27-10 2025 (MFA)_Overview_of_Green_Finance 27-10 2025.pdf

GreenFINANCE

1. Green Financing and
Sustainable Investments
Overview of Green Finance
Dr. LIANG, Hao
Ho Bee Professorship in Sustainability Management
Associate Professor of Finance
Academic Director of Singapore Green Finance Centre
Co-Lead of Sustainable Business Research Peak
27 October 2025

2. CONFIDENTIAL
About Me
•PhD in Finance & Extramural Fellow, Tilburg University
•Associate Professor of Finance (tenured); Recipient of Ho Bee Professorship in Sustainability Management;
Co-Lead of Sustainable Business Research Peak; Academic Director, Singapore Green Finance Centre, SMU
•Formerly, Lee Kong Chian Fellow, