governments around the

globe to adopt long-term survival policies and propose concrete steps that will

require hard cash to get things done. Guest authors Ian Callaghan and Tessa

Tennant help identify where to find the best investment opportunities as the

money falls like clean-and-green leaves across Asia. Think clean, invest now!

Failure to build a successor to the Kyoto Protocol immediately killed the most

important carbon markets, which were the key plank in the nascent world of

climate finance. More fundamentally, there appeared to be no bridge to cross

the growing divide between developing and developed economies. The Paris

Climate Change Conference, at which nearly every country agreed on a plan

of action, marked a historic turning point. The UN estimates the world must

spend US$1tn per year out to 2030 to deliver enough sustainable energy to

hit the Paris targets.

Such enormous numbers are difficult to comprehend, and innumerable layers

of UN jargon create a veil around clear understanding of the implications. But

whether these numbers appear real is irrelevant: they are real! Governments

are already allocating resources and awarding projects based on Paris targets

- building solar farms, developing mass transit systems, strengthening flood

defences, shutting down coal-fired power plants - directly because of policy or

because of shifts in capital allocation caused by policy.

Yet Paris was only one of a handful of key developments in the past year. The

UN General Assembly has accepted a new set of 17 measurable sustainable

development goals, with a raft of new financial tools emerging to help attain

these goals: green development banks and a sharper focus on sustainability

by private capital, most visibly through the surge in green bond issuances.

In Asia, these developments align with a mounting need to address resource

stress such as shrinking fishing stocks and Indonesian forest fires - problems

amplified by the impact of climate change. Ian and Tessa delve into national

development plans around the region to link them to specific project types.

Renewable energy is one obvious focus, but infrastructure investments across

the board will be impacted. For example, a new passenger terminal at Changi

Airport in Singapore will be constructed 5.5m above sea level, rather than the

standard 4m, explicitly as a precaution against climate change. Incorporating

environmental and climate considerations into Asian projects is now essential.

Charles Yonts

Head of Sustainable Research

Urgent need to mend our polluting ways never

really went away

Paris marked a historic turning point

Climate considerations a key element of planning

Capital will follow this new agenda

Identifying how global agreements filter down to individual projects in Asia

Far more than just energy

Tessa Tennant




Blue Books


Contents

Executive summary .......................................................................... 5

Cleanup convergence ........................................................................ 6

How we got here and who’s paying ..................................................20

Nationally determined contributions ................................................25

Where is Paris on the thermometer? ................................................32

Climate-smart investment ................................................................39

Financing the cleanup ......................................................................45

Snapshot of national opportunities ..................................................60

Appendices ......................................................................................74

Think clean, act green, invest now!

Tessa Tennant




https://www.clsa.com/member/report/572717648



Executive summary Blue Books


Asia’s green mandate The Paris Agreement - within the United Nations Framework Convention on

Climate Change (UNFCCC) dealing with greenhouse-gas-emission mitigation,

adaptation and finance - is the world’s first comprehensive climate deal. The

implications of this watershed event, where almost every country submitted

plans to cut its carbon emissions, have yet to filter down to the investment

community. A convergence of factors will bring about a radically altered “new

normal” - one that is green, not just brown or grey.

Four forces will converge to create a new global and regional dynamic:

Resource stress: Economic growth in Asia is already testing the limits of

the region’s natural assets

Climate change: The implications of climate change, both physical and

economic, often amplify the impact of resource stress

Major global agreements on sustainable development: Agreements

will translate into reforms and determine fund flows

Investor and advocacy pressure: Investors will insist on improvements

in environmental and social responsibility as part of corporate-governance

activities, and demand the brakes be put on climate-unfriendly investment.

This “cleanup convergence” will translate into a multitrillion dollar investment

agenda. Bloomberg estimates required spending of US$12tn for the next two

and a half decades just for the clean-energy portion. With massive funds also

needed on the adaptation side, we expect the effort to influence the fortunes

of many Asian companies. The regional giants - China and India - are setting

the pace, and provide an indication of how these trends will play out for Asia

as a whole. We highlight those sectors that appear set to gain, including (but

certainly not limited to):

Clean energy and mass transit systems will be a major investment focus

in most countries

Smart-grid and battery-technology plays

Adaptation will mean a lot of earth-moving and infrastructure refits

Cement and waste industries are overdue for a serious makeover

At the same time, we caution that investors need to become more aware of

the risks of investment in certain areas too, such as:

Coal (even clean coal) is risky, as is all fossil-fuel power to some degree

Any water-thirsty activity is exposed to security of supply and rising costs

Agriculture and forestry are vulnerable - look for climate-smart operators

The major difference from the 1990s - when the green agenda last enjoyed

its time in the limelight - is that big money is following the mission this time.

Climate-related funding by nation states, multilateral banks, corporations and

others already amounts to many billions of dollars per year (OECD calculates

around US$57bn in each of 2013 and 2014). With these levels set to continue

and even increase, combined with the attractive yield characteristics of many

of these green investment opportunities, we believe it is time to take another

look at the climate business - on the upside as well as the down!

New normal will be green, not just brown or grey

Four powerful forces at work

Creating a multitrillion dollar opportunity

Upside for many sectors

Need to be aware of significant downside risks

Take another look at the climate business

Tessa Tennant




Section 1: Cleanup convergence Blue Books


Cleanup convergence From “nice-to-have” to “necessity”, there is a massive confluence of pressures

to clean up the way that business is done globally, and those pressures are

converging starkly in the East.

Pick your own metaphor (horsemen of the apocalypse, points of the compass,

wheels on a car), we see four significant drivers at work today:

Resource stress as economic growth tests the limits of the region’s

natural assets

Costs of climate change, both physical and economic, often amplify the

impact of resource stress

Massive global policy refresh as various agreements about sustainable

development translate into significant reforms and fund flows

Governance net widens with greater investor and advocacy pressure to

improve environmental and social responsibility in corporate governance,

as well as putting the brakes on some climate-unfriendly investment

All of the drivers are intertwined, creating numerous pressure points and

opportunities for sustainable growth - described by the Chinese as Asia's

ecological civilisation. The first two drivers are the most immediate and

frontline, while the others are deeply reinforcing.

First driver: Resource stress Most Asia investors know the region is home to more than half of the world's

population. Less well known is the fact that much less than half of the world's

natural resources are found in the region, and they are (often seriously) in

decline. As Figure 1 shows, "Developing Asia" (ie excluding OECD countries

Japan, Korea, Australia and New Zealand) had roughly a quarter of the per-

capita stock of natural resources compared to the OECD as a whole in 1995.

Figure 1

Natural capital is disappearing

Source: Aligning Financial Systems in the Asia Pacific Region to Sustainable Development, UNEP, 2015

0

6,000

12,000

18,000

24,000

30,000

1990 1995 2000 2005 2010

OECD Developing Asia

(US$ per capita)

(14)

(12)

(10)

(8)

(6)

(4)

(2)

0

1990 1995 2000 2005 2010

OECD

Developing Asia

(%)

Fewer natural resources in Asia Pacific than

elsewhere, and in decline

Recognisable drivers are benefiting productivity

Confluence of pressures to clean up how business

is done globally

Natural capital is disappearing from a low base in Developing Asia

Tessa Tennant






Those stocks - including non-renewable resources, forests, agricultural land

and fisheries - have declined steadily over the intervening period. Moreover,

the rate of decline in Developing Asia has been steeper than that in the OECD

over the past decade. Stocks have dwindled by between one-third and half in

most countries of the region over the past five years. In Indonesia, natural

capital stocks amount to US$8,000 per capita, but are being eroded at the

rate of US$1,000 per year.

The quality of life and health costs of this natural-resource erosion are starkly

apparent, lying behind the land, air and water pollution whose human impact

the UN estimates may be costing China 13% of GDP, and the regular smoke

haze episodes related to the Indonesian burning season.

Economic costs are also becoming more apparent, especially when businesses

are tied into supply chains such as agriculture. For example, water scarcity in

China and India - which jointly produce just under half the world's cotton - is

forecast to hit their market share significantly over the next 10 years. Though

not a strategic industry for either country, uncertainty over supply sources

and the cost of a globally important textile will send ripples through a long

supply chain from local manufacture to international retail.

Figure 2

Haze in Singapore from 2015 Indonesian burning

Source: Robin Hutton

Meanwhile, the 2015 hazing disaster (when more tonnes of greenhouse gases

(GHGs) were emitted than in the entire EU) cost Indonesia some US$16bn,

according to the World Bank. Following the government’s “get-tough”

legislation, the region's largest palm-oil producer, Wilmar, announced a ban

on peat burning on its concessions in December 2015, and several companies

have been prosecuted, with significant fines for two: PT Kallista Alam

(US$26m); and PT National Sago Prima (a record US$76m) in 2016. Cases

against 15 companies connected with the 2015 episode have, however, been

dropped by police for reasons that are not clear. Following a civil society

outcry, the Environment and Forestry Ministry is now under pressure to try

and get these reopened.

This decline has impacted quality of life . . .

. . . and increased economic costs

Natural capital stocks lower by a third to a half

in most of developing Asia

Several Indonesian companies have been

prosecuted

Singapore’s air quality dips below that of Beijing

Tessa Tennant






The erosion of natural capital in the region is linked to the remarkable rise in

Asia Pacific's share of global resource use over the past four decades or so. As

shown in Figure 3, this share has increased from roughly a quarter of global

material consumption of just over 20bn tonnes in 1970 to more than half of a

global consumption of 70bn tonnes in 2010.

Figure 3

Global material consumption by region

Source: Global material Flows and Resource Productivity, UNEP, 2016

Not only has the amount of materials consumed risen massively but efficiency

has also declined. As Figure 4 shows, the intensity of materials use began to

change roughly half way through the period surveyed, as sources of growth

switched from more developed countries like Japan and Korea to developing

ones such as China and India. Since 1990, materials intensity (kilos employed

per dollar of GDP created) has been increasing.

Figure 4

Material intensity comparisons - Asia Pacific

Source: UNEP 2016

As can be seen in Figure 5, this growth contrasts with the trajectory of

materials intensity in a developed country like the USA, where intensity is not

only well below the global average, but has been improving steadily over time.

(m tonnes) Africa

Europe

West Asia

Asia Pacific

Latin America + Caribbean

EECCA

North America

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

1990 2000 201019801970

3.0

2.5

2.0

1.5

1.0

0.5

0.0

1970 1975 1980 1985 1990 1995 2000 2005 2010

Regional MI Global MIAdjusted MI(kilos per US$)

Erosion of natural

capital is linked to resource-use share

Material consumption in Asia Pacific has risen

significantly since 1970

Increased amount of materials consumed has caused efficiency to fall

Increase in intensity in 1990s

Tessa Tennant






Figure 5

Material intensity comparisons - North America

Source: UNEP 2016

Figure 6

Deforestation for palm oil in Indonesia

Source: Wakx

Efficiency of use is one of three main drivers of materials consumption, the

others being population growth and increasing affluence of that population.

The combination of these three drivers and the contribution of each in the last

decade for which data is available (2000-10) are illustrated in Figure 7, which

shows changes in direct materials consumption (DMC) and their causes.

The growth in material consumption in the Asia Pacific region, at 88%, was

more than double the world average over this decade. It is perhaps surprising

that only a small component of that growth (under 20%) was the result of

population increases. Half of the consumption growth was driven by greater

affluence, but roughly one-third was accounted for by less-efficient use of the

materials consumed (the "technological coefficient", equating to the materials

intensity illustrated above).

0.2

0.0

1970 1975 1980 1985 1990 1995 2000 2005 2010

Regional MI Global MIAdjusted MI(kilos per US$)

0.4

0.6

0.8

1.2

1.4

1.6

1.8

1.0

Other drivers of materials consumption are

population and affluence

Below global average, but developed regions have

seen steady improvement

Half consumption growth driven by greater affluence

in Asia Pacific region

Terrible aftermath of the fires

Tessa Tennant






In every other region except West Asia, which accounts for a tiny proportion

of global materials consumption, resource-use efficiency helped to reduce the

materials consumption that would otherwise have occurred. In contrast to the

disappointing Asia profile, Africa has seen materials-intensity improvements

setting off increased resource use. This suggests the old adage of “grow first,

clean later” is no longer valid. Development status is not necessarily an

insuperable hurdle to greater efficiency of use.

Figure 7

Changes in direct material consumption and causes

Source: UNEP 2016

The erosion of natural capital in the Asia Pacific region gives urgency to the

need to promote economic activity that is efficient, clean and inclusive while

discouraging activity with the opposite results.

Some of the changed practices and technologies that could be part of that

reversal are summarised in UNEP’s 2016 report:

Construction and housing: Improved building materials, insulation and

orientation of new buildings - together these can cut energy use in

buildings by 80%. Meanwhile, using higher-strength steel in the

construction of medium-density and high-rise buildings can save on the

amount of construction material used.

Transport and mobility: Improved urban design, walkable cities, public

transport, electric and hybrid vehicles, improved fuel efficiency in aviation,

freight and private transport - all of these measures deliver massive

savings in materials, energy and greenhouse emissions.

Agriculture and food: Improved irrigation techniques; reduced fertiliser

and pesticide use; reduced average consumption of meat and dairy; and

reducing food loss and waste from its current level of more than 30%.

Heavy industry and energy: Besides embracing recycling and

renewable energy, heavy industries such as steel, cement and paper can

each draw on a range of new technologies, such as electric arc furnace

improvements in the iron and steel industry.

Technology: While matters of biosecurity will determine the acceptability

of nano- and biotechnologies, these industries will play important roles in

sustainable production and consumption - for instance through the

creation of more durable products or the development of enzymes as

industrial catalysts.

Latin America+Caribbean

North America

West Asia

Europe

Asia + Pacific

EECCA

Africa

World

Net change % DMC

(50)(%) 1500 10050

88

45

25

35

101

43

(3)

(15)

Population Technological coefficient

(50) (%)1250 5025(75) (25) 10075

3429(19)

4515 28

58(33)

(18) 8

15 21

(30) 9

47 29 26

13 29 1

Affluence

Reversing resource inefficiency is a matter

of urgency

Development status is not

necessarily insuperable hurdle to better efficiency

Change is greatest in Asia

Tessa Tennant






The report also recommended having a price on primary materials at the

point of extraction, as well as putting a price on carbon emissions, with

proceeds invested in research and development in resource-intensive sectors

of the economy, to find yet more ways to reduce material consumption.

One place that has already embarked on the reversal big-time is of course

China. The frenzy of green policy that started a few months after the 2013

“airpocalypse” included the startup of the country's first carbon markets (to

go national in 2017), making the prosecution of environmental crimes easier

and putting local officials right on the line for environmental problems in their

areas. It has also seen China - companies as well as government - in the

midst of a US$275bn five-year spend to clean up the air (for comparison, this

is twice the size of the annual defence budget).

It is a measure of how fast China has moved on this agenda that a report in

Nature Geoscience in July 2016, co-authored by Sir Nicholas Stern and

Tsinghua University in Beijing, concluded that the country had already passed

its coal peak in 2014 and that it was likely its total carbon emissions would

start to fall before 2025, well ahead of its official target date of 2030.

Second driver: Costs of climate change Alongside these physical and monetary costs of industrial pollution are the

costs of climate change, which are becoming ever more evident. Last

November, just a few days before world leaders assembled in Paris to kick off

the UN climate summit (COP21), the Asian Development Bank (ADB)

published a report on the global increase in climate-related disasters and the

related costs. As Figure 8 shows, although there has been some volatility,

occurrences of the two types of disaster that most affect Asia Pacific

(hydrological and meteorological) have risen steadily over the past three

decades. Intensity of events has also increased.

Focusing especially on Asia, the ADB report made three points.

First, the economic effects of climate impacts are already being felt widely

across the region: "Floods and storms have cut significantly into annual

growth rates in Australia, the People's Republic of China, Indonesia, the

Republic of Korea, Thailand and Vietnam - a trend that is set to worsen. The

Philippines, often the first major landfall for typhoons arising in the western

Pacific, is among the most vulnerable countries".

Figure 8

Frequency of natural disasters, 1970-2014

Source: ADB, The Global Increase in Climate Related Disasters, Nov. 2015

1970 1974 1978 1986 1990 1994 2002 2006 2010

300

250

200

150

100

50

01982 1998 2014

Hydrological Meteorological Climatological Geophysical

Reversal already in full swing in some places and sectors

Growth held back by climate change, with Asia

bearing the brunt

Floods and storms already cutting growth rates in

several major countries

Frequency and intensity of natural disasters

are increasing

Tessa Tennant






Second, as well as holding back economic growth, there has also been heavy

damage from climate-related disasters. The ADB report does not quantify

these costs, but a 2014 report by the Asia Foundation, Financing the Costs of

Climate Change in Disaster-Prone Asian Nations, based on data from insurer

Munich Re, noted that Asia has suffered half of the estimated global economic

cost of natural disasters over the past 20 years - about US$53bn annually. In

human terms, the cost in the region has also been appalling: according to the

Asia Pacific Journal, 1.2bn people have been affected by 1,215 disasters since

2000 - mostly floods, cyclones and landslides.

Further costly effects of climate

change are revealed almost daily.

In a June 2016 report in the Asia

Pacific Journal of Public Health on

human aspects of the phenomenon,

New Zealand-based Health and

Environment International Trust

estimated the impact that rising

temperatures will have on labour

productivity, particularly heavier

physical work that needs to be

done outside. It concludes that,

across the globe, 43 countries will

see a fall in their GDP due to reduced productivity, the majority of them in Asia

including Indonesia, Malaysia, China, India and Bangladesh. Indonesia and

Thailand could see their GDP reduced by 6% in 2030, while China’s GDP could

be reduced by 0.8% and India’s by 3.2%. The global hit to GDP by 2030 could

be US$1.5tn to US$2tn per year. At this point, India, where some jobs are

already shared by two people to allow regular breaks from the heat, will see a

bill of US$340bn a year. China is predicted to experience similar losses, while

other countries among the worst affected include Indonesia (US$188bn),

Malaysia (US$188bn) and Thailand (US$113bn).

"Current climate conditions in tropical and subtropical parts of the world are

already so hot during the hot seasons that occupational health effects occur

and work capacity for many people is affected," said Dr Tjord Kjellstrom, a

director at the trust. He said the increasing need for rest ‘is likely to become a

significant problem’ as climate change makes the hottest days hotter and

leads to longer periods of excessively hot days. The lowest-paid workers -

those in heavy labour, agricultural and manufacturing - were most at risk of

exposure to extreme heat.

For those in more prosperous classes, too, the need for cooling will have

tremendous implications for energy needs. The number of households with

air-conditioning in China has doubled over five years, with 60m units a year

now being sold. According to research by the US government’s Lawrence

Berkeley National Laboratory, 700m air-conditioning units will be installed

globally by 2030, with commensurate implications for energy needs and HFC

(coolant gas) and CO2 emissions.

The ADB report cited above noted the mistake in thinking that climate action

- such as switching from dirty fossil fuels to cleaner renewable sources - will

hold back economic growth.

Costs related to climate change are also rising

And not just from disasters

Climate-related disasters an obstacle to economic

growth and well-being

Rising temperatures

leading to unproductive working days

More air-conditioners will negatively affect

environment

Figure 9

Temperature rises affect productivity

Source: Ian D Keating

Rising temperatures could reduce global productivity

by US$1.5tn

Tessa Tennant






‘Policymakers and economic advisors have long held the view that climate

action is a drain on economic growth’, said Vinod Thomas, co-author of the

report and director general of Independent Evaluation at the ADB. ‘But the

reality is the opposite: the vast damage from climate-related disasters is an

increasing obstacle to economic growth and well-being’.

In its conclusions, the report called for a "change [in] our mindset on how

growth is generated . . . [W]hile we must grow fast, we also need to grow

differently. In essence, we need a new strategy that values all three forms of

capital - physical, human and natural. Sound growth policies have long been

understood as those that expand investments in physical and human capital.

But unless we also invest in natural capital, all bets are off . . . Climate action

needs to be a central component of national plans. Economic growth will not

be automatic if climate change is not dealt with . . . Old-style growth at the

expense of the environment will be self-defeating - a realisation driven home

by the stark reality of climate change".

Echoing this viewpoint, when Philippine President Rodrigo Duterte, elected in

June 2015, indicated he "will not honour" the proposed restrictions on GHG

emissions as it would limit the country's industrial growth, Naderev Saño,

executive director for Greenpeace in Southeast Asia, said it was too simplistic

to view the Paris deal as something that should be honoured or not. ‘An

industrialising Philippines does not need to be dependent on fossil fuels, and

can develop with renewable energy and sustainable forms of development’, he

said. ‘Solving climate change does not have to be incompatible with social and

economic development. Climate solutions will not constrain our development.’

Third driver: Massive global policy refresh A couple of weeks after the ADB's rallying call for a "mindset change" towards

sustainable growth, the world hailed an historic agreement at COP21 in Paris

that did indeed make "climate action a central component of national plans".

Figure 10

Delegates celebrate successful conclusion of Paris Summit in December 2015

Source: Ministry of Ecology, Sustainable Development and Energy, France

The aim of the Paris agreement, in the words of the UN organisers, was to

"strengthen the global response to the threat of climate change by keeping

the global temperature rise this century well below 2°C above pre-industrial

Solving climate change

need not hold back development

. . . Paris delivered historic climate agreement

at end of 2015

Aiming for temperatures

less than 2°C above pre-industrial levels

ADB’s call was answered when . . .

Tessa Tennant






levels and to pursue efforts to limit the temperature increase even further to

1.5°C. Additionally, the agreement aims to strengthen the ability of countries

to deal with the impacts of climate change."

In a radical change to previous "top-down" approaches seen at the Kyoto and

Copenhagen talks, the Paris agreement works "bottom up", relying on

undertakings made by individual countries to the UN Framework Convention

on Climate Change (UNFCCC). Countries were asked to present their plans to

mitigate and adapt to climate change. These undertakings are the exotically

entitled Intended Nationally Determined Contributions (INDCs) - or, once they

have been submitted in fully ratified form - Nationally Determined

Contributions (NDCs). In this CLSA U Blue Book, we refer to them by either

designation, depending on the context. We note they are "contributions" not

binding commitments, and the vast majority are also subject to conditions of

one kind or another. Especially in the case of smaller/developing countries,

these conditions mainly relate to the availability of external financial

assistance to help implement the actions proposed.

At time of writing, 162 INDCs have been submitted to UNFCCC, representing

189 countries (the 28 countries of the EU submitted one INDC). The hang-out

countries are Nicaragua, North Korea, Uzbekistan, Syria and Libya (the latter

two having the undeniable excuse of a lack of a functioning government).

Everyone else is on board - an unsurpassed feat of global coordination within

such a short timeframe.

The trigger for the COP21 agreement to come into force is ratification by 55

parties representing at least 55% of GHG emissions, and there is a deadline

of 2020. To date, 19 countries have ratified, but they are mostly small,

representing just 0.2% of global GHG emissions. Big hitters GHG-wise, such

the USA and China are, however, expected to ratify during 2016. The UNFCCC

publicly states a belief that it will reach the activation trigger by the end of

2018; privately, insiders say they think it will happen in 2017 - in either case,

well ahead of the 2020 deadline.

Figure 11

The 17 sustainable development goals

Source: United Nations

Based on national not global commitments

Practically everyone on board already

Final ratification expected

well ahead of official deadline

UN’s sustainable development goals mark

an important step

Tessa Tennant






Rather like the wry observation that you wait ages for a bus and then three

come along at once, 2015 was in fact a jam-packed year for bumper global

agreements. Any one of them would have been a major development in its

own right, but collectively they will now shape national and international

policy making for decades to come.

Preceding the Paris climate agreement in the parade of buses was a new UN

framework on Disaster Risk Reduction (DRR) adopted in Sendai, Japan, in

March and important to the region because of its vulnerability to disasters

(see callout box: Sendai).

Next was the adoption of the UN Sustainable Development Goals (SDGs),

in New York in September. Unlike the predecessor Millennium Development

Goals, which applied only to developing nations, the SDGs are targets to be

followed by all countries. Also unlike the MDGs, the SDGs are supported by a

specific financing framework - Financing for Development - agreed at a

summit in Addis Ababa in July 2015.

Sendai The Sendai Framework for

Disaster Risk Reduction is perhaps the least well known of

the three agreements adopted

in 2015. It is closely linked to both of the others, however.

The expected outcome of the Framework is stated to be:

The substantial reduction of disaster risk and losses in

lives, livelihoods and health and in the economic,

physical, social, cultural and environmental assets of persons, businesses, communities and countries

To attain the expected outcome, the Framework calls for the following goal to be pursued:

Prevent new and reduce existing disaster risk through

the implementation of integrated and inclusive

economic, structural, legal, social, health, cultural,

educational, environmental, technological, political and institutional measures that prevent and reduce hazard

exposure and vulnerability to disaster, increase

preparedness for response and recovery, and thus strengthen resilience.

The Framework sets seven global targets:

1. Substantially reduce global disaster mortality by

2030, aiming to lower the average per 100,000

global mortality rate in the decade 2020-30 compared to the period 2005-15

2. Substantially reduce the number of affected people

globally by 2030, aiming to lower the average global figure per 100,000 in the decade 2020-30

compared to the period 2005-15

3. Reduce direct disaster economic loss in relation to global gross domestic product (GDP) by 2030

4. Substantially reduce disaster damage to critical

infrastructure and disruption of basic services, among them health and educational facilities,

including through developing their resilience by 2030

5. Substantially increase the number of countries with national and local disaster risk reduction strategies

by 2020

6. Substantially enhance international cooperation to

developing countries through adequate and

sustainable support to complement their national

actions for implementation of the present Framework by 2030

7. Substantially increase the availability of and access

to multi-hazard early warning systems and disaster

risk information and assessments to people by 2030

Over time, these targets are likely to have a significant

impact on matters such as building controls as well as

the requirement to build resiliency into infrastructure developments. These "Sendai effects" will be

concentrated where there are vulnerable populations,

for example in coastal areas and megacities.

Paris was just one of

three major global agreements in 2015

First came Sendai . . .

. . . then Sustainable

Development Goals - this time backed by finance

Tessa Tennant






Perhaps because they do not ride buses much, the adoption of these

agreements seemed to pass pretty much under the radar of financial

markets. Since their adoption, the cogs of internal review have been silently

whirring as governments, think tanks, NGOs and market players work out

how the implementation of all these agreements will be approached and how

they inter-relate. For example, one emerging view is that much of the Paris

climate agreement and the NDCs will be implemented via the Sustainable

Development Goals, with which they have much in common.

The present post-prandial silence - to be expected after such a rich banquet

of agreements - shouldn't lead us to think there is not much substance here.

These agreements - and their related targets, agendas and fund flows -

materially change the responsibilities of governments and supranational

institutions on a wide range of issues. As a result, and over the next few

years, those changes will inevitably start to flow through into policy and

planning, and from there to new restrictions and incentives for business to

change behaviour, potentially quite drastically in some cases.

Fourth driver: Governance net widens The fourth driver in cleanup convergence is increasing expectations around

corporate governance. Here, we believe the already considerable pressures on

companies - and institutional investors - in Europe and the USA are likely to

grow in Asia too.

As a gauge of the squeeze from shareholder activism in the USA, Sustainable

Investments Institute (Si2) reported more than 440 resolutions addressing

corporate behaviour and governance submitted to listed company general

meeting agendas in 2016, a level that has been maintained for some years.

As Figure 12 shows, 40% of these resolutions related to environmental and

sustainability concerns, the largest subset of types of concern. Similar levels

of activity are now starting to be seen in Europe, Australia and Japan, driven

especially by pension funds, where beneficiary engagement with trustees and

managers about fossil-fuel divestment has become a common focus.

Figure 12

Si2’s reported resolutions addressing corporate behaviour and governance

Source: Si2 et al. Proxy Preview, CLSA

Conservatives3%

Sustainability7%

Diversity9%

Human/labour rights

18%

Political activity26%

Environment34%

Other 3%

Environmental and sustainability higher up

shareholder agenda

These agreements will

soon flow into policy, planning and regulation

Environmental issues top shareholder activism

Corporate governance demands are rising

Tessa Tennant






In Asia, such public engagement has been much less pronounced. For

example, of the 1,535 signatories to the global UN Principles of Responsible

Investment (UNPRI), there are 279 in the USA and 222 in the UK, with only

four signatories in China and six in Singapore.

The best represented country for UNPRI in Asia is Japan, where there are 47

signatories. The direction of travel for corporate and investor responsibility in

Japan (and perhaps for the region as a whole) can be seen in the Japanese

government's launch of two voluntary codes in the past two years. These are

the Stewardship Code (introduced in 2014) and the Corporate Governance

Code (introduced in 2015).

The Corporate Governance Code sets out fundamental principles for effective

corporate governance at listed companies in Japan, including a requirement

that they should take appropriate measures to address sustainability issues.

They are designed in part to make investment in Japanese corporations -

which have a reputation for opacity - more attractive to foreign investors.

The Stewardship Code states that institutional investors should aim to

“enhance the medium-to long-term return on investments for their clients

and beneficiaries by improving and fostering investee companies' corporate

value and sustainable growth through constructive engagement, or purposeful

dialogue”. Commenting on these developments, a 2015 report by the UNPRI

quotes the Managing Director of the Secom pension fund, Hiroichi Yagi, ‘ESG

analysis is very new for most Japanese investment managers. As a

consequence, Secom does not want to put too much pressure on investment

managers but instead wants to work with them to help them develop their

capacity and expertise.’

Meantime, a 2016 study conducted by the National University of Singapore

Business School's Centre for Governance, Institutions and Organisations and

Asean CSR Network, found that while sustainability reporting rates among the

top 100 companies by market capitalisation in Thailand, Malaysia, Indonesia

and Singapore were generally high, standards of reporting left much to be

desired. The four countries scored an average of 50.4 out of 100 when

evaluated on quality indicators, and, of the 371 companies surveyed, only

105 adopted the Global Reporting Initiative's (GRI) recommended framework,

which is generally regarded as the gold standard for sustainability reporting.

Another example of the growing importance of ESG for portfolio management

was highlighted in a 2015 study by asset manager Robeco and the Hong Kong

University of Science and Technology's Business School (The Role of

Governance relative to Environmental and Social Factors in Equity Returns).

The team studied 1,375 public companies across Asia, Europe and North

America, investigating how ESG factors impact stock prices and volatility

using RobecoSAM's Corporate Sustainability Assessment Scores (as proxies

for ESG performance). The report concluded that Asian equity investors could

capture better returns and lower portfolio risk by considering environmental,

social and governance (ESG) factors, specifically the governance factor.

Considering its study portfolio, it was found that investing in the top 10% of

companies (by ESG score) led to higher dividend payout ratios and lower risk

than the bottom 10% of ESG performers. The same strategy for the universe

of Asian companies would also have provided a portfolio with significantly

lower portfolio risk.

Pressure on these issues is set to grow in Asia

Japan launches

new investor and corporate codes

Sustainability reporting rates are increasing, but

standards are still low

Better returns and lower risk by considering governance factor

Best to invest in top

10% of companies (by their ESG score)

Stewardship Code is

driving a step-change in governance

Tessa Tennant






Figure 13

Advocacy pressures grow on fossil fuels

Source: Divest-Invest Briefing, 2015

Alongside a generally greater focus on ESG matters among investors, another

significant recent development has been growth of the fossil-fuel divestment

movement. This has become a prominent investor concern because of the

"stranded assets" narrative, which - perhaps because it is based on some

straightforward maths - has become the basis of a major behavioural shift

among companies and investors. The argument goes that the need to avoid

further global warming means that, by definition, a major proportion of fossil-

fuel assets can never be exploited, and investing in them is thus an irrational

decision. Divestment from such assets is accelerating fast.

A briefing released at the Paris climate summit by Divest-Invest, an advocacy

group funded by a range of US and European foundations and family offices,

revealed that in just over a year pledges to divest from fossil-fuel assets had

grown more than 50-fold. In September 2014, the report stated that some

180 organisations holding US$50bn in assets were committed to divesting

from fossil fuel-assets. By the end of 2015, 500 organisations representing

some US$3.4tn in assets had committed. Of these organisations, 64% were

based in the USA, 20% in the UK and 10% in Australia. Others were based in

Canada, France, Denmark, China, Germany, the Netherlands and Senegal.

Outside of Australia, the campaign has not as yet gained much traction in

the Asia Pacific region, but there are powerful and influential voices

involved, so it is only a matter of time before Asian corporates and investors

are in the spotlight.

Fossil-fuel divestment movement on the march

AUM of divesting institutions growing

rapidly

Notable growth in fossil-fuel divestment

movement

Asia Pacific is next

Tessa Tennant






We have seen one recent manifestation in Japan, where in August 2016 the

climate campaigning organisation 350.org published a report (and we quote

this verbatim as the wording is interesting) "identifying which Japanese

financial institutions are financing the fossil fuel and nuclear power sectors

in Japan and which financial institutions are not. The findings demonstrate

how the Japanese financial services industry is trailing behind the ever-

growing global momentum toward decarbonising the energy sector." The

report noted that 350.org Japan will launch a campaign later this year to

identify fossil-fuel and nuclear-free financial institutions in Japan. To support

banks that adopt sustainable investment policies, the campaign will

encourage individuals to divest their personal accounts from banks related

to fossil-fuel and nuclear expansion.

Conclusion: Cleanup convergence is coming To sum up, Asian businesses are having to deal with heightened public

expectations and natural resource pressures arising from four interlocking

drivers: first, physical and cost impacts on populations, supply chains and

operations from natural capital erosion and environmental degradation as a

result of human activity; second, climate change effects, which often amplify

the environmental degradation; third, major new global agreements changing

the responsibilities of governments and supranationals to address the first

two issues; and finally, strong reinforcement of new policy direction through

the rise of investor engagement and advocacy.

In this CLSA U Blue Book, we start a new mapping of Asian business in light

of this cleanup convergence, examining what might determine the winners

and losers and looking especially through the lens of the Paris agreement

and INDCs.

Soon to make a

breakthrough in Asia Pacific region

Expectations are rising

Tessa Tennant




Section 2: How we got here and who's paying Blue Books


How we got here and who's paying Background to Paris, INDCs and climate finance

The United Nations Framework Convention on Climate Change, or UNFCCC,

was adopted during the Rio de Janeiro Earth Summit in 1992. It entered into

force in 1994 and has been ratified by 196 states, which constitute the parties

to the Convention - ie its stakeholders.

The starting point for the Convention is an acknowledgment of the existence

of human-induced climate change and the fact that industrialised countries,

as the cause of it, have the main responsibility for combating it.

The Conference of the Parties (COP) meets every year in a different city and

is the Convention's supreme decision-making body tasked with setting targets

and how to achieve them.

Though an annual event, there have been a few standout COPs along the

winding path of climate change negotiation. COP3 in Kyoto, Japan, in 1997

created the Kyoto Protocol to reduce GHG emissions, with the obligation on

developed countries to do most because they were responsible for the

manmade GHG pollution in the first place. The Protocol, which the USA and

others contested, finally came into force in 2005.

COP16, held in Copenhagen, Denmark, in 2009, was meant to establish an

ambitious global climate agreement for the period from 2012 when the first

commitment period under Kyoto expired. The talks were a spectacular failure

and Copenhagen marked the end of the "top-down" approach. Three useful

things emerged from it, however. The first was the probably far more practical

"bottom-up" approach to building global action through individual country

contributions. The second was an actual target for that action, limiting global

warming to 2°C. The third was the notion of funding from the developed

world to help the developing world combat emissions and climate effects.

At COP17, held in Cancun, Mexico, in 2010, the mechanism for helping to

fund developing world actions, the Green Climate Fund, was established. And

finally, at COP19, in 2013 in Warsaw, Poland, the notion of the Intended

Nationally Determined Contributions (INDCs) was formalised, and it was

agreed that countries would submit these plans by the time of COP21 in Paris

in 2015.

The somewhat cumbersome name for these submissions reflected perfectly

the new devolved approach to climate actions. They were to be nationally

determined rather than global and externally imposed, and contributions

rather than legally binding commitments (though in signing up for them post-

Paris, governments do have a treaty-weight obligation to implement them).

The devolved approach of the INDCs recognises the very different starting

points of countries regarding their level of development, their intensity of

carbon use and their vulnerability to climate events.

COP20, held in Lima, Peru in 2014, provided further detail on the content of

INDCs, though in the spirit of devolution no formal template was issued. The

basic requirements addressed only mitigation actions (ie actions to reduce

emissions) and were very few in number, the main ones being:

Paris was culmination of 23-year negotiation

process

Copenhagen in 2009 marked turning point . . .

. . . that led to INDCs

COP20 focused on mitigation actions

Tessa Tennant






A reference point for the planned reduction (for example, the base year)

Timeframes for implementation

Economic sectors and GHGs being addressed

Planning processes for implementation

Assumptions and methodological approaches used to assess contributions

and effects

A statement as to why the intended contribution was "fair and ambitious",

in light of the country's national circumstances and overall goal of meeting

the 2°C target

Developing countries were also invited to highlight needs and priorities to

assist in the implementation of their INDCs - including those relating to

finance, technology and capacity building - and to articulate additional

ambitions or actions that could be realised with greater support than their

national resources would allow. This introduced an element of conditionality

into the INDCs, which became an important feature.

There is no doubt that the devolved approach of the INDCs, and their relative

informality, alongside peer pressure, were the main reasons for the high

numbers eventually submitted.

INDCs began to appear in early 2015, with Switzerland - thereby reinforcing

its reputation for timeliness - being first out of the blocks on 27 February,

followed soon after by Latvia on behalf of the EU. Other countries, however,

were adopting more of an "essay-crisis" approach to the submission deadline.

By the official cut-off date of 1 October 2015, 119 plans had been submitted,

70 of them in the week before the deadline. By the end of the Paris summit,

another 41 INDCs had been lodged, making 160 at the time the agreement

was announced, representing 187 countries and 95% of emissions.

Mitigation and adaptation Climate change mitigation refers to

efforts to reduce or prevent emission of GHGs. Mitigation can mean using new

technologies and renewable energies,

making older equipment more energy efficient, or changing management

practices or consumer behaviour. It can

be as complex as a plan for a new city, or as a simple as improvements to a

cookstove design. Efforts under way

around the world range from high-tech subway systems to cycling paths and

walkways. Protecting natural carbon sinks like

forests and oceans, or creating new sinks through silviculture or green agriculture are also elements of

mitigation. (UNEP definition)

Climate change adaptation means

anticipating the adverse effects of climate change and taking appropriate action to prevent

or minimise the damage they can cause. It has

been shown that well-planned early adaptation action saves money and lives later.

Examples of adaptation measures include: using scarce water resources more efficiently;

adapting building codes to future climate

conditions and extreme weather events; building flood defences and raising the levels of

dykes; developing drought-tolerant crops; choosing tree

species and forestry practices less vulnerable to storms and fires; and setting aside land corridors to help species

migrate. (European Commission Definition)

High turnout of INDCs

Conditionality became important

Tessa Tennant






INDCs are not just about mitigation There was no requirement for countries to talk about climate adaptation (see

callout box: Mitigation and adaptation) in their INDCs but they were invited to

do so and in the end more than 80% of INDCs (137 countries) covered the

topic because it is such a concern for developing and vulnerable nations in

particular. Indeed, in many INDCs - especially and understandably where the

party was a minor polluter but a major potential victim - the adaptation

section was much longer and more detailed than the section on mitigation.

Most countries now also have or intend to develop nationwide adaptation

plans and strategies.

Although the focus of attention on the Paris agreement tends to be on

mitigation, adaptation measures could be a major opportunity for Asian

business, but perhaps in ways that are not immediately obvious. At one end

of the scale, with coastal erosion being a critical vulnerability for many

countries in the region, there are likely to be major requirements for "hard"

adaptation measures: sea defences, climate-proofing of infrastructure,

commercial and residential properties, etc. India alone has more than

7,500km of coastline now covered by Coastal Zone Regulations that stipulate

the standards required for all developments.

Figure 14

Changi Airport

Source: Nan-Cheng Tsai

A typical example of climate change adaptation, announced in Singapore's

Climate Action Plan in July 2016, the new terminal at the city's Changi airport

will be built 5.5m above sea level, significantly higher than the 4m required

for other land-reclamation projects. Singapore's National Climate Change

Secretariat also announced that relevant government agencies are reviewing

the resilience of Singapore's transport, telecommunications and energy

infrastructure. Adding such resilience is likely to substantially add to

infrastructure costs: one DFI, for example, uses a rule of thumb of about 6%

additional costs for climate-resilient infrastructure.

Adaptation is a major concern . . .

. . . and potentially also a significant commercial

opportunity

Singapore’s airport is a good example

of adaptation

Singapore’s climate action plan is a sign of

things to come

Tessa Tennant






As Figure 15 shows, the Asia Pacific region has probably the highest density

of coastal airports in the world, so Singapore may be just the first of many

that needs to be jacked up a bit. Other major airports that are at or near

sea level are in Sri Lanka, Hong Kong, Incheon (Korea), Taoyuan (Taiwan)

and Mumbai.

Figure 15

Major coastal airports

Source: International Civil Aviation Organisation, Airports and Adaptation, 2010

Less obviously, perhaps, there are a range of "soft" adaptation measures that

are likely to create opportunities. For example, almost every INDC mentioning

adaptation refers to the creation of, or significantly improving, early-warning

systems for climate events. This obviously means business for those involved

in both the hardware and software used in these systems. Similarly, there is a

massive need for capacity building at both government (national, regional and

local) and private-sector levels to improve awareness and understanding of

climate-change issues and capability to implement projects to combat it. So

the prospects for major consultancies, engineering firms and universities with

the right competencies are very good.

So who’s paying? There was no requirement to include any information in the INDCs on how

commitments were to be financed. Most developed countries provided no

data, leaving the financial costs and viability of their commitments unclear.

Developing countries, on the other hand, who mostly submitted INDCs

conditional on financial and/or technical support, provided more information

on estimated costs and needs.

The question of developed-country financial support for developing-country

actions has been a long and often vexed one, with the latter understandably

claiming that as the former created the climate mess, they should pay for

protection against it and for reducing emissions. While acknowledging this

historical legacy to some degree, developed economies also point to the rapid

increase in GHG emissions from developing countries that can be avoided

when countries adopt climate-smart development, which China, India and

others are now starting to do.

Just one of many airports that may be affected

"Soft" measures also create potential

opportunities

Public finance to support INDCs a continuing

feature of negotiations

Airports around the world are at risk

Question of who pays is still there

Tessa Tennant






In 2009, the Copenhagen Accord marked the start of financial commitments

by developed countries for mitigation and adaptation activities in developing

countries. The goal was agreed to jointly mobilise US$100bn a year by 2020

to address these needs. The funding would come from a wide variety of

sources - public and private, bilateral and multilateral - including alternative

sources of finance. A significant portion of such funding should flow through

the Copenhagen Green Climate Fund, which has been established with equal

representation from developed and developing countries.

By the time of the Paris summit six years later, the Green Climate Fund (GCF)

had attracted commitments of only US$10bn in total, far from the US$100bn

a year indicated at Copenhagen. As the World Resources Institute pointed out

in August 2015, “the [US$100bn] goal is currently the primary political

benchmark for assessing progress on climate finance".

However, the GCF is not the only funding facility, and, in October 2015, the

OECD reported on the aggregated finance for climate actions over the

previous two years. These included "official" climate funds, such as the GCF,

but also added other sources which represented flows from developed to

developing countries: aid, multilateral development bank finance, private

finance leveraged through development finance institutions, export credits

and so on. The report estimated that, looked at this way, "climate finance

reached US$62bn in 2014 and US$52bn in 2013, equivalent to an annual

average over the two years of US$57bn".

Though debates about whether and how the US$100bn commitment is being

honoured has been a source of endless fascination for negotiators, it is of

little interest practically speaking as the financing needs arising out of Paris

would likely run into trillions not billions per year. A paper by Ian Callaghan

(one of the authors of this CLSA U Blue Book), which analysed the first 50 or

so INDCs published ahead of Paris, estimated the cost to be some US$500bn

per year for developing countries alone.

We believe there are two key points for readers on funding. The first is that

the conditionality of many INDCs creates pressure on the developed world to

continue to channel funds to developing countries to assist with their INDC

implementation. They will largely do this via Development Finance Institutions

(DFIs), so these will become vital partners for in-country financiers, whether

the local capital markets or project developers. We cover DFIs in Section 6.

The second point is that INDCs require a spectrum of financing needs, from

the purely concessional to the fully commercial, and, as these become more

evident, so will the industries which are set to benefit, those which face

substantial adaptation costs and those which are likely to shut down. As a

result of the first point above, government funds will be very focussed on

leveraging private capital to the tasks they face, so expect many more

instruments, such as green bonds, to facilitate participation.

The return profiles of these instruments may be relatively rich and - because

of credit enhancement and other de-risking techniques - their risk may be

relatively lower than might be expected, so we would expect them to feature

more and more in portfolios as investors start to get familiar with them.

US$100bn target for

Green Climate Fund has become principal focus

Funds are starting to flow

Public finance is

just the start; private finance will be key

Expect more instruments to facilitate participation by institutional investors

Potentially interesting returns

Tessa Tennant




Section 3: Nationally determined contributions Blue Books


Nationally determined contributions This Section gives a brief overview of the INDCs globally, in particular looking

at the main kinds of mitigation and adaptation actions mentioned in them as

a lead-in to thinking about opportunities that might arise.

We cover what they imply "temperature-wise" (ie in terms of actually halting

or reducing warming) and what the various potential outcomes of warming

scenarios might mean for companies and investments in Section 4.

In Section 7 and the Appendices, we present summaries of eight Asia Pacific

INDCs and suggest what opportunities and threats these may present for

companies operating in the region.

Two useful sources for those wishing to investigate further are the UNFCCC

synthesis report published in June 2016 and the World Resources Institute

CAIT tool, which can be found at www.cait.wri.org and provides summaries of

all INDCs.

General observations Some 161 INDCs have now been submitted to UNFCCC, including one for the

28 EU countries, so covering 189 countries. There has been a huge increase

in the number of countries that now have climate targets via their INDCs.

When the UNFCCC in 2012 asked for quantified targets up to 2020, only 61

countries offered them. In the INDCs, 182 countries provided such targets,

although many were against a “business-as-usual” scenario.

The INDCs show that many more countries are now adopting economy-wide

policies rather than treating climate change on a project-by-project basis.

Most INDCs are backed by sustainable growth or similar national policies, law

and targets, some fully ready to go (for example, Singapore announced its

Climate Action Plan in July 2016) and some needing further work.

We see this as evidence that climate action is part of the DNA at government

level, and now an integral part of cleanup convergence. This signals a

generally positive starting point for the implementation process.

Figure 16

Green architecture in Sydney

Source: Rob Deutscher

We look at INDCs globally, by warming outcomes and

also regionally

INDCs represent massive step-up in ambition

Countries are now thinking economy-wide

about climate change

Green walls in Sydney

Tessa Tennant




http://www.cait.wri.org/



The implementation period for the INDCs is remarkably short - in most cases

between 2020 and 2030. On the basis that "Paris and more" will need to be

implemented if the sub-2°C target is to be met (see Section 4), this implies a

massive amount of activity in a single decade, with quite a short preparation

period leading up to it.

Many INDCs indicated an intention (or need) to use market mechanisms such

as carbon taxes or trading schemes to help meet commitments or part-

finance projects. China already has carbon-trading pilots operating in seven

cities and will go national in 2017 (this is the biggest scheme in the world and

it is already well under way). What other national, regional and international

mechanisms will look like is less clear, but we provide an update in Section 6,

where we also look at mechanisms such as such as REDD+ and payments for

ecosystems services

Many INDCs highlight a link between climate actions and social and economic

development. Some concrete examples of specific co-benefits from climate

actions included reduced local air pollution and resulting health benefits;

improved access to energy; improved water quality; and job creation and food

security. This linkage reinforces our earlier observation that much of the

substance in the INDCs will be delivered via the Sustainable Development Goals.

Targets Several different types of target for emissions reductions were offered in the

INDCs, as shown in Figure 17. To state the obvious, only absolute targets

guarantee an absolute reduction in GHGs. Business as usual and other targets

could (and most often would) result in an increase in emissions.

Figure 17

Types of mitigation target

Source: UNFCCC Synthesis Report Update (2016), CLSA

The most developed nations tended to present absolute targets. Developing

countries, especially in Africa and Latin America, as well as the smaller Asian

countries, tended to submit business-as-usual targets, ie referencing where

their INDC would put them compared to a scenario where they did nothing.

Interestingly, China and India were among the few that offered both GHG and

non-GHG targets, perhaps reflecting how air pollution in all its forms is a

powerful driver for their cleaner economies. They were also among the few

0 10 20 30 40 50

Absolute

Business-as-usual

Intensity target

Peaking target

Policy and actions

Other

(%)

Frenzied decade to come

Market mechanisms will

be important - if we can figure out what they are!

Link between INDCs and social development

Nearly all countries had targets, but half against

business as usual

Indian and Chinese INDCs reflected air-pollution as

well as GHG issues

Business as usual still reigns supreme,

but not for long

Absolute targets dominate in developed

economies

Tessa Tennant






countries opting for carbon intensity (ie CO2 used per unit of GDP) and/or

carbon-peaking targets. India, along with South Africa, presented the former,

and China presented both, with a target peak at or before 2030.

Countries that did not present targets generally specified the actions and

policies they would adopt in the implementation of their NDCs. These tended

to be countries with current-governance issues (ie Egypt, Somalia, South

Sudan, Myanmar), but one notable member of their ranks was Saudi Arabia.

Mitigation actions Sectors mentioned in the INDCs tended to be referenced to the five sectors

used by the Intergovernmental Panel on Climate Change (IPCC), as in Figure

18. In this typology, the energy sector includes transport.

Figure 18

Sectors covered in INDCs (UNFCCC categorisation)

Source: UNFCCC Synthesis Report Update (2016), CLSA

Most developed and larger developing countries mentioned all sectors. A

grouping in sub-Saharan Africa and smaller Asia-Pacific countries reported

coverage in only some sectors. India and China did not specify particular

sectors in this way, but did provide quite a level of detail on the actions they

would take on mitigation.

In the comments below, reference is made to a report by one of the current

authors, Ian Callaghan, published in December 2015 (Climate Finance after

COP21), which studied the first 47 INDCs submitted in 2015. These INDCs

covered 74 countries and nearly 70% of global GHG emissions. Most of the

main economies, including the USA, China, Japan and the EU were included.

While not comprehensive, this is the only study we know of which has yet

analysed the INDCs at a detailed sector level for financing purposes, and we

believe it provides a useful initial guide and insights. The report (referred to

as "Callaghan 2015" below) splits out transport as an additional sector. Given

the variability of data presentation in the INDCs and especially on costs, its

methodology was simply to count citations of sectors. In the commentary,

therefore, there is no equivalence between citations and potential size of the

opportunities. The report is available at www.calltoactiononclimatefinance.net.

Callaghan 2015 found that energy was, as in the UNFCCC survey, the most-

cited sector for mitigation (see Figure 19). However, by also separating out

transport, it found that this was the second-most-cited sector. In other

respects, the pattern of citation is similar to the one found in the UNFCCC

survey, with the exception that waste showed a little more prominence.

0 20 40 60 80 100

Energy

Industrial process and product use

Agriculture

Land use, land-use change and forestry

Waste

Other/specific sectors

(%)

Energy and transport most frequently

mentioned sectors

Significant variation between developed and

developing regions

INDC quality varies greatly

Saudi Arabia is the standout hold-out

Tessa Tennant




http://www.calltoactiononclimatefinance.net/



Figure 19

Sectors covered in INDCs (Callaghan 2015 categorisation)

Note: LULUCF = land use, land-use change and forestry. Source: Callaghan (2015), CLSA.

Energy

As can be seen from Figure 19, and not surprisingly, energy was mentioned in

almost every INDC (with transport included within this sector where not

separately mentioned).

Within energy generation, Callaghan 2015 found renewables was the most-

cited sector and at a subsector level solar and wind (together over 50%) were

the most-often cited, followed by hydro and generation from waste. However,

there were few specific mentions of large-scale wind, either on- or offshore,

which would likely be the most effective climate mitigants at scale.

Figure 20

Renewable energy in INDCs

Source: Callaghan (2015), CLSA

Under the heading of energy efficiency, most citations were around

household energy-efficiency improvements, including measures to scale up

clean cooking and domestic lighting, as well as insulation. (Industrial energy-

efficiency falls within the industrial processes sector.)

Fiscal measures mentioned included such initiatives as reducing fossil-fuel

subsidies, feed-in tariffs and tax exemptions.

0 20 40 60 80 100 120 140

Transport

Waste

LULUCF

Agriculture

Industry

Energy

Solar33%

Wind21%

Hydro14%

Waste13%

Biofuels8%

Ocean7%

Geothermal4%

Renewables most cited energy sector; solar and wind at subsector level

Energy-efficiency focused on households

Energy was most-cited sector for mitigation

Renewable energy was cited most in the INDCs

Tessa Tennant






Under the heading of distribution, most mentions were around improving

infrastructure to reduce distribution losses.

Industrial processes

The single most important subsector was cement, which traditionally is highly

energy-intensive to produce. The other major sectors mentioned were iron &

steel, chemicals, electronics and minerals.

Most citations of energy generation within industry related to cogeneration

opportunities.

Policy initiatives included measures such as low-carbon development of new

sectors, setting emissions limits and encouraging or directing investment in

energy-efficient equipment.

Agriculture

The most-cited initiatives in agriculture were under the heading of agricultural

production, with concepts such “climate-smart agriculture” and mechanisation

and improved techniques frequently mentioned. New types of agriculture such

as agri-silviculture were also mentioned.

The next most important grouping of initiatives was under the heading of

agricultural waste, with frequent citations of livestock and manure

management and issues such as reduction of field-burning and reuse of

animal and crop wastes, which can be revenue generators in their own right.

Allied to these practice issues were citations under the heading of soil and soil

management, including crop management, soil-fertility management and

reduction of fertiliser and pesticide use.

Land use, land-use change and forestry (LULUCF)

Given its central role in many economies, as well as its importance to mitigation

actions, the LULUCF sector was understandably frequently cited. Unsurprisingly,

the vast majority of citations were in the area of forestry, with actions coming

under the broad heading of REDD+, such as protection from deforestation and

forest degradation, conservation, sustainable management of forests and the

enhancement of forest carbon stocks through re- and afforestation.

Another important forestry-linked category cited was developing

alternative economic activities, including via ecosystem services and non-

timber forest products.

Other actions included measures linking agriculture, such as management of

cropland and grazing, and prevention of sandification and desertification and

planting shelter belts.

Waste

The most-cited issue was tackling solid waste, and, within this category, the

implementation or improvement of collection schemes. Also frequently cited

was energy generation from waste, including cogeneration and capped

landfill schemes.

Increasing levels of waste reduction, re-use and recycling was the next-

most-cited action. Treatment of wastewater (possibly also including

cogeneration), reduction/recycling of industrial wastes and sanitation

projects were also mentioned.

Cement manufacture most targeted industrial

process

Climate-smart agriculture to lead the way

Measures to combat deforestation and

degradation

Solid-waste management and generation from waste

keys, alongside recycling

Tessa Tennant






Transport

Transport-sector responses were divided into public, private, infrastructure

and policy/strategy.

Figure 21

Metro under construction in Moolchand, India

Source: Carol Mitchell

The largest clusters of citations were in the areas of public transport and

private fleet improvement. In public transport, the focus was on mass transit,

bus and rail schemes. The latter included both urban, interurban and (in the

case of rail) international schemes. In the private transport category, citations

regarding vehicle fleet improvement were concentrated on the control of older

vehicles and introduction of low-carbon vehicles, together with improvements

in fuel efficiency and use of blended fuels.

The other area of strong interest was in policy and strategy, including

transport planning and traffic management.

Little detail was given on infrastructure improvement, and, in the absence of

good planning and integration of transport schemes, there is a potential for

conflict between infrastructure development (in the case of road and air

transport especially) and mitigation performance.

Adaptation Callaghan 2015 categorised two basic types of adaptation action: physical

interventions and capacity building.

Under the heading of physical interventions, it found the following

categories of intervention mentioned in the INDCs studied, ranked by number

of citations. All of these are highly relevant to the Asia Pacific region.

Water, irrigation

Agriculture, fisheries

Coastal & marine works

Health

Housing, urban

Ecosystems, especially forest and coastal/marine

Energy infrastructure and climate proofing

Tourism, eco-tourism

Insurance - crop, health, micro-insurance etc

Crosscutting actions would be infrastructure-related to all of the above.

Mass transit is main route to reduce emissions and

clean the air in cities

Key adaptation actions highly relevant to region’s

physical characteristics

Public metro systems will cut emissions

Physical intervention and capacity building

Tessa Tennant






Figure 22

Capacity building the soft way

Source: World Bank

A second set of actions centre around capacity building. This involves the

participation of government, public sector, private sector and civil society. It

includes activities such as the development of risk-management and early-

warning systems. Although these are "soft" measures, we believe - given the

massive needs across the region and the likely availability of substantial grant

funding - that there are potentially large opportunities for companies and

institutions with the right skillsets and materials, including consultancies,

universities and training providers.

Financing adaptation

Looking at the financing of adaptation actions, Callaghan 2015 posited three

types of adaptation action. These are important to understand because they

may highlight activities which at first glance appear to be non-commercial.

Hybrid actions, where mitigation and adaptation occur in the same

action - for example, boosting eco-tourism might have economic

benefits for local communities, thus increasing their resilience as well as

mitigation effects.

Integrated actions, where planning or other regulation of projects that

would occur anyway can be used to create adaptation. For example, a

coastal housing development purely privately financed could include

reclamation or sea defence provisions that would create protection for

communities beyond the development.

Viability-enhanced actions, where the adaptation action can be made

financially viable through mechanisms such as payments for services

derived from the action (ie ecosystem services), compensation for

avoiding certain actions or credit sale mechanisms. We deal with some of

these mechanisms in Section 6.

“Soft” adaptation also important and may offer

commercial opportunities

Adaptation actions may be integrated with mitigation actions

Capacity building brings together all levels from

government to civil society

Tessa Tennant




Section 4: Where is Paris on the thermometer? Blue Books


Where is Paris on the thermometer? What does Paris mean for global warming and investments? Figure 23 is UNFCCC’s assessment of the aggregate GHG-reduction effect of

all the INDCs by 2050. The uppermost scenario shows warming levels pre the

INDCs. The trajectory just below shows the range as represented by the INDC

commitments, recognising that many of them have conditions attached: these

are the "Paris-as-is" forecasts. The two descending trajectories represent the

scenarios that achieve success at keeping warming at 2°C and 1.5°C. We call

both of these the "ambitious Paris" forecasts.

Figure 23

Possible warming scenarios

Source: UNFCCC Synthesis Report Update, 2016

As can be seen, even the best outcome for INDCs (base of the vertical orange

INDC bars) does not set a course to 2°C, the gap being notable at 2025 and

very significant at 2030.

UNFCCC does not place a "degrees Celsius" measure on this gap, but a report

from International Institute for Applied Systems Analysis in Nature (IIASA,

June 2016) estimated that the warming represented by INDCs was between

2.6°C and 3.1°C.

If you want just one example of why it matters that warming is limited, see

Figure 49 for a graphic on sea levels in a 2°C and 4°C world.

This implies the need for a considerable increase in the ambition on INDCs

over time, a need that is echoed by PwC’s Low Carbon Economy Index, which

estimates that to limit warming just to 2°C, the world economy needs to

decarbonise at a rate of 6.3% every year. It estimates that the current INDCs

only achieve an average decarbonisation rate of 3% per year, leading to

roughly 3°C of warming. This is better than doing nothing at all, but PwC's

analysis suggests that the level of ambition represented by the current Paris

agreement needs to be roughly doubled over time in order to achieve its

ultimate goal of a sub-2°C outcome. The agreement provides for this, with a

continual review and updating process starting in 2018.

Paris is the beginning not the end - more needed

than promised at COP21

Paris-as-is only gets us to between 2.6°C and 3.1°C

Decarbonisation rate implied by Paris probably

needs to double

Inaction now would make 2°C scenario impossible

Tessa Tennant






Analysis released in June 2016 by the highly respected Potsdam Institute

Climate Impact Research (PIK) says Paris came to the "right" target for its

ultimate ambition for global warming and that sticking to the Paris target of

1.5°C is vital in view of the massive risks that unchecked climate change pose

to society. Implementing this target is feasible, but it would need what the

report calls a "controlled implosion" of the fossil industry, instigated and

complemented by an explosion of innovation in renewable energy systems

and other fields. The report notes that the target is simple enough to create

the worldwide political momentum required.

In reaching its second conclusion, the PIK notes "the price decrease and the

efficiency increase of wind and solar power have been beyond the most

optimistic predictions" and argues that, once the new technologies reach a

market penetration of 15-20%, this would likely be the final trigger for an

implosion of the fossil industry. India's concerted effort to implement its

colossal renewables target is an example of the self-amplifying developments

that may tip the scales in global energy markets.

The Paris agreement is paving the way towards carbon-pricing instruments

being adopted in more and more countries. As we also noted in Section 1,

technological imperatives will be accelerated by drivers such as the fossil-fuel

divestment campaign that attracted early support from members of the

Rockefeller family and their charitable foundations with their long and well-

known association with the US oil industry. The campaign keeps growing and

has since been supported by giant investors such as Germany's Allianz

insurance and France's AXA. Among the latest of the large institutional

investors to commit to fossil-fuel divestment is the US$35bn Fourth Swedish

National Pension Fund, which intends to "decarbonise" its US$14.7bn global

equity portfolio by 2020.

What could this mean for companies and investments? Given the state of the planet's temperature and the drivers to bring it down,

we are very likely to see the rise of “climate zombie companies” over the next

decade - those failing to recognise the reasons for escalating climate-related

costs to their operations as well as the changing dynamics of energy markets.

We highlight some of the strategies being adopted by investors to understand

company winners, losers and those to watch.

Figure 24

Abandoned power station

Source: Tom Blackwell

Target achievable, but will need controlled implosion

of fossil-fuel industry

India may soon reach tipping point for implosion

Fossil-fuel divestment is growing fast

Climate zombie!

We are likely to see rise in “climate zombie”

companies in near future

Tessa Tennant






Investors exiting the fossil industry are at the vanguard, driving new analysis

of portfolio carbon risk, making it easier to rebalance portfolios accordingly.

Advisers like Mercer and Cambridge Associates and investment managers like

Impax and Robeco are notable thought leaders.

So how might this kind of analysis start to reshape portfolio allocations and

management as the cleanup becomes more mainstream?

A triangulation of the UNFCCC forecast of Paris outcomes with some general

scenarios suggested by investment consultants Mercer’s pre-Paris (and not

directly related to outcomes there) offers a first high-level overview of what

the effects might be on various industry sectors and financial asset classes.

In its 2015 report, Investment in a Time of Climate Change (Mercer 2015),

Mercer sets out four potential scenarios for global warming:

Transformation scenario with strong mitigation action resulting in warming

of less than 2°C

Coordination scenario in which some action is seen that leads to warming

of 3°C

Two fragmentation scenarios, with differing levels of environmental and

financial damage, and warming of more than 4°C

The Transformation scenario roughly equates to the Ambitious Paris trajectory

we noted above, while the Coordination scenario roughly equates to the Paris-

as-is forecast (resulting in 2.6-3.1°C warming). The Fragmentation scenarios

would be similar to the pre-INDC increases in warming.

Mercer modelled the likely outcomes of these scenarios for industry sectors

and financial asset classes. The modelling is based on sensitivity to four

variables together characterised by the acronym TRIP. The four variables are

defined as follows:

Technology (T): Rate of progress and investment in the development of

technology to support the low-carbon economy

Resource availability (R): Impact on investments of chronic weather

patterns (for example, long-term changes in temperature or precipitation)

and related physical changes

Impact (I): Physical impact on investments of acute weather incidence

and severity (that is, extreme or catastrophic events)

Policy (P): All international, national and subnational targets, mandates,

legislation and regulations meant to reduce the risk of further man-made

or anthropogenic climate change

Industry sectors

The Mercer report found that climate change would have an impact on the

returns in all industry sectors it categorises, measuring these as Minimum

Impact (ie whatever the scenario) and Additional Variability (depending on

the scenario). The full range is shown in Figure 25.

We can triangulate Paris

to get some commercial investment scenarios

Portfolio outcomes

depend on four climate-related variables

All sectors affected, but clear winners and losers depending on outcomes

Carbon risk is getting easier to analyse

Tessa Tennant






Figure 25

Effects of industry sectors to 2050 (average per year over the period)

Source: Mercer 2015

The outcomes indicated by the Mercer model include the following:

Renewables see small upside whatever the scenario, and potentially large

upside in lower-warming scenarios

Materials, utilities, oil and coal all see definite downside results whatever

the scenario, and large downside in some scenarios

Gas sees little variability either way, perhaps suggesting that it is not the

transition fuel many suggest it to be

Putting some numbers on these results, Mercer forecasts effects on average

financial results out to 2050, but notes that results in the earlier years are

likely to be more pronounced:

Minimum impact for coal subsector is likely to be a reduction in expected

returns from 6.6% per year to 5.4% per year; with additional variability,

average returns may fall as low as 1.7% per year

Renewables have the greatest potential for additional returns: depending

on the scenario, average expected returns may increase from 6.6% per

year to as high as 10.1% per year

Oil and utilities could also see a significant negative impact, with expected

average returns potentially falling from 6.6% per year to 2.5% per year

and 6.2% per year to 3.7% per year respectively.

Asset classes

Turning to asset classes, the overall results are shown in Figure 26. Some key

conclusions are that:

Agriculture and timber likely to see volatility, facing positive and negative

pressures because of their vulnerability to climate factors and because

they are major sources of carbon emissions as well as being carbon sinks.

Both sectors are thus highly sensitive to a wide range of TRIP factors

Infrastructure is mostly on the upside, largely due to positive sensitivity to

the technology and policy factors

Emerging-market debt is little affected in any scenario

Renew

able

s

Nucle

ar

IT

Gas

Health

Consum

er

dis

cre

tionary

Tele

com

s

Industr

ials

Consum

er

sta

ple

s

Fin

ancia

ls

Mate

rials

Utilities

Oil

Coal

3

1

0

(3)

(4)

(5)

(6)

2

(2)

(1)

4 (%)

(media

n a

dditio

nal re

turn

s)

Additional variability

Minimum impact

Renewables returns could increase by a half

Renewables versus coal

Agriculture and timber have most volatility linked

to climate outcomes

Mercer sees big impact for energy and materials

Tessa Tennant






Most forms of equity except emerging markets global equity are likely to

see outcomes completely on the downside, with developed market global

equity seeing definite downside

Figure 26

Impact on asset classes to 2050

Source: Mercer 2015

Critically, Mercer's modelling shows that it is the Transformation scenario -

equating to an Ambitious Paris outcome for the INDCs, leading to a sub-2°C

result - which offers the best upside potential for a number of asset classes

that are highly relevant to Asian markets, as shown in Figure 27. They include

agriculture, infrastructure, forestry, real estate and emerging-market equity.

These positives are reduced in the Coordination scenario (equating to Paris-

as-is) and switch into reverse for the two high-warming scenarios. These

scenarios are, however, so extreme (warming at four times the present level)

that conventional modelling techniques may not be adequate to assess them.

Figure 27

Impact on asset classes to 2050

Source: Mercer, CLSA

(media

n a

dditio

nal re

turn

s)

Agriculture

Infr

astr

uctu

re

Tim

ber

Em

erg

ing-m

ark

et

glo

bal equity

Real esta

te

Em

erg

ing-

mark

et debt

Private

equity

Sm

all-c

ap e

quity

Low

-vola

tility

equity

Multi-

asset

cre

dit

Investm

ent-

gra

de c

redit

Private

debt

Develo

ped-m

ark

et

sovere

ign b

onds

Develo

ped-m

ark

et

glo

bal equity

0.8

0.4

0.2

(0.4)

(0.6)

(0.8)

0.6

(0.2)

0.0

1.4 (%)

Additional variability

Minimum impact

0.82

0.61 0.59

0.430.35

0.08

(0.01) (0.04) (0.08)

(0.32)(0.42) (0.47) (0.48)(0.6)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

Agriculture

Infr

astr

uctu

re

Tim

ber

Em

erg

ing-m

ark

et

glo

bal

equality

Real esta

te

Em

erg

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ark

et

debt

Develo

ped-m

ark

et

sovere

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onds

Private

debt

Hedge f

unds

Investm

ent-

gra

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dit

Multi-

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dit

Low

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tility

equity

Develo

ped-m

ark

et

glo

bal equity

Sm

all-c

ap e

quity

Private

equity

Asset classes important regionally do best in

lowest warming scenario

Agriculture versus private equity

Agriculture hit hardest

Tessa Tennant






Based on these results, and from the viewpoint of economic returns, it would

seem to be in the region’s interests to pursue the most ambitious carbon-

reduction targets that it can.

A real world example of a portfolio attuned to investing in a Transformation-

type scenario is provided by the Impax Asian Environmental Markets (Ireland)

Fund (IAEMI). Impax is an asset manager based in London with £4bn AUM

and offices in the USA and Hong Kong.

The IAEMI Fund, with £26m AUM invests regionally in Asia-Pacific companies

active in the rapidly growing resource efficiency and environmental markets.

These markets address what Impax sees as a number of long-term macro-

economic themes (which we also noted in Section 1): growing populations;

rising living standards; increasing urbanisation; rising consumption; depletion

of limited natural resources. Investments are made in companies which have

over 20% of their underlying revenue generated from sales of environmental

products or services in the energy-efficiency, renewable-energy, water, waste

and sustainable food and agriculture markets.

Figure 28

Top 10 holdings (of 26 assets in all)

Stock ROE (%) Subsector Country Weight (%)

ENN Energy 16.0 Pollution control solutions Hong Kong 3.1

Xinyi Glass 16.9 Buildings energy efficiency Hong Kong 2.9

Xinyi Solar 17.6 Solar energy generation equipment Hong Kong 2.7

Murata 16.1 Consumer energy efficiency Japan 2.7

Daikin 13.1 Buildings energy efficiency Japan 2.7

Delta Electronics 16.5 Industrial energy efficiency Taiwan 2.7

Horiba 10.1 Environmental testing & gas sensing Japan 2.6

HollySys Automation 18.0 Industrial energy efficiency USA 2.6

Energy Development 30.6 Renewable energy developers & IPP Philippines 2.6

Beijing Enterprises Water 12.3 Water utilities Hong Kong 2.5

Total 27.0

Figure 29

Ebitda growth of fund investees compared to two relevant indices (2012-15)

Source: Impax internal document, copied by kind permission

0.1

12.0

6.6

4.5

1.6 2.1

(2.7)

(7.0)

1.8

6.1

(1.7)

(4.0)

(10)

(5)

0

5

10

15

2012 2013 2014 2015

(%) IAEMI MSCI ACWI MSCI AC AP Composite

Real world portfolio

results would seem to bear this out

Impax Asia Environmental Markets fund outstrips

“conventional” peers

Impax uses sustainable

macroeconomic themes for investment

A thematic climate change portfolio

Tessa Tennant






Impax believes that earnings growth is not priced into Asian environmental

markets as evidenced by the significantly lower PEG ratio of its fund investees

compared to peers. Figure 30 shows forecast PE and EPS results for the year

forward and resulting PEG ratios. With all the complexities around cleanup

convergence, there will be few silver bullets to outperformance. That said,

there are market anomalies around the cleanup that the Impax fund seems to

understand well.

Figure 30

Forecast PE and EPS for year forward and resulting PEG ratios

1 These are forward-looking numbers and there is no guarantee that this valuation will be achieved.

Source: Impax internal document, copied by kind permission

Historical PE

16

15

14

13

12

11

10

9

8

May 1

0

Sep 1

0

Jan 1

1

May11

Sep 1

1

Jan 1

2

May12

Sep 1

2

Jan 1

3

May13

Sep 1

3

Jan 1

4

May14

Sep 1

4

Jan 1

5

May15

Sep 1

5

Jan 1

6

IAEMI

Average

PEG ratio (NTM)¹4.5

3.0

2.5

2.0

1.5

0.0

4.0

3.5

1.0

0.5

May 1

0

Sep 1

0

Jan 1

1

May11

Sep 1

1

Jan 1

2

May12

Sep 1

2

Jan 1

3

May13

Sep 1

3

Jan 1

4

May14

Sep 1

4

Jan 1

5

May15

Sep 1

5

Jan 1

6

MSCI AC AP Composite

IAEMI

MSCI ACWI

Fundamentals (NTM)¹

PEG ratioConsensusEPS (%)

PE NTM (x)

MSCI ACWI

MSCI AC AP composite

IAEMI

16

8

4

12

0

20

12.8

12.8

15.0

17.6

3.0

4.3

0.7

4.23.5

Earnings growth is not

priced into Asian environmental markets

It pays to be clean

Tessa Tennant




Section 5: Climate-smart investment Blue Books


Climate-smart investment In this Section, we look at climate vulnerability, adaptation readiness and

cleantech investment potential in Asia Pacific. So what does the big picture

look like for the region in terms of climate-smart investment?

Investors need to answer four main questions. First, how vulnerable is the

region? Second, has development investment to date done any good in terms

of reducing that vulnerability? Third, how ready is the region to absorb

substantially more investment? And fourth, where are the best investment

opportunities going to arise, especially in the area of renewables which, as we

have seen, form such a massive part of all countries’ plans?

There are two useful tools for considering these dimensions to asset

allocation: the GAIN database (which helps with questions 1, 2 and 3; see

callout box: GAIN) and the Bloomberg New Energy Finance ClimateScope

rankings (which helps with question 4).

Climate vulnerability and adaptation readiness Looking first at the region's climate vulnerability and adaptation potential, we

sampled 14 countries of various sizes and levels of development and

surveyed these through the lens of the GAIN tool. The Report Group that we

assembled featured India, China, Japan, Australia, New Zealand, Thailand,

Mongolia, Singapore, Laos, Korea, Indonesia, Vietnam, Philippines and Sri

Lanka - so a mix of rich and poor, large and small, developed and emerging.

The news on vulnerability is generally good in the region. As can be seen from

Figure 31, 20 years ago the Report Group was clustered in or near the top left

zone of the matrix, where countries have a high vulnerability score (vertical

axis) and low readiness score (horizontal axis). India was firmly in this zone,

and China was on the edge at that time. Clearly separated are the region's

five most developed economies (Singapore, Japan, Korea, Australia and New

Zealand). These are all in the bottom right zone, with lower vulnerability and

higher readiness. The unmarked diamonds are the other countries globally for

which GAIN has data.

GAIN GAIN is a global database

run by Notre Dame

University in the USA. It now has a time series

running back 20 years

(from 1995 to 2014), so it is a useful instrument for tracking change over

time. Among its many users and collaborators

worldwide are the World Economic Forum and the World Resources Institute.

GAIN measures the vulnerability of countries to climate effects, scoring six life-supporting sectors: food; water;

health; ecosystem services; human habitat; and

infrastructure. This measure is important for understanding the level of risk that a country faces

from environmental degradation and/or climate change,

and, concomitant with that, risks to investments in

these countries.

GAIN also measures the readiness and ability of

countries to leverage investments and convert them to adaptation actions. This measurement considers three

components: economic readiness; governance

readiness and social readiness. These elements are important for understanding the likelihood that climate-

related investments in a country will result in positive

actions, as well as project success for commercial as well as concessionary projects.

The scores are combined on a matrix, to give current and historic views of countries and groups of countries.

Fundamentals of climate-related investment

Investors need to answer four main questions

We surveyed 14 countries through GAIN tool

Asia Pacific vulnerable to climate change, but real

progress in past 20 years

Tessa Tennant






Figure 31

GAIN matrix 1995

Source: Derived from www.gain.org

By 2014 (Figure 32), the picture had changed quite dramatically, with a

pronounced and positive general shift down and to the right on the matrix,

indicating lower vulnerability and higher readiness overall. Only Laos and

India remained in the top-left zone; all others except Vietnam in the bottom-

right zone. China has materially reduced its vulnerability and increased its

readiness. For the more developed economies (and especially Japan, Korea

and Singapore), readiness has continued to improve but vulnerability remains

grouped around the 0.3 score.

Figure 32

GAIN matrix 2014


We believe this picture is in line with expectations, given general progress in

lifting people out of poverty - half a billion people in the region. However,

climate-change factors are negating some aspects of economic and social

advancement, so the positive trend shown by these two graphs may slow or

even start to reverse. The findings on infrastructure vulnerability discussed

below reflect this possibility.

Progress on a country-by country level can be seen in Figures 33 and 34. In

terms of vulnerability, Japan's has increased slightly over time (witness

Fukushima as an example), with China's reducing, so there is now an

0.6

Vulnerability

0.5

0.4

0.3

0.2

0.10 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

Readiness

NZL

AUS

JPN

KOR

SGP

THALKAIDN

PHL

VNMIND

LAO

CHN

MNG

0.6

Vulnerability

0.5

0.4

0.3

0.2

0.10 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

Readiness

SGP

NZL

KORJPN

AUS

CHN

THA

MNGLKA

IDNPHL

INDLAO VNM

Japan is only developed economy for which

vulnerability has risen

Pronounced shift towards lower vulnerability and

higher readiness . . .

Climate-change factors negate some economic

and social advancement

. . . is clearly visible

Developing Asia did not stack up well

Tessa Tennant






emergent East Asia grouping of China, Japan, Korea and Singapore just above

a 0.3 score on this scale. India's score has come down but remains relatively

high compared to China at 0.5.

Figure 33

GAIN vulnerability scores by country, 1995-2014


Looking at the components of vulnerability, while most indicators in most

countries have improved over time, the infrastructure indicator has generally

flatlined. A major reason for this is that most infrastructure has not yet been

climate-proofed. In other words, roads, for example, get too easily washed

away in storms. All the evidence and predictions point to an increasing

incidence of severe weather events because of climate change. So improving

infrastructure robustness, or just replacing it altogether, is likely to be a

major component of spend over the coming years and decades.

On readiness to adapt (where higher scores are better), Singapore has made

the most dramatic progress and now leads the Report Group, along with New

Zealand. These are followed by a second distinguishable grouping of Korea,

Japan and Australia. China, having flatlined between 1995 and 2005, has made

steady progress since then. Indonesia, Vietnam and the Philippines are all in a

distinguishable bottom grouping, but all still score better than India on this

measure. Whether the recent moves by the Modi government to free up markets

and boost inward investment will make a difference here is yet to be seen.

Figure 34

GAIN readiness to adapt scores by country, 1995-2014


Australia

0.2

1995

0.4

0.6

0.8

1.0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

(Score)

China

India

Indonesia

Japan

Korea

Laos

Mongolia

New Zealand

Philippines

Singapore

Sri Lanka

Vietnam

Thailand

0.2

1995

0.3

0.4

0.5

0.6

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

(score)Australia

China

India

Indonesia

Japan

Korea

Laos

Mongolia

New Zealand

Philippines

Singapore

Sri Lanka

Vietnam

Thailand

Infrastructure vulnerability remains a problem

China has made good progress on readiness to

adapt since 2005

Vulnerability is increasing

Readiness trends are not too encouraging

Tessa Tennant






Looking at the underlying causes of the improvement in readiness, we see

different pictures for India and China over the two decades. Figure 35 shows

the three components of the readiness score, which are:

Economic readiness: Ability of a country's business environment to

accept investment for adaptation

Governance readiness: Institutional factors that enhance application of

investment for adaptation

Social readiness: Factors such as social inequality, information

communication technology (ICT) infrastructure, education and innovation

that enhance the mobility of investment and promote adaptation actions

In Figures 35 and 36, we look at the progress in terms of readiness to absorb

adaptation investment made by the two regional giants. In India, substantial

progress has been made on both economic and social aspects (the latter

being important as it relates to workforce skill levels), while the governance

score has remained flat. In China, however, virtually all of the improvement

has been on social aspects: starting from a similar level to India in 1995, it

now scores 0.55, compared to India's 0.30. On economic and governance

factors, however, it has made little advance comparatively speaking.

Figure 35

India and China readiness measures 1995 and 2014

Figure 36

Data for readiness measures 1995 and 2014 (shown in Figure 35)

Economic Social Governance

China 1995 0.53 0.17 0.45

China 2014 0.55 0.55 0.43

India 1995 0.23 0.19 0.43

India 2014 0.43 0.3 0.4

Source: GAIN data

This analysis suggests that India has made progress but still needs to do

much more. China's progress on social aspects fits with improvements in

skillsets evidenced by its emergence as a dominant manufacturing economy,

but momentum has stalled on economic and governance measures, which

could inhibit its future ability to attract and then effectively deploy investment

dollars. If the new agenda for the "ecological civilisation" starts to have clear

effects, both these measures should start to improve again.

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8

China 1995

China 2014

India 1995

India 2014 Economic

Social

Governance

India has progressed on economic and social but flatlined on governance

Three components of readiness score

India has seen economic improvement while China

shows social improvement

Both countries need to do more

The two giants fare better than most

Tessa Tennant






Where are the best cleantech development prospects? A new tool for the region is Climatescope, a Bloomberg New Energy Finance

database that ranks countries by their attractiveness for clean energy

investment, development and deployment. First established for Latin America,

Climatescope started to rank Asian countries in 2014 and currently ranks 10.

Those in common with our Report Group are China, India, Indonesia, Vietnam

and Sri Lanka.

Ranks are determined by scoring four parameters, weighted as below:

1. Enabling framework - 40% (22 indicators)

2. Clean energy investment and climate financing - 30% (14 indicators)

3. Low-carbon business and clean energy value chains - 15% (5 indicators)

4. Greenhouse gas management activities - 15% (3 indicators)

Figure 37

One of China’s many windfarms

Source: Jaguar LandRover

The headline themes emerging from the latest (2015) Climatescope rankings

include:

A number of countries have substantially enhanced their policy support for

clean energy; these include India, where major reforms brought in by the

Modi administration raise hopes for the faster deployment of projects for

developers in the country's ambitious real-estate sector

The region is preeminent globally as a hub for manufacturing; the large

population bases and increasingly sophisticated industrial networks in

China, India and Pakistan in particular lead to complete clean energy

value chains; industrial policies in support of exports can now bring the

value chain players in these countries into the global trade in clean energy

goods and services

As highlighted elsewhere in this CLSA U Blue Book, the "war on pollution"

across the region, but especially in India and China, has created a major

investment opportunity

Bloomberg Climatescope tool now covers Asia

Headline themes from latest rankings

Region is preeminent globally as a hub for

manufacturing

China leads the way on renewables

Four parameters are weighted

Tessa Tennant






On the four parameters, the key findings are:

Enabling framework

China and India continue to lead the way, but a number of regions in each

country outperform the national score, suggesting that investors need to

look to this level for the truest picture of opportunities

Remedying low electrification rates is an opportunity for capacity and

value-chain building in countries considered off-grid; for example, in

Indonesia's tens of thousands of small, diesel power-dependent islands,

newly increased feed-in tariffs for small hydropower and fiscal incentives

for geothermal could trigger a wave of clean energy investment

Clean energy investment

China continues to outgun all other countries in terms of raw capacity

added; its nearly 35GW of new clean energy generation capacity installed

in 2014 was nearly six times the total installed in the other nine countries

surveyed; India added just 5GW of new clean energy generation capacity;

however, because of China's massive existing grid, other countries have

made relatively greater progress in terms of proportion of overall supply

generated from renewable sources; these include India, Vietnam and Sri

Lanka; a number of regions in India and China again outperform the

national score

Countries in the region have a wide range of capital availability; China's

capital markets for clean energy cover the waterfront from private

venture capital to asset finance from state-sponsored banks; India has

active financial markets but high costs of capital, as well as high costs to

swap currency risks; Indonesia has introduced a geothermal drilling fund

to help develop these assets and Bangladesh continues to excel in green

microfinance mechanisms suited specifically to off-grid clean energy

projects, in particular solar PV

Low-carbon business and clean energy value chain

As noted above, the largest countries in the region are clear global

leaders: China scores a perfect 5, Pakistan 4.32, India 4.1 and Indonesia

3.77; after population, the most important factor in a country's success is

the ability to leverage a large and increasingly skilled workforce for

export-driven industries, as is notably the case in China; India is also

beefing up its value chain, not just in manufacturing but also in services

As evidence of the massive speed with which China has captured value in

renewables, its global share of photovoltaic cells rose from just 1% in 200

to nearly 60% in 2013; all of the top four players in the market are now

in the region, the other three being Taiwan (about 18%), Japan and

Malaysia (about 8% each)

Greenhouse gas management activities

Despite no countries in the region having compulsory GHG targets under

the Kyoto Protocol, many countries perform well; China actually ranks top

both in the region and globally, with India No.2 and No.8 globally; the

reason for this good performance is again the pollution driver, creating an

incentive greater than any formal obligation

China and India lead the way on policy support

Low electrification rates represent an opportunity

for new entrants

China still outguns everyone on raw

capacity added

Capital availability is very patchy across the region

Those with complete value chains for renewables will

do best at exporting

Pollution drives desire

to reduce greenhouse gas emissions

Tessa Tennant




Section 6: Financing the cleanup Blue Books


Financing the cleanup In this Section, we look at the emerging landscape for financing the cleanup

(see callout box: Green finance or climate finance?). Cleanup finance spans a

wider field than mainstream commercial activity and benefits from additional

state and philanthropic pump-priming. So it is instructive to see how finance

will flow to understand what type of business and/or project is likely to

succeed as part of the convergence.

First, we look at the current picture - what funds are flowing into which

companies/projects and from where. Next, we look at the "official" funds

that have been created, either to fund projects directly or to act as public

partners for private finance. We also look at the roles of development

finance institutions (DFIs) - these are hybrid financial entities set up either

multilaterally or bilaterally to provide grants or concessional finance, generally

in partnership with private finance. We also look briefly at the mainstream

investors, and the roles of non-state actors. Finally, we look at the rapidly

emerging green bond sector.

We concentrate mainly on public and hybrid sources of finance in this Section,

as they are probably the least well known. There is more material in Appendix

2 for those that want to dig a bit deeper.

Current fund flows Shortly before the Paris summit, Climate Policy Institute (CPI) published its

annual review of climate finance in its broadest sense, including and beyond

the categories identified by the OECD analysis we referred to in Section 2.

The CPI’s 2015 Global Landscape of Climate Finance (CPI 2015) estimates

that in 2014 at least US$391bn flowed into green/climate-related activities,

an 18% increase on 2013. Private sources accounted for US$243bn (62%),

with the other US$148bn coming from public sources. The "at least" caveat is

an important one: CPI data has some big gaps. It does not, in particular,

cover private energy efficiency investments, which it estimates could be

anywhere between US$90bn and US$356bn per year. It is, however, the best

data available.

Green finance or climate finance? Do not be put off by the

different terms used - all are

driven in some way by cleanup convergence.

Generally speaking, as usage has developed, "green" finance

refers to financing or financing

mechanisms - for example, equity, bonds or guarantees - that support any project with environmental benefits,

where climate factors may be a secondary though still

significant issue. Examples range from public transport to clean energy and to improved water quality.

Climate finance generally refers to the suite of public

and private assistance and investment that flows

between countries to support reduced greenhouse gas emissions and enhanced resiliency, including mitigation

and adaptation commitments made in the INDCs. As we

have seen in previous Sections, many of these INDC commitments end up being the same clean energy,

smart agriculture and public transport projects, hence

the overlap in terms used.

We go with this developing convention, understanding

the inter-changeability of the two terms “green” and “climate” in many instances.

Present and emerging landscape for green

finance is quite complex

Numerous dimensions to explore

Focus on public and hybrid sources of finance

Nearly US$400bn flowed into climate finance in

2014, up 18% YoY

Tessa Tennant






As can be seen from Figure 38, Asia-Pacific nations (grouped several ways by

CPI) accounted for around half of the spend, something in the region of

US$180bn, split between East Asia & Pacific (EAP), (part of) the Japan-Korea-

Israel grouping, South Asia and part of Central Asia-Eastern Europe. China

alone accounted for 22% of all flows and the EAP spend was also up 22%

over investments in 2013.

Figure 38

Climate finance by region, 2014

Source: CPI Landscape of Climate Finance 2015

Importantly, CPI estimates that 74% of all flows (92% of private investments)

remained in the country where the money was raised. This indicates a big

preference for local investments, a matter of concern for smaller countries, as

we note below.

Figure 39 shows the split between sources of finance. Around half of spend

was on the balance sheets of private companies. Low-cost debt and project-

level debt came largely from public sources, especially from multilateral

development banks and bilateral development finance institutions. Project-

level equity came almost entirely from private sources, but the very low level

of such equity is a source of concern for the sector as a whole. Though the

data is not given separately by CPI, splits of this kind probably apply for the

Asia-Pacific region as well as globally.

Figure 39

Sources of finance


119

93

45

38

28

17

13

12

12

9

3

0 20 40 60 80 100 120 140

East Asia & Pacific

Western Europe

Americas

Japan, Korea & Israel

Latin America & the Caribbean

South Asia

Transregional

Central Asia & Eastern Europe

Sub-Saharan Africa

Middle East & North Africa

Other Oceania

201420132012

200

0

40

80

120

160

201420132012 201420132012 201420132012 201420132012

Balance sheetfinancing

Low-cost debt Project levelmarket rate debt

Projectlevel equity

Grants

Public Private

175

3

69

58

44

23

2

14

(bn)

Asia Pacific accounted for

about half the spend, including China at 22%

Three-quarters of flows remain in country of origin

(90% of private flows)

Half the spend was on balances sheets of

private companies

East Asia dominates climate finance

Balance sheet funding leads the way

Tessa Tennant






Total private-sector investment in 2014 was US$243bn, up 26% on 2013, and

all of the spend was on renewable energy, with a record 98GW of solar PV

and onshore wind capacity installed. A significant portion of this rise reflects

36% (US$22bn) growth in new renewable energy investment in China, which

accounted for 34% of all private finance in 2014 and was driven by supportive

government policies, incentives and ambitious targets.

Figure 40

Global breakdown of private finance sources


Figure 40 shows the global breakdown of private finance sources, with project

developers and corporations accounting for 62% of spend. Private equity and

institutional investors are notably absent from the analysis, even though

institutional investors account for a substantial proportion of CPI's private-

sector investment into renewable energy.

To give an idea of where we are now, and where we need to be on climate

investment, the CPI estimate of renewables finance of around US$243bn in

2014 (the most direct comparable we can find) is about one-quarter of the

International Energy Agency's current forecast investment requirement for

renewable energy of roughly US$1tn per year (US$16.5tn between 2015

and 2030). Another estimate, from Bloomberg New Energy Finance,

indicates investments in zero-emission energy generation totalling

US$11.4tn by 2040.

"Official" climate funds We looked at the background to public finance for the NDCs in Section 2.

There, we noted the establishment of the Green Climate Fund and other

UNFCCC-linked funds, including for adaptation. The GCF had been pledged

US$10bn by the time of the Paris conference in December 2015.

How the world of public finance for climate change fits together is usefully

summarised in Figure 41. We note that the diagram does not include the

Asian Infrastructure Investment Bank, which is covered below. The basic split

is between the bilateral institutions (founded by a single country) and the

multilateral institutions (with many members/shareholders). In the latter

category, there are funds linked to UNFCCC and non-UNFCCC mechanisms,

including the multilateral development banks.

Project developers Corporate actors Households(bn)

Commercial financialinstitutions

Private equity,venture capital,

infrastructure funds

Institutionalinvestors

201420132012 201420132012201420132012

201420132012 2014201320122014201320120

20

40

60

80

100

200

43

0.91.7

58

92

46

Private-sector investment

was all in renewables; one-third of it in China

Developers and companies provide two-thirds of private finance

Forward needs are probably at least 4x

current flows

Project developers and corporations account for

62% of spend

Public finance comes through bilateral and

multilateral institutions

Multilayered world of public finance for

climate change

Tessa Tennant






Figure 41

Public climate funds

Source: Climate Funds Update website

Role of public finance As seen in the CPI data, public finance accounts for some 40% of flows. The cleanup encompasses a wide range of sectors and project types and a similarly wide range of types of finance is needed.

At one end of the spectrum are completely commercial opportunities driven by normal business activity or regulation. Examples include regular capex decisions replacing old plant with new, more-efficient technology, increased fuel efficiency of vehicles or energy efficiency of domestic appliances, or the phasing out of traditional light bulbs and their replacement by long-life bulbs/LED etc. These essential activities can be financed by private capital in the normal course of business.

At the other end of the spectrum are projects or programmes that have no self-sustaining commercial potential. Examples might be public education or health programmes and capacity-building programmes for governments at national, regional and local levels. Such initiatives need to be financed by the public sector, whether from domestic or international sources, and many of the climate funds in Figure 41 are intended to provide such international sources. One example is the Pilot Program for Climate Resilience, which is intended to help mainstream climate resilience into core development planning and budgeting. It is worth noting, however, that many of these initiatives will be implemented using private-sector resources, so there is a substantial business opportunity for relevant service providers, for example consultants, legal and accountancy firms and providers of training and related materials.

Between these two bookends are a range of hybrid

opportunities which will mainly be financed by private

sources, but will require public support to pump-prime,

in some cases to a considerable degree. The substantial trillions to fulfil and exceed the ambitions of the INDCs

are likely to fall into this category. The most obvious

examples of such support are feed-in tariffs and other subsidies for renewable energy, which have already

contributed substantially to the growth of such sources

of power generation in the developed world. Less familiar might be other forms of enabling or risk-

transfer mechanisms provided through public finance.

These include, for example:

Structured finance, mainly debt, where public

finance takes the riskiest positions in the structure

or addresses specific risks such as currency movements

Subsidising projects or sectors by providing funds

for project preparation or investment readiness

Reducing the cost of funds via concessional rates

(ie rates lower than the risk being incurred should apply)

Promoting private-sector issuance by acting as an

anchor investor for new investment products or asset classes

Insurance products, for example political-risk cover

An example of how the different types of public and

private finance can interact in green finance was

provided in the Callaghan 2015 report and is reproduced in Appendix 11.

Some initiatives will need to be financed by the

public sector

Tessa Tennant






Figure 42 provides some details on the 27 funds that have been established

to date, all but four multilateral. The total of pledges to these funds as at May

2016 was some US$36.4bn. Around half of the cash pledged is in multiple

focus, covering mitigation, adaptation and other climate actions.

Mitigation-focused funds total US$7.7bn to date, with adaptation-focused

funds running at less than half this amount. There are also eight funds

dedicated to encouraging better practices in forestry and land use via REDD+

arrangements (see callout box: REDD+).

The funds that come under UNFCCC are the Adaptation Fund, Green Climate

Fund and Global Environment (GEF) funds. Many of the other funds are

administered by the World Bank, including the Clean Technology Fund and

some funds aimed at pump-priming new approaches to climate finance, in

particular the Pilot Program for Climate Resilience (aimed at adaptation) and

the Scaling Up Renewable Energy Program.

The key funds over time are likely to be the Green Climate Fund (GCF), the

Adaptation Fund (AF) and the Clean Technology Fund (CTF).

Figure 42

Public-private funds

Fund Fund type Fund focus Pledge

(US$m)

Deposit

(US$m)

Approval

(US$m)

No. of projects

approved

Adaptation for Smallholder

Agriculture Program

Multilateral Adaptation 366.46 326.44 285.00 36

Adaptation Fund Multilateral Adaptation 565.02 562.50 337.25 52

Amazon Fund Multi donor National REDD+ 1,036.83 1,036.83 572.94 85

Australia's International

Forest Carbon Initiative

Bilateral REDD+ 216.27 67.06 159.04 10

Biocarbon Fund Multilateral REDD+ 360.60 360.60 0

Clean Technology Fund Multilateral Mitigation - General 5,567.00 5,396.00 4,665.11 92

Congo Basin Forest Fund Multi donor Regional REDD+ 186.02 164.65 83.11 37

Forest Carbon Partnership

Facility Carbon Fund

Multilateral REDD+ 1,071.19 764.79 207.20 45

Forest Investment Program Multilateral REDD+ 639.00 526.00 343.15 29

GEF Trust Fund (GEF 4) Multilateral Multiple foci 1,082.98 1,082.98 953.03 235

GEF Trust Fund (GEF 5) Multilateral Mitigation - General 1,350.00 776.74 868.13 239

GEF Trust Fund (GEF 6) Multilateral Multiple foci 1,101.12 1,078.05 216.66 65

Germany's International

Climate Initiative

Bilateral Multiple foci 1,081.84 1,081.84 1,368.12 362

Global Climate Change Alliance Multilateral Multiple foci 326.15 326.15 347.07 50

Global Energy Efficiency and Renewable Energy Fund

Multilateral Mitigation - General 169.50 163.50 89.07 11

Green Climate Fund Multilateral Multiple foci 10,265.90 2,858.02 172.43 25

Indonesia Climate Change Trust Fund Multi donor National Multiple foci 21.01 11.21 9.51 5

Least Developed Countries Fund Multilateral Adaptation 963.66 961.87 863.80 214

MDG Achievement Fund Multilateral Adaptation 89.50 89.50 89.52 18

Norway's International

Climate and Forest Initiative

Bilateral REDD+ 1,607.82 304.68 7

Partnership for Market Readiness Multilateral Mitigation - general 126.50 106.50 51.95 30

Pilot Program for Climate Resilience Multilateral Adaptation 1,117.00 1,117.00 974.31 81

Scaling Up Renewable

Energy Program

Multilateral Mitigation - General 528.00 526.00 224.78 35

Special Climate Change Fund Multilateral Adaptation 351.28 346.28 285.46 66

UK's International Climate Fund Bilateral Multiple foci 6,002.00 1,318.00 1,793.03 159

UN-REDD Multilateral REDD+ 270.76 259.05 240.07 27

36,463.41

Adaptation 3,452

Mitigation 7,741

REDD+ 5,388

Multiple foci 19,881

Source: Climate Funds Update website, with addition of totals

Some 27 funds established to date, with eight

dedicated to forestry

Three key funds

UNFCCC funds include:

Adaptation, Green Climate and Global Environment

Tessa Tennant






Based in South Korea and under the auspices of UNFCCC, GCF is intended to be

the centrepiece of efforts to raise climate finance from developed countries of

US$100bn a year by 2020. It will support projects, programmes, policies and

other activities in developing countries. As of May 2016, it had received pledges

of just over US$10bn and approved 25 projects. The fund is intended to offer

balanced support to adaptation and mitigation, though there is some concern

among developing countries that inadequate adaptation financing will be offered,

in particular if the fund is reliant on leveraging private-sector finance. In the

latter respect, the fund has established a private sector facility (PSF) intended to

work with mainstream capital markets, in particular pension funds and other

institutional investors, to create a broad range of financial instruments over time.

CTF (administered by the World Bank) promotes financing for demonstration

and scaled-up deployment of low-carbon technologies with a significant

potential for long-term GHG emissions savings. The main sectors on which

the fund focuses are renewables, where the fund will look to encourage highly

efficient technologies to reduce carbon intensity; transport, to address both

efficiency and to promote modal shifts; and energy efficiency in buildings,

industry and agriculture. The fund has been pledged some US$5.6bn to date,

and has approved 92 investments.

Payments for natural services REDD+ Land-use change, including

deforestation and forest

degradation, accounts for 12-29% of global greenhouse gas

emissions, and reducing emissions

from such practices is therefore

essential to control GHGs.

REDD stands for "Reducing

emissions from deforestation and

forest degradation" and is a mechanism for reducing net

emissions through enhanced forest management in

developing countries. The "+" (arising in a second round of negotiations) refers to sustainable

management of forests, conservation of forest carbon

stocks and enhancement of forest carbon stocks. The

mechanism comes under UNFCCC. It is based on

results-based payments from actions undertaken by

host countries in any of the categories mentioned. Purchasers include other countries (mainly

developed), corporations or funds such as those in

Figure 41. Norway, for example, has to date been a major buyer of REDD+ schemes. Depending on the

scheme, buyers can receive carbon credits for the

emissions avoided or the carbon sequestered.

The system is highly dependent on measurement, reporting and verification (MRV) of results of the seller's

actions. Verification is an independent, external process

that is managed by the Secretariat to UNFCCC.

A number of arrangements exist outside the formal REDD+ framework that are nevertheless referred to

under the heading. These include

many of the voluntary carbon-

credit schemes.

As shown in Section 6, some

US$5.4bn has been committed for

eight public REDD+ funds to date,

with nearly 250 projects approved.

Ecosystem services Another kind of arrangement for monetising natural

resources is payments for

ecosystem services. These come under four main headings: provisioning services, such as the

production of food and water; regulating services,

such as the natural control of climate and disease; supporting services, such as nutrient cycles and

crop pollination; and cultural services, such as

spiritual and recreational benefits.

Ecosystem-based adaptation (EbA) is an emerging strategy for community development and

environmental management that seeks to use an

ecosystem services framework to help communities adapt to the effects of climate change by creating an

income stream from activities that are in harmony with,

or actively promote, ecosystem benefits.

REDD+ and payments for ecosystem services are frequently intertwined, for example in community

agroforestry projects that combine traditional

forest-management techniques with sustainable agriculture, tied to the livelihoods of the inhabitants

in the areas concerned.

GCF intended to be

centrepiece of efforts to raise climate finance

CTF promotes financing for low-carbon technologies

Tessa Tennant






AF finances projects and programmes aimed at helping developing countries

to adapt to the harmful effects of climate change. At its inception in 2007, the

fund was forecast to be primarily financed by a 2% share of proceeds from

certified emission reductions (CER) issued under the clean development

mechanism (CDM). While this approach was successful at first, as the market

for carbon credits plunged, other funding sources became more critical for AF.

These are mainly donations from developed countries. The fund has pledges

of US$565mn, and has approved 52 projects to date.

Development finance institutions (DFIs) ‘We witnessed a seismic shift in the global development agenda in 2015. In

September, the international community adopted Sustainable Development

Goals that will reduce poverty and guide us toward a sustainable future

before it is too late. In December, 195 countries agreed on a new climate deal

to keep global warming below 2°C. These ambitious agendas require huge

financing, and ADB stands ready to assist.’

Takehiko Nakao, President and Chairman of the Board of Directors, ADB

Figure 43

Takehiko Nakao

Source: ADB

DFIs are the main source of hybrid or concessional finance for the cleanup. As

mentioned above, they comprise both multilateral institutions and bilateral

ones. The principal aim of the DFIs is to provide financial or other incentives

for private finance to come alongside the public finance channelled through

them. Some of the DFIs active across the region, and which have substantial

programmes aimed at green/climate finance, are mentioned below.

Multilaterals

The principal regional DFI is the Asian Development Bank (ADB). The ADB

needs no introduction, but it may be less well known that the bank has

recently made two key changes that signal a significantly increased level of

support for the Paris climate agreement and Sustainable Development Goals.

DFIs are main source of concessional finance

for the cleanup

Asian Development Bank has announced it will

double its climate finance

The ADB has an important role to play

Seismic shift in global development agenda

in 2015

AF finances projects and programmes

Tessa Tennant






First, just prior to the Paris COP, ADB announced that it would double its

commitment to climate finance, with a target of US$6bn in direct climate

investment annually by 2020. This level of investment would mean that

climate finance would represent roughly one-third of all disbursements by

that time, so this is a significant commitment.

Second, a technical but important move was the merger in 2015 of ADB's

concessional Asian Development Fund (ADF) loan portfolio with its ordinary

capital resources (OCR) balance sheet, effective January 2017. Combining

these resources will almost triple ADB's equity base from about US$17.5bn to

about US$49bn. A major benefit of the merger is that ADB will be able to

increase assistance to its developing-country clients by up to 50%. ADB

assistance to lower-income countries - those most in need - will rise by up to

70% by 2026. This is a significant step-up in its risk-taking profile.

Other multilaterals with an important presence in the region are International

Finance Corporation, the private sector-facing arm of the World Bank, and

European Investment Bank, backed by the EU.

New on the scene among multilateral DFIs are Asia Infrastructure Investment

Bank (AIIB) and New Development Bank (NDB), both initiatives instigated by

China. Both are quite nascent, only commencing operation in 2016, but will

be important future actors.

Launched in 2013, AIIB has 57 members, 37 from the region and 20 outside

the region. Two major economies (USA and Japan) are not members, citing

governance concerns. Headquartered in Beijing, AIIB was declared open in

January 2016. Its focus will be on the development of infrastructure and

other productive sectors in Asia, including energy and power, transport and

telecommunications, rural infrastructure and agriculture development, water

supply and sanitation, environmental protection, urban development and

logistics, etc.

Figure 44

Slum housing in Indonesia

Source: Budi Nusyirwan

The bank's initial projects, announced in mid-2016, are all in Asia. They

include power-grid upgrades in Bangladesh and support for highways in

Central Asia, Pakistan and Tajikstan. The largest loan was US$216m for the

renovation of slum housing in Indonesia.

Merging its main funds

will boost flow to smaller and developing nations

IFC and EIB are also active

Two new kids on the block - AIIB and NDB

Multiple Asia-dominated projects

Among AIIB’s first projects is renovation of

slum housing in Indonesia

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NDB, formerly referred to as the BRICS Development Bank, is a

multilateral development bank established by the BRICS states (Brazil,

Russia, India, China and South Africa). It provides both financial

investment and technical assistance for projects. Headquartered in

Shanghai, NDB announced in early 2016 that it planned to recruit 100 staff

from BRICS countries by the end of the year. The first set of loans to

projects was made in 2016, totalling US$911m, and in July of this year the

bank issued its first green bond on the Chinese market, sized at Rmb3bn

with a five-year tenure and rate of 3.07%.

Bilaterals

The largest bilateral DFI in the region is the Japan International Cooperation

Agency (JICA), which is active globally and has available financial resources

of approximately US$8.5bn. As well as concessional finance, the agency is

responsible for administering part of Japan's grant aid, which is currently

under the jurisdiction of the Ministry of Foreign Affairs. It thus acts as a one-

stop-shop for three major components of Japan's official development

assistance, namely technical cooperation, grant aid and concessional loans.

Japan operates two other bilaterals. The Development Bank of Japan, with

total assets of US$136bn, works both domestically and abroad, providing

investment and loan services to Japanese companies but also through various

environmental, risk and regional development programmes.

The Japan Bank for International Cooperation (JBIC), which had net assets of

US$154bn in 2015, conducts lending, investment and guarantee operations,

working with private-sector financial institutions. Its new medium-term plan

places a strong emphasis on investments that align with climate mitigation

activities such as clean energy and rail.

However, there is a still a live issue with the Japanese view that clean coal is

a form of clean energy. As we have pointed out elsewhere, not everyone

agrees with this position.

Other large bilaterals active in Asia Pacific include OPIC (USA), KfW

(Germany) and CDC (UK).

Green investment banks

A 2016 OECD report, Green Investment Banks: Scaling up Private Investment

in Low-carbon, Climate-resilient Infrastructure, Green Finance and Investment

found that over a dozen national and subnational governments have created

GIBs or GIB-like entities. These GIBs are mainly established to invest

domestically in low-carbon projects, using a variety of financing techniques and

instruments, with a main purpose being to channel private investment

alongside. The report found that to date GIBS are facilitating investment in

such areas as commercial and residential energy-efficiency retrofits, rooftop

solar photovoltaic systems and municipal-level, energy-efficient street lighting.

The GIBs so far established are at national level in five countries (Australia,

Japan, Malaysia, Switzerland and the UK), at state/county level in the USA

(California, Connecticut, Hawaii, New Jersey, New York and Rhode Island, plus

Montgomery County and Maryland) and at city level in the UAE (Masdar).

The UK’s GIB, as well as its domestic investments, manages some US$200m

of the UK government's International Climate Facility, targeted towards India

and certain regions of Africa, to which the UK has ultimately pledged more

than US$5bn.

Japan’s bilaterals are largest in the region

GIBs have been established in 12

countries

NBD provides financial

investment and technical assistance for projects

JBIC focuses on sustainable investments

Tessa Tennant






DFI investments

The missions of DFIs cover both direct and indirect investments, the latter

mainly through specialist funds, bond issuance and structured products (as

well as loans to sovereigns by the largest DFIs). Their support can be

summarised in the following ways. In many instances interventions will be

aimed at supporting the SDGs, but these have significant crossover with other

elements of the cleanup.

Via grants:

Capacity building for relevant policy and regulation changes

Improving investment climates

Market-deepening initiatives (creation of stock exchanges, etc)

Investment readiness/project preparation

Measurement, reporting and validation

Via concessional finance:

Thematic private equity funds (renewables, agriculture, land use, inclusive

finance, etc)

Thematic debt funds

Thematic funds of funds

Co-investments with funds in earlier-stage companies/financial institutions

Structured finance

Project finance

Issuance of, and anchor investments in, green bonds

Insurance products: life, health, crops; including micro-insurance products

for poorer populations

Commercial banks and institutional investors The best current snapshot we have of major institutional investment activity

comes from a report just published by the Asia Investor Group on Climate

Change (AIGCC), the leading investor association on the topic in the region

(The State of Climate Finance & Investment in Asia, 2016). The study covered

88 leading domestic financial institutions in 12 major markets: 36 banks, 30

investors and 24 insurers. The banks and insurers were all publicly listed.

Most of the investors were institutional “asset owners” with a mandate to

manage assets to meet a liability rather than to grow their client base.

The aim of the study was to establish whether “the key players [are]

proactive or reactive in their approach to the emerging risks and

opportunities presented by climate change.”

The report found that 31% of the institutions claimed to factor climate-

change risks into their financing operations. Banks, in particular, were more

comfortable discussing climate-change opportunity than risk: 61% said they

have green products and 56% provided some quantification of their exposure.

By contrast, only 28% referred to climate-change factors as a reason to limit

financing (ie to “dirty” projects), even though 81% disclosed their policy on

responsible lending.

DFIs operate through grants and concessional

finance

Mainstream commercial finance is tuning in

Proactive or reactive?

Grants are important

Concessional finance is important as well

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The report concluded that “Overall . . . the Asia Pacific markets have now

started the journey to a sustainable financial system. However, there remains

a long way to go.”

This conclusion is one that we would share, and it may flag a vulnerability if

companies and financial institutions from outside the region, with perhaps a

deeper understanding of the cleanup convergence, are able to seize the new

business opportunities arising.

There is more in the Appendices, including the developing struggle in coal

financing, which now involves commercial markets, the DFIs and agencies

such as export credit providers. This is a squeeze that is only going to get

tighter, with public campaigns by vocal advocates of coal divestment.

Non-state actors An emerging and potentially important set of players in cleanup convergence

is non-state actors. These include companies, cities, subnational regions,

investors and civil society organisations formed to address climate change.

Figure 45

Part of Hong Kong’s Nazca commitments

Source: See Ming-Lee

One coordinator of commitments by such actors is Nazca, launched in Peru at

COP20 in 2014. As of August 2016, Nazca counted commitments on climate

change actions from 2,364 cities, 167 regions, 2,090 companies, 448

investors and 238 civil society organisations. Under the Nazca initiative,

actors make commitments in such areas as reducing emissions, energy

efficiency and use of an internal carbon price in decision-making.

For example, 159 railway operators globally, including major ones in the

region, have pledged to reduce carbon emissions from train operations by

50% by 2030 and 75% by 2050, based on 1990 levels.

But there is still a long way to go

Cities and regional governments are also

important actors

Cleanup convergence is

promoting new business opportunities

Nazca’s success

Hong Kong is among 2,364 cities making

Nazca pledges

Railway operators have pledged to cut emissions

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Another organisation, bringing together regions, is R20, a coalition of mainly

regional governments that works to promote and implement projects that are

designed to produce local economic and environmental benefits in the form of

reduced energy consumption and greenhouse gas emissions; strong local

economies; improved public health; and new green jobs. Members in the

region currently include Gujarat State in India; Cebu Province in the

Philippines; Gyeonggi Provincial Government in Korea and Shenzhen Low

Carbon City in China.

Green bonds The fastest-growing product category aimed at financing the cleanup is green

bonds.

According to rating agency Moody’s, some US$48.2bn of labelled green bonds

had been issued as of July 2016, well ahead of the US$43.4bn issued in the

whole of 2015.

Based on this data, Moody’s forecasts issuance of US$75bn in 2016, a new

record for a fifth consecutive year. According to Moody’s, most issues have

been healthily oversubscribed and demand is expected to remain strong, as

investors come under mounting pressure to show how they are addressing

climate-change risks.

The forecast issuance would see something in the region of US$150bn

outstanding at year-end.

Green bond issuers have, so far, been predominantly banks and development

agencies, comprising nearly 60% of 2015 issuance between them. Corporates

accounted for 22% in 2015, with the remainder of issuance coming from US

municipals and regional governments (each about 8%) and a very small

issuance of asset-backed securities.

Two drivers of the growth of green bonds are evident. First, the emergence of

a global architecture, including important regulatory development in Asia and

a new Green Bond Assessment product launched by Moody’s, seen as likely to

accelerate issuance in the USA in particular. Second, the success of the Paris

agreement should prompt agencies, banks and corporates to fund new green

projects with green bonds.

Types of green bond There are two main forms of

green bond:

Pure-play bonds - where the issuer relies on its

generally "green" activities to

justify the claim that the bond will have green effects

Use-of-proceeds bonds - where the use of any proceeds is specified

The latter type of bond clearly provides a tighter

linkage to actual green projects, especially where green

business lines are not the totality of a company's

activities, in the case of a pure-play bond.

While green bonds may still be self-certified as such by

the issuer, to increase investor confidence issuers are

turning more and more to external oversight. This can be provided by way of either third-party verification or

a “second opinion" on the green claims of the issuer,

with a growing number of organisations becoming accredited to provide such verifications or opinions. A

new Green Bond Assessment tool has also recently

been launched by Moody’s as a further addition to the

verification armoury.

Green bonds as a source of finance is growing fast

Enabling regulation and Paris Agreement are

driving issuance in Asia

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Green bonds in Asia

Chinese and Indian issuance is set to increase, based on clear green bond

issuance guidelines issued by the two country's regulators post Paris. There is

more detail in the Appendices.

As is the case globally, banks and development agencies have to date been

the largest issuers in these two markets, although greater diversity is starting

to be visible, with BAIC Motors becoming China's first state-owned enterprise

to issue a bond, in 2016, and Hero Future Energies among India’s issuers.

Chinese issuers already account for almost US$18bn (37%) of the 2016 total

to date, of which US$6bn came in just three transactions in July 2016, a

dramatic rise from the 3.0% share in 2015.

The majority of China issuance in 2016 YTD has been by banks. However, the

National Association of Financial Market Institutional Investors (NAFMII) in

China is now preparing regulations for Chinese corporate green bond

issuance, so it is likely these will take off too.

Figure 46

Yes Bank’s green bond (first in India) will finance solar and wind power

Source: Brahma Kumaris

In India, the first green bond was issued by Yes Bank in February 2015, a 10-

year bond for Rs10bn (US$150m) in size and an AA+ rating. Use of proceeds

is for solar power and wind power projects. No second-party opinion was

provided, but KPMG will report annually on the bond's use of proceeds.

The first corporate issuance of a green bond in India was by CLP Wind Farms,

the renewable energy arm of CLP India, with an Rs6bn (US$90m) private

placement of three tranches of three, four and five years in maturity and a

9.15% coupon for all tranches. Again, no second opinion was provided.

There is more detail on expected further Indian issuance in the Appendices.

India and China have issued new guidance on

green bond issuance

China’s 2016 issuance will massively increase its

market share

India has seen its first bank and corporate issues

Yes Bank issued India’s first green bond

Tessa Tennant






The narrow issuer base to date (banks and DFIs) suggests that corporates do

not see sufficient benefits to issuing green bonds. Two main reasons for this

are generally cited. First, additional costs to get a green label for a bond and

then monitor adherence to the standards. And second, there is no pricing

advantage given the uncertainty over costs and returns.

In fact, as the Climate Bond Initiative (CBI, the main “think tank” for green

bonds) notes, there is little additional expenditure required to document a

green bond compared with a vanilla issuance and assessment and monitoring

of green credentials are less onerous than generally thought.

On pricing and other risks, greater market maturity should start to dispel

concerns. Until then, however, credit enhancement from development

agencies in the region will play an important role. Recent examples include

the ADB’s guarantee of a climate bond issued by a subsidiary of Aboitiz Power,

and the IFC’s underwriting support for Yes Bank's green bond issues.

Labelled green bonds are a more tightly defined subset of climate-aligned

bonds, and make up a growing proportion of the issuance of such bonds.

According to CBI, there were US$694bn of climate-aligned bonds outstanding

in June 2016, an increase of US$96bn (16%) on the previous year. Of these,

labelled green bonds accounted for US$118bn (17%). There is further detail

in the Appendices.

As can be seen from the previous paragraphs, the issuance of green and climate-

aligned bonds very much follows the priorities we see in the INDCs - for energy

and transport, with other sectors seeing lesser but still growing issuance.

Climate Bond Initiative CEO Sean Kidney says that the rise of green bonds

shows that bridging the climate finance gap does not require complex new

investment models: ‘The re-alignment of bond market activity with climate

change and low emission goals will deliver a stable long-term source of green

investment . . . The large-scale harnessing of bonds and other forms of debt-

based capital towards climate and carbon goals is within reach.’

Kidney also makes a direct connection between the Paris agreement and the

growth of the climate bond market: ‘Green bond-based capital to fund

infrastructure projects is now an established model. As countries look to turn

their INDC commitments into climate plans, green/climate-resilient transport,

urban development and water and energy projects are already being financed

by green bonds and can be scaled up.’

Conclusion on green bonds

As a modification of an existing instrument that can be deployed at scale by

mainstream markets, we believe green bonds are the strongest illustration

yet of the financial opportunity under way with cleanup convergence:

They address the financing of the infrastructure and other hardware that

will be required for the cleanup

They address the new practices that will be required: green buildings,

clean transport, smart agriculture

They address governance and ESG integration issues by the setting of

agreed and independent standards and monitoring and verification of their

use of proceeds

Elsewhere, progress is much slower

Climate-aligned bonds

have reached nearly US$700bn in issuance

Green bonds may become main volume vehicle for

mitigation aspects

Delivering a stable long-

term source of green investment

Tessa Tennant






They will often be public-private partnerships, with MDBs and DFIs acting

as issuers and providing cornerstone support to other issuers

Through corporate green-bond issuance, they are a channel for existing

skills and technology in big business to support the cleanup.

Carbon pricing Assigning a value to CO2 is a key means to change the economics in favour of

low-carbon alternatives. Paris seems to have given carbon pricing a bit of a

shot in the arm. Since the agreement at the back end of 2015, five countries

have introduced a tax, a trading scheme, changed the price of carbon or

widened the scope of entities captured by pricing. In addition, two North

American states (Ontario, Canada and Washington, USA) have announced

emissions trading schemes (ETS) and a further Canadian province has

announced a carbon tax. Five of these eight schemes are brand new; the

others are extensions of existing schemes. We expect many more to follow in

time - the World Bank sees 90 countries aiming to use pricing tools within

their climate plans.

Companies are also increasing their use of carbon pricing. According to CDP

(which monitors the carbon disclosure of corporates), users will increase by

one-third (to over 580) from 2015 to 2017.

A number of initiatives are also that bring together national and regional

governments, companies and civil society to push carbon-pricing initiatives.

These include the Carbon Pricing Leadership Coalition, with 172 members and

Caring for Climate, under whose Business Leadership Criteria on Carbon

Pricing, 77 companies and investors have agreed to set an internal carbon

price that is high enough to materially affect their investment decisions.

Some 90 countries aiming to use pricing tools within

their climate plans

Companies to follow

Initiatives to bring all actors together to push

carbon pricing

Tessa Tennant




Section 7: Snapshot of national opportunities Blue Books


Snapshot of national opportunities To provide context, this Section looks across the INDCs and suggests some

possible regional themes. Given the scale of potential activity in the INDCs

and considering the cleanup more generally, we believe that it is a reasonable

expectation that companies operating at a regional level are likely to benefit

most, especially in sectors where materials, technologies and expertise can

be readily exported.

In the Appendices, we provide summaries of the INDCs of eight countries in

the region, providing a snapshot of emerging national opportunities. The

China and India INDCs are among the most detailed globally, with varying

levels of detail for the other six countries listed. We also analyse some major

economic sectors in India as set against the consideration of threats and

opportunities coming from cleanup convergence.

Figure 47

Waste management is a major theme for INDCs

Source: Deutsche Welle

For example, under the climate mitigation category, almost all INDCs

feature extensive actions on waste, with a number of consistent themes

evident, for example:

Integrated waste management at all levels of government and via public-

private partnerships

General promotion of reuse/recycling, via legislation and education

Waste-to-energy projects, especially from capped landfill

Wastewater treatment, industrial and domestic

Recycling of building/industrial wastes to cut need for primary aggregates

Major programmes on human waste; for example, India's INDC calls for

the building of 10.5m household toilets and 0.5m community toilets over

the next few years

National opportunities from INDCs

Recurrence of actions on waste

Waste management has a long way to go in Asia

We highlight emerging regional themes

Tessa Tennant






While the waste industry is notoriously fragmented and often largely in the

informal economy, higher standards are driving business towards larger

companies in countries like China.

In the clean energy sector, we saw in Section 5 that China has built out the

full value chain for solar and wind technologies, ie from manufacture through

installation to operation. India is also moving fast to catch up. Both giants will

be seeking to export that capability into the wider region, where, as can be

seen from almost all the INDC snapshots, these technologies are seen as

central to reducing carbon emissions in energy generation.

Under the climate adaptation category, we look at water and coastal &

marine management as regional themes.

We note, however, that in many cases there is substantial crossover between

mitigation and adaptation. For example, a threatened coastal community that

is relocated inland as an adaptation measure is likely to move to a settlement

that is better planned, has provision for activities like waste treatment and

recycling, and, even if not grid-connected, will avoid or reduce the use of

fossil fuels for lighting and domestic use or wood/charcoal for cooking.

A few other general points are worth making.

First, where there is the need for public finance (for less- or non-commercial

projects), this is starting to emerge in bulk. More than US$36bn has already

been pledged to public adaptation and mitigation funds globally, while DFIs

have been announcing significant increases in climate-related funding,

including a doubling by the Asian Development Bank, to a point where such

funding will make up one-third of its annual disbursements. The estimate for

developed-to-developing country climate finance flows in 2014 was more

than US$50bn.

The working assumption should be that the finance will be there, but to take

full advantage, companies may need to learn about working with unfamiliar

sources of finance (for example climate funds and DFIs) and in partnerships

they may not yet have contemplated. For example, large NGOs are often the

implementing partners for a considerable proportion of the donor flows from

developed to developing nations.

Second, the cleanup is no dotcom surge, where investment, employment and

returns were all very narrowly channelled. Although the digital revolution is

integral to the evolution of new approaches, such as smart communities,

smart grids and smart agriculture, most of the expenditure is likely to be on

hardware and engineering works of one kind or another. As well as

opportunities for those engaged in value chains for “kit”, the employment and

“skills lift” benefits should also feed down widely.

Third, the cleanup may seem like conjecture at this early stage in the

transition, but if the business prospects we highlight do not start to feature in

the fairly near-term strategy/planning processes of major companies, then

something is seriously amiss in either the global mandate for the SDGs and

keeping global average temperatures below 2°C, or in the strategies of the

solutions-providing corporations.

May need realignment of

business-as-usual relationships

Economic opportunities

should penetrate widely and deeply

Look out for commentary

(or lack of it) on cleanup in corporate strategies

Waste industry is fragmented

Tessa Tennant






Adaptation themes Water

Much has already been written about Asia's water resources and groups like

China Water Risk have excellent data on the topic, so we will not go into

detail here. To cite just one driver for greater efficiency in water use, the

Asian Development Bank estimates that increased evaporation from climate

change may increase the amount of irrigation water required in Southeast

Asia by as much as 15%. Asia contains 70% of the world's irrigated area,

with irrigated agriculture at the heart of rural growth in the region - 34% of

cultivated land in Asia is irrigated, compared to only 10% in North America

and 6% in Africa. So the prize for increased efficiency is huge, as is the need:

demand for food and animal-feed crops will have to double to meet the needs

of a population forecast to grow by 1.5bn by 2050, with many wanting a

more “water-greedy” meat/milk-based diet.

It is therefore no surprise to see most INDCs mention adoption of integrated

water management (IWM), which means managing water at a whole basin or

watershed level, integrating land and water, upstream and downstream,

groundwater, surface water and coastal resources. India is seeking to achieve

a 20% increase in water efficiency via such management. IWM programmes

will also drive the dredging and management of river courses, as well as their

cleanup. India’s INDCs mention cleaning up the entire 2,500km length of the

Ganges - sewerage works, treatment plants, etc - and improved water quality

for 40 other rivers.

For more detail on this subject, please see two recent CLSA U Blue Books by

Debra Tan: Water for coal and Dirty thirsty fashion.

Figure 48

Desalination plant in Korea

Source: RO Plant

As 34% of Asia’s cultivated land is irrigated, water is a

massive issue for region

Integrated Water Management is

the mantra

Desalination is a major new “unconventional”

water source

Tessa Tennant









The region will also likely see a significant development and utilisation of

unconventional water resources, including recycled water, desalination and

harvesting of snow, rain and flood water via reservoirs.

With 400 of its 668 cities suffering from water scarcity, China is leading the

way on desalination, with plans to quadruple water supply from this source by

2020. While desalinated water costs 7 yuan per cubic metre versus 4 yuan

per cubic metre for tap water (principally due to the significantly greater

power required for desalination), the cost gap is narrowing all the time as

alternative sources dwindle. Israel is a key technology provider, and Australia

is building significant desalinisation capacity. With so much of the region's

population residing within 60km of the sea, many other countries will surely

follow as technology and costs improve.

Alongside water-catchment management, the region will continue to see

significant inter-basin water-transfer projects involving major engineering and

civil works, as well as attendant needs for water treatment along the way.

In agriculture, we expect to see continued and ever-increasing moves away

from large, centralised government-led schemes to farmer-level pump-based

approaches. Such “atomistic” irrigation will present big opportunities for the

private sector - China is already exporting some 4m pumps a year. Advances

in solar technologies as a power source for pumps is making them useable

even in off-grid areas.

Both the INDCs and the SDGs require massive programmes to implement or

upgrade sanitation. India's INDC calls for the building of 10.5m household

toilets and 0.5m community toilets over the next few years, and similar needs

exist in China's lower-tier cities where the bulk of urbanisation is now to be

focused. A further boost to these sanitation programmes comes from the link

to health programmes to eradicate malaria and dengue fever.

All of this is a boon for companies in the relevant value chains; not just

hardware, software, engineering and operations, but also research, planning

and consultancy.

Investors need to start identifying which areas are most at risk from water-

supply challenges. These obviously include water-intensive companies/sectors

such as:

Agriculture

Downstream sectors linked to agriculture such as textiles and garments

and food processing

Automotive - it takes 39,000 gallons of water to make a car

Semiconductors - which need very pure water as well as large quantities

Tourism and leisure

Beverages

Thermoelectric energy generators (use vast amounts of water for cooling)

and all forms of hydro

Conventional water utilities could also be in trouble

Water-basin management

will be accompanied by devolution in agriculture

Sanitation is a

fundamental human development theme

“Soft” providers are set to benefit too

Many potential losers as well

China leading the way on desalination

Tessa Tennant






Coastal and marine management

Asia Pacific's coastal areas are home to many of its largest urban populations

- some 20 of the world's largest cities are sited there - as well as many of its

economically and strategically important value chains. These regions are

severely vulnerable to sea-level rise.

A report by the World Bank (Turn Down the Heat, 2013) estimated that sea

levels in Southeast Asia would be generally 10-15% higher than the global

mean of 100cm in a 4°C temperature rise scenario (business-as-usual) by the

end of the century. Major cities affected would include Manila, Jakarta, Ho Chi

Minh City and Bangkok.

Figure 49, reproduced from the World Bank report, shows the differences in

temperature and sea levels in 2°C and 4°C scenarios. Clearly, coastal areas

are in a lot of trouble if temperatures are not kept at the low end of the scale.

The Malaysian INDC, for example, notes that the country has over 5,200km

of coastline, of which 29% is at some level of risk from climate change. The

country’s Minister of Natural Resources and Environment, Wan Junaidi Tuanku

Jaafar, recently warned that a fifth of its land (around 18%), including many if

not most of low-lying areas close to sea shores, could be inundated by 2100.

Meanwhile, India's INDC notes the creation of Coastal Regulation Zones along

its 7,500km of coastline (which houses 14% of the population) plus 1,238

islands for which Island Protection Zones will be created.

Figure 49

Sea levels under 2°C and 4°C scenarios

Source: World Bank, Turn Down the Heat, 2013

Some 20 of world's largest cities are on

coasts of Asia

Rising sea levels will hit region disproportionately, with major capitals at risk

Coastal areas to suffer

Tessa Tennant






Upper panel: In a 2°C world, sea-level rise is projected to be less than 70cm

(yellow over oceans) and the likelihood that a summer month's heat is

unprecedented is less than 30% (blue/purple colours over land)

Lower panel: In a 4°C world, sea-level rise is projected to be more than

100cm (orange over oceans) and the likelihood that a summer month's heat

is unprecedented is greater than 60% (orange/red colours over land)

Figure 50

Adaptive rice-cropping techniques under research in Vietnam

Source: Climate Change, Agriculture and Food Security

To give just a few examples of the effects of sea-level rises, the three river

deltas of the Mekong, Irrawaddy and Chao Phraya, all with significant land

areas less than 2m above sea level, are particularly at risk, while in the Mahaka

River region in Indonesia, the land area affected by saltwater intrusion is

expected to increase 7-12% under 4°C warming. Agriculture, aquaculture,

marine capture fisheries and tourism are the most exposed industries.

Coastal cities, which are increasingly concentrating large populations and

assets, are exposed to climate-change risks including increased tropical storm

intensity, long-term sea-level rise and sudden-onset coastal flooding. Without

adaptation, the area of Bangkok is projected to be inundated due to flooding

linked to extreme rainfall events and sea-level rise increases from around

40% under a 15cm sea-level rise (which could occur by the 2030s) to about

70% under an 88cm sea-level rise scenario (which could occur by the 2080s

under 4°C warming).

Three major deltas and at least four major industries

under threat

Also cities such as Macau and Hong Kong, especially

their poorer populations

Agriculture, aquaculture, marine capture fisheries

and tourism most exposed

A 2 degree temperature

rise would be unpleasant but toelerable

Tessa Tennant






There are also fears for the Pearl River Delta, where a 2016 report in the

journal Advances in Atmospheric Sciences forecast a possible rise of over

one metre by the end of the century under an unchecked warming

scenario (greater than the global average due to local conditions),

threatening Hong Kong and Macau, with their large tracts of reclaimed

land, among other places.

City populations in informal settlements are especially vulnerable to excessive

heat as well as sanitation and health risks from flooding.

Giving some indication of the possible economic impacts, a 2015 ADB report

(Economic Costs of Rising Sea Levels in the Asia and Pacific), estimated that

the mean economic losses from climate-induced disasters for Indonesia, the

Philippines, Thailand and Vietnam are estimated to be equivalent to losing

6.7% of combined GDP each year, more than twice the global average loss.

Against this, the costs of adaptation are far lower: the average yearly price of

adaptation measures to reduce the impact of sea-level rise in the four

countries would be less than 0.3% of GDP annually between 2010 and 2050

to protect the most vulnerable sectors.

Coastal adaptation would therefore appear to be an economic no-brainer for

the region, and means lots of work for business involved in the following:

Sea defences

New climate-resilient infrastructure and re-siting/climate-proofing existing

infrastructure

Zoning changes and works arising from these

Movements of populations into new and climate-resilient settlements

Port and airport works

Eco-tourism

Early-warning systems

One example of a company that is already looking to the opportunities is

Dutch engineer Arcadis. Having already doubled its turnover to US$2bn from

water-management services, it is now turning its attention to 13 cities around

the world in coastal areas, delta areas, river basins, areas with groundwater

vulnerability and drought-stricken areas. The cities include four in the region:

Shanghai and the Pearl River Delta; Kuala Lumpur; Singapore; and Sydney -

the others being New York, Chicago, Los Angeles, London, the Amsterdam-

Rotterdam Randstad, Jeddah, Doha and Sao Paulo. The company says funding

in developing markets is an issue, but it sees an increasing diversification of

such funding.

However, as we noted in the case of water actions above, the upside to such

opportunities is not limited to companies providing “hard” products/solutions

but also to “soft” input providers.

Economic cost could be in region of 7% of GDP . . .

. . . while adaptation

measures would cost less than 0.3% of GDP . . .

. . . and create big upside

in several important sectors

Dutch company doubles

turnover from water-management services

There are fears for the Pearl River Delta

Tessa Tennant






Figure 51

Honda car plant in Thailand in 2011

Source: US Marine Corps

Many of the losers are fairly self-evident from the sectors mentioned above:

agriculture, especially rice and other paddy crops; aquaculture; marine

fisheries; downstream processing sectors linked to these activities, as well as

animal feed; and conventional tourism. However, given the concentration of

populations in coastal urban centres, property developers and any business

sited in, or reliant on workforces living in, these areas will be at risk of

chronic disruption.

Mitigation themes India’s INDC's top two sectors for GHG mitigation are energy and transport.

Figure 52

Off-grid solar energy brings power to even remotest villages

Source: UK DFID

Cities face huge costs, and they are joining

lobby for climate action

India's INDC illustrates scope of action envisaged

over next decade

Honda was an industrial victim of 2011 floods

in Thailand

Tessa Tennant






Energy What's planned

India's intended actions on energy are among the most comprehensive in the

region, but also illustrate the breadth and scope of actions envisaged over the

next decade or so by many countries. The main strategies are:

Greater use of renewables, especially wind (60GW installed wind by 2020

(from 24GW), ultimate capacity 100GW+) and solar (rising from 0.4GW in

2015 to 100GW by 2022 and substantially further thereafter

Solar delivered by projects such as: 25 major solar parks/concentrated

solar power plants; solarisation of all 55,000 petrol pumps (3,135 solar

today); 100,000 solar pumps for farmers

Hydro to rise from 46GW to 100GW capacity; small hydro schemes to

become a larger proportion of generation

Nuclear to rise from 0.5GW to 63GW by 2032 (based on fuel availability)

Biomass generation to rise from 4.4GW in 2015 to 10GW by 2022

Clean coal - coal is currently 167GW (60% of installed capacity) and will

"continue to dominate power generation in the future" but with better

efficiency - for example, 144 old thermal stations have been assigned

mandatory targets

Development of a national smart grid

Widespread use of improved cookstoves

Rural electrification delivered via distributed renewable energy (domestic

solar systems, etc)

Energy-efficiency improvements will be delivered by actions such as

Improved lighting and fans

Standards and labelling for domestic white goods and other machinery

Fuel-consumption standards for vehicles

Improved building codes: Energy Conservation Building Code (ECBC)

has already been adopted in eight states

Green rating for buildings

Other renewable sources cited in its INDCs are geothermal and ocean energy.

Policy changes to promote cleaner fuels include reduction/abolition of fossil-

fuel subsidies and incentivisation mechanisms for renewables. Many INDCs

(especially those for countries where there is extensive forest cover) mention

financing mechanisms based on carbon credits and payments for ecosystem

services.

What do these plans mean for investors?

All value-chain participants in clean energy are set to benefit from this

dominant mitigation theme in the INDCs, which also features very strongly in

the SDGs and is also driven by the pollution imperative. This is especially the

case for those forms of energy where technologies and finance for projects

are best understood, in particular wind and solar.

Nuclear will continue to be attractive to many countries, but it faces the usual

hurdles arising from issues of waste storage, fears of weaponisation, etc. And

India's target of 0.5GW to 63GW by 2032 is a massive uplift in just 16 years.

By comparison, the country's renewables targets look much easier to achieve.

Energy technologies whose financing best understood

to be early winners

Nuclear has its usual pluses and minuses

India’s energy targets are ambitious

Energy efficiency plays an important role

Tessa Tennant






Meanwhile, people power in Liyanyungang in eastern China has compelled

that city to take itself off the list of possible sites for a China National Nuclear

Power waste-reprocessing facility.

Energy companies presently in "old" technologies such as fossil fuels for

transport and coal and diesel-power plants, and which make a convincing

switch to cleantech, should also benefit. Though some INDCs mention

continued reliance on coal (albeit cleaner variants), we believe that continued

pressure from the divestment movement - not least on the banks which

finance coal developments - will eventually lead to finance drying up or

becoming too costly, so national strategies that are still heavily dependent on

coal may be subject to a forced about-turn.

We are already seeing off-grid energy (solar domestic and village/urban mini-

grids) as a major feature of national energy strategies in Africa (especially

when linked to mobile money), and many Asia-Pacific countries are well

suited to these technologies for supplying basic electricity needs. At present,

systems are only capable of powering lighting, phones and radios, but the

combination of PV panel-price decreases and better battery technology mean

that systems are already on hand to run fans and TVs as well as other

equipment for domestic and small business use, such as sewing machines

and cooling equipment. "Pay-as-you-go" solar farms are also being pioneered,

suitable for powering small-scale industrial installations.

Finally, underpinning all variable sources of power are revolutions in storage.

These were covered in a recent CLSA U Blue Book (Battery Ram, authored by

Chet Lyons, March 2015), so we do not propose to cover them in detail here.

This report concluded that "we are in the early stages of a revolution that will

massively disrupt three distinct industries: electric utilities, autos and

building-energy systems" and forecast that US$36bn will be spent on energy

storage systems in 2015-24, with related grid and ancillary services delivering

three times as much revenue.

The Internet of Things is set to become a major element of smart grids where

energy productivity is increased by vastly improved management/matching of

supply and demand.

Insulation and new materials for both retrofit and new build of buildings will

also benefit from ever-tightening energy-efficiency standards. Similarly,

tougher performance standards will continue to create a premium for energy

efficiency in all types of machinery, from heavy industrial to domestic white

goods. Leasing arrangements and other financial products are making it

easier to create viable businesses from energy-efficiency savings. The green

banks and other specialists have spotted this and are coming to the rescue of

harried finance directors. We expect much more in the coming decade.

Transport After energy, transport is the most-cited sector in the INDCs, unsurprisingly

given that it is such a major source of emissions.

What's planned Intended actions fall into four main categories:

Public/mass rapid transport

Fleets

Freight

Planning and policy

Fossil-fuel financing will remain under pressure

Off-grid should be major opportunity for Asia, as it

is becoming in Africa

Energy efficiency will also create substantial

opportunities

Transport is second most important sector

Storage revolution will help all variable sources,

alongside smart grids

Tessa Tennant




https://www.clsa.com/member/reports/552700845.pdf




1. Public/mass rapid transport

China reflects a general ambition in its INDC of "giving priority to the

development of public transportation and encouraging the development and

use of low-carbon and environment-friendly means of transport". Measures

are aimed at bringing the share of public transport in motorised travel to 30%

by 2020.

For urban areas, bus, metro and tram MRT systems are frequently mentioned.

India has 39 MRT projects approved, 19 of which have been completed to

date: 236km of metro is contracted; 550km is under construction; and

600km more is coming in cities like Ahmedabad, Pune and Lucknow. In

poorer countries, buses typically lead the way when systems are introduced,

given their ability to use existing road infrastructure and lower capital costs.

In terms of intercity transport, rail is clearly the favoured option with regional

rail systems also sometimes mentioned. Improvements in interconnectivity of

public transport are also needed.

Railway-Technology.com lists 148 projects currently under development in

Asia while the SmartRail Asia 2015 report estimated projects worth US$140bn

to be in proposal or planning stages in the Asean region (Figure 53).

Figure 53

Rail and metro projects in Asean region

Source: ASEAN Rail and Metro, Building for the Future, SmartRail Asia, 2015

Mass rapid transport leads the way promoting

low-carbon modes

In poorer countries, buses typically lead

the way

Rail dominates intercity transport

Tessa Tennant




http://www.railway-technology.com/



2. Fleets

Improvements in the fuel sources and fuel efficiency of all fleets are a priority,

including freight and airplane fleets as well as road vehicles. Measures include

greater use of hybrid and electric vehicles; promotion of superior gasoline

products and alternative fuels such as biofuels and LPG; and improved fuel-

efficiency standards for vehicles, together with enforcement.

In a June 2016 report, the International Energy Agency (Global EV Outlook,

International Energy Agency, 2016) noted that global use of electric vehicles

is on the rise, with a new high of 1.26m electric vehicles forecast to be on the

road by the end of the year and substantial gains in the sale and construction

of the infrastructure needed to support EVs worldwide. EVs still only account

for about 0.1% of the total market share for vehicles, however, and the IEA is

calling for an initiative for 20m electric vehicles globally by 2020. Meanwhile,

the Paris 2015 climate agreement called for 100m electric vehicles on the

market by 2030 in an effort to curb pollution as well as GHG levels.

Given Asia's ongoing urbanisation and continued growth of the continent's

megacities, EVs appear to be an excellent fit for the region. China (258,000

EVs in 2015) and Japan (150,000) lead the way in the region, along with

Hong Kong. Japan, whose Nissan Leaf is a world leader, is currently the only

country in the world to have more charging points (40,000) than petrol

stations (35,000), and over the coming five years the Japanese government

aims to deploy 2m regular chargers and 5,000 fast-charging points. Chinese

EVs are almost all locally produced (Kandi Technologies, BYD, Chery and

Zoelte) and tend to be at the basic end spec- and quality-wise, so export

opportunities from that source are limited at the moment. Pickup elsewhere

in the region is presently lagging far behind the three leaders, in part because

of low gas prices, which is also a reason for slow progress in the USA.

3. Freight

Green freight transport is a significant theme in the INDCs. The main actions

clearly relate to rail, where India, for example, is looking to increase rail

freight from 36% to 45% of freight traffic by creating dedicated freight

corridors. The first two corridors, one of 1520km between Mumbai and Delhi,

and the other of 1,856km between Ludhiana and Dankuni are already under

construction. The Indian Ministry of Railways has set up the Dedicated Freight

Corridor Corporation of India (DFCCIL) as a special purpose vehicle to push

forward these efforts and bring in private finance alongside public. DFCCIL

expects the development of these corridors (“unprecedented in independent

India”) to drive the establishment of industrial corridors and logistic parks

along their routes. Japan’s JICA DFI is funding the entirety of the western

corridor, with a mix of funding for the eastern corridor.

Waterway freight is also frequently mentioned, including coastal routes,

lagoons and inland waterways. The possibility of solarising some waterborne

freight is mentioned.

Regional highway networks are also mentioned. To some degree, there is a

potential linkage here with China’s One Belt One Road (OBOR) infrastructure

ambitions.

4. Planning and policy

Cycling and walking are essential components of integrated transport plans,

especially in urban areas. Given that integrating transport into planning is

frequently cited, we would expect these modes to grow.

Fuel sources and efficiency are priority, especially

electric vehicles

India has innovative model for modal shift to rail with corridor system

Waterway freight and regional highway systems

are also themes

Global use of electric vehicles is rising

Electric vehicles great for Asia’s urbanisation

Cycling and walking are essential

Tessa Tennant






Figure 54

Taipei’s bike-sharing scheme has one of highest usage rates in the world

Source: Tessa Tennant

Levels of bicycle ownership in Asia is a promising barometer, especially if

urban planners make cycling attractive once more, as they are doing in

European and other capitals around the world. We may be seeing the bottom

of the decline in cycle use observed in Asia over recent decades. As Figure 55

shows, seven of the world’s top-20 bike-owning nations are in the region.

Figure 55

Percentage of households with a bicycle, 2015

Source: Pew Research Fact-Tank, 2016

80

78

74

70

67

67

65

65

63

63

62

59

56

53

53

53

51

50

49

49

0 10 20 30 40 50 60 70 80 90

Germany

Japan

Thailand

Poland

Chile

Vietnam

China

Indonesia

Italy

South Korea

India

France

Argentina

Brazil

Malaysia

US

Spain

UK

Mexico

Uganda

Cycling and walking are priorities for

urban planning

Indicators for cycling in Asia are promising

Stacking up well globally

Tessa Tennant






China now leads the world in the number of bike-sharing schemes, with about

170 in place across the country. Taiwan, one of the world's biggest makers of

bicycles, is also the only country in Asia with a national network of bike lanes,

used not only by locals but also popular with tourists wishing to explore the

country's nature hotspots. Meanwhile, Taipei's bike-sharing programme is one

of the most successful in the world, with a usage rate (some 10-12 trips a

day for each of its 5,350 bicycles at 165 stations) outstripping cities like New

York and Barcelona. Singapore, which has highly efficient public transport but

no cycling culture to date, is spending S$43m on bike lanes and cycling

facilities as part of a national cycling plan.

Other policy themes in the INDCs include reductions in fossil-fuel subsidies;

increases in gas taxes; incentivisation of alternative fuels; better inspection of

vehicles; and promotion of eco-driving.

What does it all mean?

Looking at the INDCs and the wider policies and strategies around them, we

see the following types of provider among the winners in the energy and

transport sectors:

Manufacturers of hardware for mass transit and rail systems - buses,

trams, trains, track, positioning systems, signalling equipment etc

Manufacturers of hybrid, electronic and alternative fuel vehicles, as well

as electric and conventional bicycles

Producers of relevant fuels

Manufacturers of equipment that can be solarised, ie gas pumps, traffic

management systems

Hybrid or renewable-driven freight transport, including waterborne freight

Waterborne freight and passenger infrastructure providers

Equipment and infrastructure related to walking and cycling

While the focus is shifting to public transport, roads will of course continue

to be a major infrastructure, and will need to be built to higher climate-

resilient standards where they are vulnerable. Suppliers of traffic

management systems and hardware will also benefit as a result

Consultants in urban and transport planning, traffic management,

measurement and reporting systems (to validate environmental

benefits, etc)

Multiple potential winners in technology, infra, fuels

and knowledge services

China dominating in bike-sharing schemes

Tessa Tennant




Appendices Blue Books


Appendix 1: List of sources The main sources cited in this CLSA U Blue Book are listed below. The authors

thank all those who have given their permission for works to be cited or

otherwise collaborated.

UNEP Financial Inquiry. 2015. Aligning the Financial Systems in the Asia

Pacific Region to Sustainable Development. Geneva, UNEP.

http://apps.unep.org/publications/index.php?option=com_pub&task=downloa

d&file=011744_en

UNEP International Resource Panel. 2016. Global Material Flows and Resource

Productivity, Paris, UNEP IRO. http://unep.org/documents/irp/16-

00169_LW_GlobalMaterialFlowsUNEReport_FINAL_160701.pdf

ADB. 2015. The Global Increase in Climate Related Disasters. Manila, ADB. ©

ADB. http://www.adb.org/publications/global-increase-climate-related-

disasters CC-BY 3.0 IGO.

Kourtnii S. Brown. 2014. Financing the Costs of Climate Change in Disaster-

Prone Asian Nations. Asia Foundation, Washington D.C.

http://asiafoundation.org/2014/09/17/financing-the-costs-of-climate-change-

in-disaster-prone-asian-nations/

Kjellstrom, Dr Tjord et al. 2016. Climate Change, Extreme Weather Events,

and Human Health Implications in the Asia Pacific Region. Asia Pacific Journal

of Public Health, Volume 28, Issue 2

Walsh, Heidi & Passoff, Michael. 2016. Proxy Preview. Sustainable Investment

Institute et al. http://www.proxypreview.org/#main

Oh, Xavier. 2010. Airports and Adaptation. ICAO/ACI, Montreal.

http://www.icao.int/Meetings/EnvironmentalColloquium/Documents/2010-

Colloquium/6_Oh_ACI.pdf

UNFCCC. 2016. Synthesis Report on INDCs. Bonn, UNFCCC.

http://unfccc.int/resource/docs/2016/cop22/eng/02.pdf

Callaghan, Ian. 2015. Climate Finance after COP21 - Pathways to the

Effective Financing of Commitments and Needs. Investor Watch, London.

www.calltoactiononclimatefinance.net

Investment in a Time of Climate Change, Mercer Consultants, 2015

Buchner, Barbara et al. 2015. Global Landscape of Climate Finance 2015.

Venice, Climate Policy Institute.

http://climatepolicyinitiative.org/publication/global-landscape-of-climate-

finance-2015/

Climate Funds Update. All data on website:

http://www.climatefundsupdate.org

World Bank. 2013. Turn Down the Heat. Washington DC, World Bank.

http://www.worldbank.org/en/topic/climatechange/publication/turn-down-

the-heat

Key citations are below

Tessa Tennant




http://www.adb.org/publications/global-increase-climate-related-disasters

http://www.adb.org/publications/global-increase-climate-related-disasters

http://www.icao.int/Meetings/EnvironmentalColloquium/Documents/2010-Colloquium/6_Oh_ACI.pdf

http://www.icao.int/Meetings/EnvironmentalColloquium/Documents/2010-Colloquium/6_Oh_ACI.pdf

http://www.climatefundsupdate.org/



ADB. 2015. Economic Costs of Rising Sea Levels in the Asia and Pacific.

http://www.adb.org/features/economic-costs-rising-sea-levels-asia-and-

pacific

Yonts, Charles and Lyons, Chet. 2014. Battery Ram. Hong Kong, CLSA

OECD/ IEA. 2016 Global EV Outlook. IEA Publishing.

https://www.iea.org/publications/freepublications/publication/Global_EV_Outl

ook_2016.pdf

SmartRail Asia. 2015. ASEAN Rail and Metro, Building for the Future.

http://www.smartrailworld.com/asean-rail-metro

350.org Japan. 2016. Energy Finance in Japan: Funding Climate Change and

Nuclear Risk. 350.org. http://world.350.org/ja/my-bank-my-future/

Hong Kong University of Science and Technology's Business School, 2015. The

Role of Governance relative to Environmental and Social Factors in Equity

Returns. In conjunction with Robeco Asset Management, Hong Kong. Private

study with conclusions cited in Robeco press release.

OECD. 2016. Green Investment Banks: Scaling up Private Investment in Low-

carbon, Climate-resilient Infrastructure, Green Finance and Investment. Paris,

OECD Publishing. http://www.oecd.org/environment/cc/green-investment-

banks-9789264245129-en.htm

Asia Research and Engagement (ARE). 2016 The State of Climate Finance &

Investment in Asia. Asia Investor Group on Climate Change. www.aigcc.net

BP.2016. BP Statistical Review of World Energy 2016. BP

https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-

review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf

Wang, Lin et al. 2015. Historical Change and Future Scenarios of Sea Level

Rise in Macau and Adjacent Waters. Advances in Atmospheric Sciences,

Volume 33. http://159.226.119.58/aas/EN/abstract/abstract2803.shtml#

Tessa Tennant




http://www.aigcc.net/

https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf

https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy-2016-full-report.pdf



Appendix 2: Financing additional material Further information on multilaterals IFC and EIB

The International Finance Corporation, the private sector-facing arm of the

World Bank and the European Investment Bank, backed by the EU, are active

in the region.

IFC’s range of activities stretches from support for enterprises in "frontier"

countries such as Laos and Myanmar, through to assisting larger companies in

more advanced countries such as China and Indonesia to expand regionally

and globally. Investments in East Asia and Pacific totalled US$3.3bn in 2015,

including US$1.1bn in funds mobilised from other investors. Infrastructure,

energy efficiency and renewables-generation are priorities in green finance.

The EIB runs a substantial fund of funds called GEEREF that is dedicated to

energy efficiency and renewables. Of its €222m under management to date,

about €50m is invested in Asia.

Asian Infrastructure Investment Bank: Initial projects

The bank's initial projects, announced in mid-2016, are all in Asia. They

include power grid upgrades in Bangladesh, support for highways in Central

Asia, Pakistan and Tajikstan. The largest loan was US$216m for the

renovation of slum housing in Indonesia.

The AIIB is the sole investor in the Bangladesh project, but the three other

loans all reflect its pledge to cooperate with existing multilateral development

banks, and are jointly funded either with the Asian Development Bank, the

European Bank for Reconstruction and Development or the World Bank.

In its own words, the AIIB has promised to be "lean, clean and green." Its

joint projects apply the standards on environmental impacts and social issues,

such as labour practices, that have been formulated by partner banks rather

than the AIIB's own fledgling policies. However, the environmental credentials

of the Bangladesh power project will be monitored closely.

Further information on mainstream markets There is notable variation in practice in the various markets. In general, the

report found the markets of Australia, Japan, South Korea and Taiwan to have

stronger patterns of disclosure on sustainable finance, while Chinese banks

had strong disclosure on green finance. Different drivers are also at work. In

China, the banks have moved in response to green credit guidelines from the

China Banking Regulatory Commission (CBRC), while in Australia banks have

adopted voluntary policies and standards on an individual basis, sometimes in

response to reputational pressure from civil society organisations.

On regulation, the AIGCC found a growing number of initiatives. Five of the

twelve markets have banking initiatives related to sustainable finance,

including stewardship codes (in four markets, with a further two in process)

and/or sustainability disclosure within the listing rules of their stock

exchanges. The report notes that such initiatives are important as “Asian

financial institutions have a relatively low representation in international

initiatives to support sustainable finance”.

Practices on sustainable finance vary widely by

market

Maybe regulation is getting more extensive

as a result

IFC and EIB are essential

AIB looks promising

Tessa Tennant






The issue facing banks on limiting finance for coal in particular is seen in the

figure below, which shows the massive part coal plays in the primary energy

mix in most countries. It also, however, suggests the size of the opportunity

from renewables as these continue to build market share.

Primary energy by source, 2015

Note: Based on mtoe. Source: BP Statistical Review of World Energy, 2016

Export credit is a major source of financing. Between 2009 and 2013, the

export credit agencies of OECD countries provided US$9.1bn to support coal

power. Korea, Germany, France, USA and Japan provided 95% of the funding.

Strongly limiting the preferential terms for new coal power plants is a way for

countries to demonstrate their commitment to ending fossil-fuel subsidies and

participants in the OECD's Arrangement on Officially Supported Export Credits

has recently finalised rules that move in this direction. On 1 January 2017,

new rules take effect removing support for large subcritical and supercritical

coal power plants. Support will still be allowed for smaller subcritical plants in

poorer developing countries and for mid-sized supercritical plants in countries

facing energy poverty, but the writing is on the wall elsewhere. Furthermore,

nongovernment export-credit providers have also been encouraged to follow

the rules, which are subject to review starting in 2019.

Green bonds Regulation in China and India

The People's Bank of China (PBOC) released guidelines for issuance of

onshore green bonds in December 2015. The guidelines are similar to the

international (voluntary) Green Bond Principles, but provide additional detail

by specifying types of green project that are permissible. However, there is

some concern that Chinese domestic green bonds could be used to finance

“clean coal” projects, whereas coal in any form is excluded from most

international green bond definitions.

The Securities and Exchange Board of India (SEBI) issued its guidelines in

January 2016, again based on the Green Bond Principles, making the

adoption of the principles as a global basis for green bond standards

increasingly likely. When launching the principles, SEBI made a direct linkage

to the Paris agreement by stating that it sees green bonds as a key tool to

help raise the finance needed to meet India's INDCs.

0 10 20 40 5030 60 70 80 90 100

India

South Korea

Indonesia

Taiwan

Malaysia

Singapore

Hong Kong

Japan

Thailand

Australia

China

Philippines

(%)Oil/gas/nuclear RenewableCoal

Developing battleground

over “dirty finance” especially coal

Coal is also under fire from export credit

providers

Coal dominates in the world’s two most

populous countries

Green bond regulations are improving

Tessa Tennant






Further Indian issuance expected

At a conference organised by the Green Infrastructure Investment Coalition in

June 2016, a number of Indian banks and corporations stated their intentions

on green bond issuance over the coming years. These included:

Energy Efficiency Services (linked to Indian government): US$14bn to

2020; US$150m in capital markets over the next six months

IDBI Bank: US$2-3bn in green bonds over next few years

Hero Future Energies: US$2bn in green bonds (US$200-500m issuances)

Gujarat International Finance Tec-City (GIFT): US$3bn of investments

Renew Power: US$1.7bn

Leap Energy: US$200-500m in the next 6-12 months

Indian Renewable Energy Development Agency (IREDA): US$3.13bn in

bonds by 2021 - US$100m in US dollar/”masala” (offshore rupee) green

bonds this year and US$300m domestically

Climate-aligned bonds

Highlights from the Climate Bond Initiative’s 2016 study of these more loosely

defined issuances included the following:

Universe made up of over 3,590 bonds (issued from January 2005 to May

2016) from 780 individual issuers across transport, energy, buildings and

industry, water, waste and pollution and agriculture and forestry

China leads the way with US$246bn of total issuance (36%) followed by

the USA (US$136bn/16%) then France and the UK (US$64bn & US$62bn,

around 9% respectively)

The Renminbi is the dominant currency, with 35% of the total amount

outstanding, followed by the US dollar (24%) and the euro (16%)

Unlabelled issuance is dominated by China Railway Corporation (largest

issuer with US$194bn). This figure highlights the significance of bonds

within the transport sector and demonstrates the continuing importance

they will play in raising finance for low-carbon transport

Some 78% of the universe is investment grade; majority of bonds have

tenures of 10 years or more; majority are also government-backed

Low-carbon transport was the largest sector, accounting for US$464bn

(67%) of the total climate aligned universe, followed by clean energy at

US$130bn (19%)

The remaining US$97bn (14%) is drawn from Building and Industry,

Agriculture and Forestry, Waste and Pollution, Water or Multi-Sector bonds

India is ramping up

Climate bonds are growing rapidly

Tessa Tennant






Appendix 3: China snapshot Mitigation Adaptation

Sector Action Sector Action

Overall

aims

Achieve peaking of carbon dioxide emissions around

2030 or earlier if possible

Lower carbon-dioxide emissions per unit of GDP by

60% to 65% from the 2005 level

Increase share of non-fossil fuels in primary energy

consumption to around 20%

Increase the forest stock volume by around 4.5bn

cubic meters fom the 2005 level

Overall aims To take full consideration of CC in planning,

engineering and construction of the distribution of productive forces, infrastructures and major projects

How

implemented

National Program on Climate Change (2014-2020)

and provincial climate programs

Strengthen laws and regulations on climate change

Integrate climate-change-related objectives into

national economic and social development plans

Improve performance evaluation and accountability systems on CC and low-carbon development targets

Infrastructure Climate resiliency in infrastructure for water

conservancy, transport and energy

Full consideration of CC in the planning, engineering

and construction infrastructure and major projects

Energy Clean coal: increase share of concentrated and

highly-efficient electricity generation from coal

Natural gas: 10%+ share of primary consumption

by 2020

Hydro subject to ecological and environmental

protection and inhabitant resettlement

Nuclear

Wind: 200GW installed capacity

Solar: 100GW installed

Geothermal: 50m tonnes coal equivalent

Bio-energy

Maritime

Recovery and utilisation of vent gas and oilfield-

associated gas

Scale up distributed energy

Smart grids

Coastal &

marine

Enhance resistance to marine disasters

Enhance management of coastal zones

Improve resilience of coastal areas against climatic

disasters

Industry New path of industrialisation, creating “circular

economy”, including via recycling

Control of expansion of industries with extensive

energy consumption and emissions

Accelerate elimination of outdated production

capacity

Control emissions in power, iron and steel,

nonferrous metal, building materials and chemical industries through energy conservation and

efficiency improvement

Promote “strategic emerging industries” to become

15% of GDP by 2020

Promote low-carbon development of service

industry, including tourism and foodservice

Water &

irrigation

Water-saving to be inbuilt in all new developments

Development/utilisation of unconventional water resources, including recycled/desalinated/rain/flood

water

Improve construction of water-conservation facilities

for farmlands

Develop water-saving agricultural irrigation

Improve resiliency of infrastructure

Optimise allocation of water resources

Strictest water management regulations

Agriculture Appropriate scale production and industrialisation of

agriculture in Major Agricultural Production Zones

Low-carbon development in agriculture

Target zero growth of fertiliser and pesticide

utilisation by 2020

Control methane emissions from rice fields and nitrous oxide emissions from farmland

Construct recyclable agriculture system, promoting

comprehensive utilisation of straw, reutilisation of

agricultural and forestry wastes and comprehensive

utilisation of animal waste

Agriculture Improve construction of water-conservation facilities

for farmlands

Develop water-saving agricultural irrigation

Cultivate heat-resistant and drought-resistant crops

Continued on the next page

Tessa Tennant






Appendix 3: China snapshot (cont’d) Mitigation Adaptation


Waste Intensifying recovery and utilisation of methane

from landfills

Improve waste separation and recycling systems in

households and institutions

Ecosystems Track, monitor and assess the impact of CC on

biodiversity

Land use &

forestry

Increase the forest stock volume by around 4.5bn

cubic meters from the 2005 level

Reduce deforestation-related emissions

Protect natural forests

Restore forest and grassland from farmland

Restore grassland from grazing land, prevent

grassland degradation, restore vegetation of

grassland

Improve carbon storage of soil

Restore and increase carbon storage capacity of wetlands

Land use &

forestry

Sandification control for areas in vicinity of Beijing

and Tianjin

Plant shelter belt

Control rocky desertification, conserving water and soil

Strengthen forestry infrastructure and management

Strengthen forest disaster prevention and forest

resource protection

Strengthen protection and restoration of wetlands

Transport Build low-carbon transportation system

Share of public transport in motorised travel in big-

and medium-sized cities to reach 30% by 2020

Encourage new vehicle types, including shipping

Improve quality of gasoline and promote new types

of alternative fuels

Promote development of dedicated transport system

for pedestrians and cyclists in cities

Accelerate development of smart transport and

green freight transport

Research &

development

Improve fundamental research into CC, including CC

monitoring/forecasting

Strengthen R&D and commercialisation

demonstrations for low-carbon technologies including energy conservation, renewable energy,

advanced nuclear power technologies carbon

capture, utilisation and storage, water saving and

desalination of sea water

R&D on early-warning systems

Technologies for biological nitrogen fixation, green pest and disease prevention and control for

agriculture

Urban /

planning

Limit large-scale urbanisation

Strengthen the planning and construction of

medium- and small-sized towns

Encourage moderate concentration of population

Improved EE in new buildings, integrate RE in new

build, retrofit of existing buildings

Share of green buildings in new build to reach 50%

by 2020

Encourage public institutes to take the lead to

advocate low-carbon government buildings, campuses, hospitals, stadiums and military camps,

advocate moderate consumption, encourage the use

of low-carbon products and curb extravagance and

waste

Low-carbon pilots in provinces and cities, with

rational space distribution, intensive utilisation of resources, low-carbon and efficient production and

livable green environment

Low-carbon industrial parks, communities, business

and transport pilots

Urban/

planning

Plan functional zones in cities

Effectively safeguard city lifeline systems

Public

education

Enhance education for all citizens on low-carbon,

healthy lifestyles

Health Formulate contingency plan for public health under

the impacts of CC

Improve capacity of public medical services to adapt

to CC

Early warning/

disaster

management

Strengthen comprehensive assessment and risk

management of CC and improve national

monitoring, early warning and communication

systems

Improve emergency response mechanism for

extreme weather and climatic events

Strengthen development of disaster reduction and

relief management

Source: Ian Callaghan

Tessa Tennant






Appendix 4: India snapshot Mitigation Adaptation


Overall aims & cost

Three key elements of INDC:

Reduce emissions intensity of GDP by 33-35% by 2030 from 2005 level

Achieve about 40% cumulative electric power

installed capacity from non-fossil fuel based energy resources by 2030

Create an additional carbon sink of 2.5-3bn tonnes

of CO2 equivalent through additional forest and tree cover by 2030

Key actions:

Introduce new, more efficient/cleaner technologies in thermal generation

Promote renewable energy generation and increas

the share of alternative fuels in overall fuel mix

Reduce emissions from transport sector

Promote energy efficiency in the economy, notably

in industry, transport, buildings and appliances

Reduce emissions from waste

Develop climate-resilient infrastructure

Full implementation of Green India Mission and other

programmes of afforestation

Cost:

US$834bn by 2030 for mitigation

All climate actions: US$2.5tn?

Overall aims & cost

Mainstream planning and implementation of actions to enhance climate resilience and reduce

vulnerability to climate change

Cost to 2030 estimated at US$206bn

Loss and damage from CC costs India 1.8% of GDP

How implemented

National Environment Policy (NEP) 2006

National Action Plan on Climate Change (NAPCC),

implemented through eight National Missions,

outlining priorities for mitigation and adaptation to combat climate change

32 States and Union Territories have put in place the

State Action Plans on CC (SAPCC)

Fiscal instruments like coal cess, cuts in subsidies,

increase in taxes on petrol and diesel, market

mechanisms including Perform Achieve and Trade (PAT), Renewable Energy Certificates (REC) and a

regulatory regime of Renewable Purchase Obligation

(RPO); institutional arrangements for offtake of

renewable power will be further strengthened

How implemented

Five of eight national missions focus on adaptation in sectors like agriculture, water, Himalayan

ecosystems, forestry, capacity building and

knowledge management

Climate plans at subnational level also focus

significantly on adaptation

Spend on adaptation about 3% of GDP in 2009-10, 80% on poverty alleviation, health improvement and

disease control and risk management

Energy Generation:

Greater use of RE especially wind & solar; improved EE

Reach 60GW installed wind by 2020 (from 24GW),

ultimate capacity 100GW+

Solar from 0.5GW in 2015 to 100GW by 2022; more capacity thereafter

Solarisation of all 55k petrol pumps (3,135 at date)

100k solar pumps for farmers

25 solar parks/CSP projects

Improved cookstoves

Biomass generation from 4.4GW in 2015 to 10GW

by 2022

Hydro from 46GW to 100GW capacity; focus on

small hydro schemes (currently only 4GW)

Nuclear from 0.5GW to 63GW by 2032 if fuel

available

Clean coal: coal currently 167GW (60% of installed capacity) and will "continue to dominate power

generation in the future" but with better efficiency

144 old thermal stations assigned mandatory targets

National smart grid to be developed

Energy efficiency:

Improved lighting and fans

Standards and labeling

Fuel-consumption standards for vehicles

Improved building codes: Energy Conservation Building Code (ECBC) already adopted in 8 states

Green rating for buildings

Rural electrification via distributed RE (no capacity

target given)

Coastal & marine 7,500km+ of coastline houses 14% of population

Vulnerable areas designated with Coastal Regulation

Zone (CRZ) with restrictions imposed on setting up

and expansion of industries, operations and

processes in these areas

Integrated CZ management

Mangrove protection/rehab

1,238 islands are vulnerable to sea-level rise & extreme weather, to be protected by Island

Protection Zone measures


Tessa Tennant






Appendix 4: India snapshot (cont’d) Mitigation Adaptation


Industry Market-based energy efficiency trading mechanism,

Perform, Achieve and Trade (PAT) currently covers

478 plants in eight energy-intensive industrial

sectors accounting for one-third of total energy

consumption in the country

Additional sectors like railways, electricity

distribution and refineries to be brought into scheme

Zero Effect, Zero Defect (ZED): The Make in India

campaign with ZED is a policy initiative to rate Medium & Small Industries on quality control and

certification for energy efficiency, enhanced

resources efficiency, pollution control, use of

renewable energy, waste management etc. using

ZED Maturity Assessment Model. The scheme launched in 2015, envisages coverage of about 1m

medium and small enterprises.

Water &

irrigation

National Water Mission (NWM) to conserve water,

minimise wastage and ensure more equitable

distribution both across States through integrated

water-resources development and management

Target to enhance water-use efficiency by 20%

Rainwater harvesting

Watershed development

Cleaning up Ganges over 2,500km including

sewerage works, treatment plants, etc

Improved water quality in 40 rivers

Agriculture See Adaptation Agriculture National Mission on Sustainable Agriculture (NMSA)

aims at enhancing food security, protection of

resources such as land, water, biodiversity and

genetics; focus on new technologies and practices in

cultivation, genotypes of crops that have enhanced

CO2 fixation potential, which are less water consuming and more climate resilient

National Mission on Climate Resilient Agriculture’s

four main modules: natural resource management;

improving crop production; livestock and fisheries;

and institutional interventions

Soil health

Rural livelihoods security - National Rural Livelihoods

Mission covers 70m poor households across 600,000

villages

Waste &

pollution

Waste to energy capacity to be enhanced (no target

given)

Solid waste management through PPPs

Improved waste-water management through new sewerage treatment plants

Clean India Mission to eliminate human waste/litter -

programmes in 4,000 towns with population 306m

Build 10.5m household toilets and 0.5m community

toilets

New tougher standards on industrial emissions and

effluents, use of fly ash from coal plants, national Air

Quality Index launched

Ecosystems Protected Area network covers 5% of India’s

territory

Biodiversity protection especially Himalayan ecosystem

See also Agriculture & Agroforestry missions

Land use &

forestry 5mha additional forest cover

5mha forest improved, along with livelihood support

Use of REDD programmes, etc

Land use &

forestry

National Agroforestry Policy (NAP) aimed at

encouraging and expanding tree plantation in

complementarity and integrated manner with crops and livestock

Transport Increase rail freight from 36% to 45% through

dedicated freight corridors; first two corridors -

1,520km Mumbai-Delhi (Western Dedicated Freight

Corridor) and 1,856km Ludhiana-Dankuni (Eastern

Dedicated Freight Corridor) - under construction

Develop coastal shipping and inland water transport

via improved connections

Increased Mass Rapid Transport - 39 projects

approved, 19 completed to date: 236km of metro contracted, 550km under construction and 600km

more coming in cities like Ahmedabad, Pune and

Lucknow

140,000km of trees to be planted along highways

Regional highway systems with Bangladesh, Bhutan,

Nepal

Increase in hybrid vehicles + EV

Biofuels to increase to 20% of mix

Fossil-fuel subsidies being cut

Increased petrol taxes

Urban/

planning Climate Resilient Urban Centres

100 smart cities

Atal Mission for Rejuvenation and Urban Transformation (AMRUT), a new urban renewal

mission has been launched by Government of India

for 500 cities with focus on ensuring basic

infrastructure services such as water supply,

sewerage, storm water drains, transport and

development of green spaces and parks by adopting climate-resilient and energy-efficient policies and

regulations

Health National Health Mission being developed

Integrated Disease Surveillance Programme (IDSP)

National Vector Borne Disease Control Programme

(NVBDCP) to deal with vector borne diseases like

malaria, dengue, etc; eliminate malaria by 2030

Early warning/

disaster

management

Holistic disaster-risk reduction and response

apparatus at national, state and district levels

580 district-level contingency plans based on early-

warning systems and other weather-forecasting systems


Tessa Tennant






Appendix 5: Japan snapshot Mitigation

Sector Action

Overall aims 26% reduction in GHG by 2030 versus 2014

How implemented Plan for Global Warming Countermeasures to be created

Energy Energy mix by 2030 to be (%): renewables 22; nuclear 22; coal 26; LNG 27; oil 3

Within renewables (%): solar 7; wind 2; geothermal 1; hydro 9; biomass 3

Industry All sectors

Improvements in energy generation

Energy efficiency, management and conservation

Increased recycling

New industrial processes

Waste management

Iron & steel

Next-generation coke making process (SCOPE21)

Innovative iron-making process (ferro coke)

Environmentally harmonised steelmaking process (COURSE50)

Chemical

Energy-efficiency and conservation technology using membranes for distilling process

Technology which uses CO2 as a feedstock

Chemical-product production technology with inedible plant-based material

Electricity-generating waste-water processing with microbe catalysis

Sealed plant factory

Ceramics, stone & clay

Conventional energy-efficiency and conservation technologies (waste heat power generation, slag crusher, air-beam cooler, separator improvement, vertical roller coal mills)

Technology for using waste (ie waste plastic, etc) as alternative thermal energy

Innovative cement-production process

Glass-melting process

Pulp/paper/paper products

High-efficient pulp production technology using old paper

High-temperature and pressure recovery boilers

Other

High-efficiency air conditioners

Industrial heating-drying

Industrial lighting

Low-carbon industrial furnaces

Industrial motors

High-performance boilers

Direct use of recycled plastic flakes

Hybrid construction machinery

Energy-efficiency and conservation farming machinery

Energy-efficiency and conservation equipment in horticulture

Switch to energy-efficiency and conservation fishing vessels

Promotion of cooperative energy-efficiency and conservation measures across industries

Promotion of low-carbonisation in special vehicles


Tessa Tennant






Appendix 5: Japan snapshot (cont’d) Mitigation

Sector Action

Commercial Promotion of compliance of energy-saving standards for newly constructed buildings

Energy-efficiency and conservation buildings (remodeling)

Commercial-use water heaters (latent heat collection water heater, commercial-use heat pump water heater, high-efficiency boilers)

Highly efficient lighting

Refrigerant control technology

Thorough implementation of energy management in commercial sector with BEMS and energy-efficiency diagnosis

Efficient use of light

Promotion of nationwide campaigns (through promotion of Cool Biz/Warm Biz, repair of local government buildings)

Expansion of shared use of energy

Promotion of measures for energy-efficiency and conservation/renewable energy in water business

Agriculture Promotion of soil management leading to an increase of carbon stock in cropland

Revegetation

Waste Promotion of sorted collection and recycling of plastic containers and packaging

Recycling

Energy-efficiency and conservation of/energy generation from sewerage systems

Land use & forestry GHG removal through forest management/forestry industry measures

Transport Improvement of fuel efficiency

Promotion of next-generation automobiles

Traffic-flow improvement

Promotion of public transport

Modal shift to railway

Eco-friendly ship transportation

Comprehensive low-carbonisation at ports

Optimisation of truck transport

Energy-consumption efficiency improvement of railways

Energy-consumption efficiency improvement of aviation

Accelerated promotion of energy-saving ships

Making vehicle transport business more ecofriendly by eco-driving

Promotion of collective shipment

Promotion of Intelligent Transport Systems ITS (centralised control of traffic signals)

Development of traffic-safety facilities (improvement of traffic signals and promotion of the use of LED traffic lights)

Promotion of automatic driving, eco-driving and car sharing

Improve fuel efficiency in all modes; improved vehicle fleet; promote public transport, sharing; etc

Urban & housing Energy-saving standards for newly constructed housing

Thermal insulation in renovation of existing houses

High-efficiency water heaters (CO2 refrigerant HP water heaters, latent heat collection water heaters, fuel cells, solar water heaters)

High-efficiency lighting

Energy management (smart meters, etc)

Low-carbonisation of cities by improving urban thermal environments through measures against the urban heat island effect


Tessa Tennant






Appendix 6: Indonesia snapshot Mitigation Adaptation


Overall aims & cost

29% reduction versus business-as-usual case by 2030

Could be increased to 41% versus BAU with external assistance

Overall aims & cost

High-risk areas tend to be populated by poorer populations: 42m in such areas

50% of such areas now urbanised

Reduce risks on all development sectors: agriculture; water; energy security; forestry; maritime & fisheries; health; public services; infrastructure; urban systems

Addressed by capacity building, knowledge management, convergent policy on mitigation & adaptation, disaster-risk reduction, adaptive technology

How implemented

National Development Plan How implemented

National Action Plan of Adaptation, part of National Development Plan

Energy 23% from new/RE sources by 2025

Improved energy efficiency

Energy Use of degraded land for renewable energy; improved EE and consumption patterns

Industry Water & irrigation

Integrated watershed management

Agriculture Sustainable agriculture and plantations Agriculture Sustainable agriculture and plantations

Land conservation

Waste & pollution

Increase reuse/recycling

Cogeneration

Improved landfill

Urban waste-water management

Ecosystems Protecting and restoring key land, marine and coastal ecosystems

Land use & forestry

Prevent clearance of primary forests

Prohibit conversion of peat lands

Reduce deforestation/degradation

Sustainable forest management, including community forestry

Restore ecosystem functions

Land use & forestry

Reduction of deforestation and forest degradation

Community forestry

Coastal & marine

Coastal zone protection

Infrastructure Climate-resilient infrastructure

Health Public health programmes

Risk management

Early-warning systems, public information campaigns, disaster prevention enhancement

Infrastructure Climate-resilient infrastructure

Urban & housing

Identification of highly vulnerable areas in land-use planning

Improvement of human settlements

Climate-resilient cities


Tessa Tennant






Appendix 7: Malaysia snapshot Mitigation Adaptation


Overall aims & cost

Reduce GHG emissions intensity of GDP by 45% by 2030 vs 2005

35% unconditional (NB 23% already achieved), 10% conditional on support

Overall aims & cost

How implemented

11th Malaysia development plan

Various national / sectoral policies

All sectors specified for action in INDC but no details of actions

How implemented

Energy Feed-in tariffs introduced Coastal & marine

5267km of coastline, 29% facing erosion problems

Hard and soft engineering approaches implemented

Integrated Shoreline Management Plans (ISMPs) developed for specific areas on rolling basis

Industry Water & irrigation

Inter-basin water transfer projects to supply water to areas under water-stress due to high economic and population growth and shifts in rainfall distribution

Rural areas water supply

Agriculture Agriculture Sustainable agriculture

New granary areas

Irrigation and drainage infrastructure to increase production of rice

Waste & pollution

Health Control and prevention of dengue transmission using early test kits and community behavioural intervention

Land use & forestry

2 major initiatives launched, Central Forest Spine (CFS) and Heart of Borneo (HOB) to ensure sustainable forest management and use of natural resources

Early warning/ disaster management

Flood mitigation programmes

Early warning systems


Tessa Tennant






Appendix 8: Thailand snapshot Mitigation Adaptation


Overall aims Reduce GHG by 20% versus projected business-

as-usual (BAU) level by 2030

Level of contribution could increase up to 25%

with external support

Background Thailand ranked No.11 among countries worst

hit by CC effects 1994-2013

2011 floods cost US$40bn

Recent droughts cost 0.5% of GDP

Adaptation accounts for 68% of budget allocated

to CC

How

implemented

National Economic and Social Development

Plans, including Alternative Energy Development

Plan

Climate Change Master Plan

Various sector plans

How

implemented

General context of Sufficiency Economy

Other plans as Mitigation

Energy 73% of emissions are from energy/transport;

energy plans call for:

Renewables to be 20% of generation by 2036

Renewables to be 30% of final energy

consumption by 2036

Energy intensity to be reduced by 30% below

2010 level by 2036

Coastal &

marine

2,420km of coast

Participatory, integrated marine conservation and coastal rehabilitation plan to:

Protect marine ecosystem; and

Enhance climate-proofing of infrastructure to

strengthen coastal protection against erosion

Waste Waste Management Roadmap

Improved waste management

Waste-to-energy schemes

Water &

irrigation

Integrated water-resource management to

achieve water security and mitigate flood and

droughts

Networking (via pipes and canals)

Management of infrastructures (including zoning)

Land use &

forestry

Use of REDD+ schemes Agriculture Sustainable agriculture

Crop-improvement technologies

Precision-farming technologies

Transport Road-to-rail modal shift for passenger & freight

Mass Rapid Transport schemes, including bus

transit in Bangkok metro area

Double track railways

CO2-based vehicle tax scheme

Ecosystems Safeguard biodiversity and restore ecological

integrity in protected areas and important

landscapes from adverse impacts of CC

Emphasis on vulnerable ecosystems and red list

species

Land use &

forestry

Sustainable management of community forests

Increase forest cover to 40%

Mangrove restoration to enhance adaptive

capacities of related ecosystem

Tourism Promote nature-based and sustainable tourism

Reduce risk in vulnerable hotspots

Health Increase capacity to manage climate-related

health impacts

Development of health surveillance and early-

warning systems

Effective disease prevention and response

measures to CC-related health consequences

Early warning/

disaster

management

Disaster risk reduction and population's

vulnerability through enhanced awareness,

coordination and adaptive capacity of local

communities, especially in disaster risk-prone

areas

Establish effective early-warning system and

enhance adaptive capacity of national agencies


Tessa Tennant






Appendix 9: Vietnam snapshot Mitigation Adaptation


Overall aims Unconditional: 8% reduction in GHG emissions versus BAU

Conditional on external support: 25% reduction

Emission intensity per unit of GDP reduced by 20% compared to the 2010 level

Overall aims &

cost Annual economic losses from CC have averaged 1.5% of

GDP over past 30 years

Cost of adaptation estimated to exceed 3-5% of GDP by

2030

National budget can meet one-third of adaptation costs,

external support needed for the balance

How

implemented EE Law 2010

National Climate Change Strategy 2011

National Green Growth Strategy 2012 including mitigation targets

2013 Law on Natural Disaster Prevention and Control

2014 Law on Environment

Ranked No.4 globally for number of CDM projects

accredited (254; 88% energy related)

How

implemented Priorities: food; energy; water security; poverty

reduction; gender equality; social security; public health;

livelihood improvements; protection of natural resources

Energy Efficient and effective use of energy in production, transmission and consumption, especially in large

production facilities where energy consumption is high

Apply energy savings and efficiency, and renewable

energy applications in the residential sector, trade and

services

Phase out FF subsidies

Increase share of RE

Reduce fugitive emissions from coal mining / natural

gas / oil

RE applications in residential sector/trade/services

EE labeling

Develop RE technology market, domestic industries and

local service providers

Coastal &

marine Implement integrated coastal zone management

Use sea-level rise scenarios in urban and land use

planning for infrastructure, industrial parks, coastal and island resettlement areas

Implement anti-inundation measures for large coastal cities

Strengthen and build new large urban drainage

infrastructure

Consolidate, upgrade and complete crucial sea and river

dykes

Control saline water intrusion in the most severely

affected areas

100% of piers and boat storm shelters are constructed

100% of offshore fishing vessels have sufficient

communication equipment

Waste Improve waste planning

Implement programmes to reduce, reuse and recycle

Household and industrial wastewater

Landfill gas/solid waste for power

Water &

irrigation Integrated water management in river basin systems

Ensure reservoir safety

Strengthen international cooperation in addressing

transboundary water issues

Ensure water security - at least 90% of city-dwellers

and 80% of rural inhabitants have access to clean water

Agriculture Sustainable agriculture

Reduce GHG emissions in farming, livestock, fisheries,

animal feed, food processing

Efficient use of seedlings, feed, agricultural materials,

soil, water and other inputs

Reduce GHG emissions from agricultural production

Reuse waste for energy production etc

Agriculture Sustainably maintain and manage agricultural land

Restructuring of crops and livestock

Create new climate-change resilient varieties

Complete disease control and prevention system

Transport Public transport, esp large urban rapid transit

Increased rail/waterway freight

Fuel-consumption standards

Greater use of LPG and other alternative fuels

Ecosystems Ecosystem services

Land use &

forestry Forest cover to increase to 45%

Manage and develop sustainable forestry

Afforestation and reforestation

Biodiversity conservation, including special priority for

regions with large forests important for forestry

production /livelihoods of local communities

Enhance carbon sequestration and environmental

services

Conservation of biodiversity associated with livelihood

development and income generation for communities

and forest-dependent people

Use REDD+, Payment for Forest Environmental Services

etc

Land use &

forestry Sustainable forest management

Afforestation and reforestation, focused on large timber

plantations

Prevent forest deforestation and degradation

Improve degraded areas including coastal protection

areas 380,000ha, including 20,000-50,000ha of

additional mangrove planting

Urban / planning Develop eco-cities

Green rural areas

Green housing

Improve waste management and EE

Infrastructure Develop infrastructure and make plans for residential areas

Relocate and resettle households and communities from areas affected frequently by storm surges, floods,

riverbank and shoreline erosion, or areas at risk of flash

floods and landslides

Improved standards

Construct climate-change resilient urban infrastructure

Health 100% of the population has access to health care services

Early warning/ disaster

management

Modernise hydro-meteorological observatory and

forecasting system

EWS

Disaster-prevention plans/projects


Tessa Tennant






Appendix 10: Cambodia snapshot Mitigation Adaptation


Overall aims & cost

Overall aims & cost

2013 floods costs US$356m in damage and US$203m in lost production

How implemented National Strategic Development Plan

Climate Change Strategic Plan

Sectoral policies

How implemented

As Mitigation

Energy National grid connected renewable energy generation: solar; hydro; biomass; biogas

Connecting decentralised renewable generation to the grid

Off-grid electricity including solar home systems; hydro (pico, mini and micro)

Promote energy efficiency by end-users

Clean cookstoves

Use of renewable energy for irrigation and solar lamps

Coastal & marine

Develop and rehabilitate flood-protection dykes for agricultural and urban development

Promote climate-resilient agriculture in coastal areas through building sea dykes

Industry Promote use of renewable energy

Energy efficiency for garment factories, rice mills, brick kilns

Water & irrigation

Increase use of mobile pumping stations and permanent stations in responding to mini-droughts

Agriculture No details Agriculture Scale-up of climate-smart farming systems

Waste Reduce emissions through use of biodigesters and water filters

Ecosystems

Land use & forestry

Increase forest cover from 57% to 60%

Land use & forestry

No details

Transport Promote mass public transport

Improve operation and maintenance of vehicles through motor vehicle inspection and eco-driving

Increased use of hybrid cars, electric vehicles and bicycles

Infrastructure Repair and rehabilitate existing road infrastructure and operations for CC resiliency


Tessa Tennant






Appendix 11: Renewable energy financing matrix Renewable energy financing matrix


Tessa Tennant




Important disclosures Blue Books


Companies mentioned Alam Sutera Realty (N-R)

Allianz (N-R)

Amazon (AMZN US - US$769.00 - OUTPERFORM)¹

Axa (N-R)

BAIC Motor (N-R)

Bangkok Metro (N-R)

Beijing Ent Water (N-R)

BP (BP US - US$34.16 - BUY)¹

BYD (N-R)

CDP (N-R)

Cebu Air (N-R)

CFS (N-R)

China Mobile (941 HK - HK$96.85 - BUY)²

China Water (N-R)

CLP (2 HK - HK$80.10 - UNDERPERFORM)²

CPI Yuanda (N-R)

CSR (CSR AU - A$3.61 - UNDERPERFORM)²

Daikin (6367 JP - ¥9,308 - UNDERPERFORM)²

Delta (2308 TT - NT$167.5 - OUTPERFORM)³

Deutsche Bank (N-R)

DFI (N-R)

EDC (N-R)

Eng Kah (N-R)

ENN Energy (2688 HK - HK$43.25 - BUY)²

Fossil (N-R)

Global Energy (N-R)

Hollysys (N-R)

Honda Motor (7267 JP - ¥3,156 - BUY)²

Horiba (N-R)

HP (HPQ US - US$14.39 - UNDERPERFORM)¹

IDBI Bank (N-R)

Labour Union of HA (N-R)

M3 (N-R)

Major Development (N-R)

MRV (N-R)

Murata (6981 JP - ¥13,360 - UNDERPERFORM)²

Myanmar Infrastructure (N-R)

Nam Cheong (NCL SP - S$0.04 - SELL)²

National Grid (N-R)

NDB (N-R)

NEP (N-R)

Nissan Motor (7201 JP - ¥1,003 - BUY)²

PIK (N-R)

Power Grid (PWGR IB - RS180.9 - BUY)²

PRI (N-R)

PT Pertamina (N-R)

Renewable Energy (N-R)

RMB (N-R)

Rural Electrification (RECL IB - RS230.4 - SELL)²

Secom (N-R)

Shenzhen Intl (N-R)

Tsinghua Tongfang (N-R)

Vanguard (5347 TT - NT$57.7 - SELL)³

Waste Management (N-R)

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Wilmar (WIL SP - S$3.06 - OUTPERFORM)²

Xinyi Glass (868 HK - HK$6.66 - BUY)²

Xinyi Solar (968 HK - HK$3.24 - BUY)²

Yes Bank (YES IB - RS1,326.3 - BUY)²

¹ Covered by CLSA Americas; ² Covered by CLSA; ³ Covered by CLST

Analyst certification The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect

my/our own personal views about the securities and/or the issuers and that no part of my/our compensation

was, is, or will be directly or indirectly related to the specific recommendation or views contained in this

research report.

Important disclosures The policy of CLSA (which for the purpose of this

disclosure includes subsidiaries of CLSA B.V. and CLSA

Americas, LLC ("CLSA Americas")), and CL Securities

Taiwan Co., Ltd. (“CLST”) is to only publish research that

is impartial, independent, clear, fair, and not misleading.

Analysts may not receive compensation from the

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conflicts of interests relating to a research report as

below. This research disclosure should be read in

conjunction with the research disclaimer as set out at

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holdings are grandfathered and the analyst is prohibited

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Unless specified otherwise, CLSA/CLSA

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investment banking income from, and did not

manage/co-manage a public offering for, the listed

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expect to receive investment banking compensation from

the listed company within the coming three months.

Unless mentioned otherwise, CLSA/CLSA Americas/CLST

does not own a material discloseable position, and does

not make a market, in the securities.

As analyst(s) of this report, I/we hereby certify that

the views expressed in this research report accurately

reflect my/our own personal views about the securities

and/or the issuers and that no part of my/our

compensation was, is, or will be directly or indirectly

related to the specific recommendation or views

contained in this report or to any investment banking

relationship with the subject company covered in this

report (for the past one year) or otherwise any other

relationship with such company which leads to receipt of

fees from the company except in ordinary course of

business of the company. The analyst/s also state/s and

confirm/s that he/she/they has/have not been placed

under any undue influence, intervention or pressure by

Tessa Tennant






any person/s in compiling this research report. In

addition, the analysts included herein attest that they

were not in possession of any material, nonpublic

information regarding the subject company at the time of

publication of the report. Save from the disclosure below

(if any), the analyst(s) is/are not aware of any material

conflict of interest.

Key to CLSA/CLSA Americas/CLST investment

rankings: BUY: Total stock return (including dividends)

expected to exceed 20%; O-PF: Total expected return

below 20% but exceeding market return; U-PF: Total

expected return positive but below market return; SELL:

Total return expected to be negative. For relative

performance, we benchmark the 12-month total forecast

return (including dividends) for the stock against the 12-

month forecast return (including dividends) for the

market on which the stock trades.

In the case of US stocks, the recommendation is

relative to the expected return for the S&P500 of 10%.

Exceptions may be made depending upon prevailing

market conditions. We define as “Double Baggers” stocks

we expect to yield 100% or more (including dividends)

within three years at the time the stocks are introduced

to our “Double Bagger” list. "High Conviction" Ideas are

not necessarily stocks with the most upside/downside,

but those where the Research Head/Strategist believes

there is the highest likelihood of positive/negative

returns. The list for each market is monitored weekly.

Overall rating distribution for CLSA/CLSA Americas

only /CLST only Universe:

Overall rating distribution: Buy / Outperform - CLSA:

59.66%; CLSA Americas only: 57.77%; CLST only:

76.81%, Underperform / Sell - CLSA: 40.34%; CLSA

Americas only: 42.23%; CLST only: 23.19%, Restricted -

CLSA: 0.00%; CLSA Americas only: 0.00%; CLST only:

0.00%. Data as of 30 June 2016.

Investment banking clients as a % of rating category:

Buy / Outperform - CLSA: 2.13%; CLSA Americas only:

0.00%; CLST only: 0.00%, Underperform / Sell - CLSA:

1.67%; CLSA Americas only: 0.00%; CLST only: 0.00%,

Restricted - CLSA: 0.00%; CLSA Americas only: 0.00%;

CLST only: 0.00% . Data for 12-month period ending 30

June 2016.

There are no numbers for Hold/Neutral as CLSA/CLSA

Americas/CLST do not have such investment rankings.

For a history of the recommendations and price

targets for companies mentioned in this report, as well as

company specific disclosures, please write to: (a) CLSA

Americas, Compliance Department, 1301 Avenue of the

Americas, 15th Floor, New York, New York 10019-6022;

(b) CLSA, Group Compliance, 18/F, One Pacific Place, 88

Queensway, Hong Kong and/or; (c) CLST Compliance

(27/F, 95, Section 2 Dun Hua South Road, Taipei 10682,

Taiwan, telephone (886) 2 2326 8188). © 2016 CLSA

Limited, CLSA Americas, and/or CLST.

© 2016 CLSA Limited, CLSA Americas, LLC (“CLSA

Americas”) and/or CL Securities Taiwan Co., Ltd.

(“CLST”)

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of performance. Any price target given in the report may

be projected from one or more valuation models and

Tessa Tennant






hence any price target may be subject to the inherent

risk of the selected model as well as other external risk

factors. This is not intended to provide professional,

investment or any other type of advice or

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should do so by contacting CLSA Americas.

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person in Canada shall not be deemed a

recommendation to effect any transactions in the

Tessa Tennant






securities discussed herein or an endorsement of any

opinion expressed herein. Any recipient of this research in

Canada wishing to effect a transaction in any security

mentioned herein should do so by contacting CLSA

Americas.

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Order 2005. Any investment activity to which it relates is

only available to such persons. If you do not have

professional experience in matters relating to

investments you should not rely on this document.

Where the research material is compiled by the UK

analyst(s), it is produced and disseminated by CLSA

(UK). For the purposes of the Financial Conduct Rules this

research is prepared and intended as substantive

research material.

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investor, as defined in s.4A(1) of the Securities and

Futures Act. Pursuant to Paragraphs 33, 34, 35 and 36 of

the Financial Advisers (Amendment) Regulations 2005 of

the Financial Advisers Act (Cap 110) with regards to an

institutional investor, accredited investor expert investor

or Overseas Investor, sections 25, 27 and 36 of the

Financial Adviser Act (Cap 110) shall not apply to CLSA

Singapore Pte Ltd. Please contact CLSA Singapore Pte Ltd

(telephone No.: +65 6416 7888) in connection with

queries on the report. MCI (P) 013 11 2015

The analysts/contributors to this

publication/communication may be employed by any

relevant CLSA entity (including CLSA Americas), CLST or

a subsidiary of CITIC Securities Company Limited which

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Americas and “CT” stands for CLST estimates unless

otherwise noted in the source.

Tessa Tennant




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© 2016 CLSA Limited (“CLSA”), CLSA Americas, LLC (“CLSA Americas”) and/or CL Securities Taiwan Co., Ltd. (“CLST”) Key to CLSA/CLSA Americas/CLST investment rankings: BUY: Total stock return (including dividends) expected to exceed 20%; O-PF: Total expected return below 20% but exceeding market return; U-PF: Total expected return positive but below market return; SELL: Total expected return to be negative. For relative performance, we benchmark the 12-month total forecast return (including dividends) for the stock against the 12-month forecast return (including dividends) for the market on which the stock trades. For example, in the case of US stock, the recommendation is relative to the expected return for S&P of 10%. Exceptions may be made depending upon prevailing market conditions. • We define as “Double Baggers” stocks we expect to yield 100% or more (including dividends) within three years at the time the stocks are introduced to our “Double Bagger” list. "High Conviction" Ideas are not necessarily stocks with the most upside/downside but those where the Research Head/Strategist believes there is the highest likelihood of positive/negative returns. The list for each market is monitored weekly. 12/09/2016

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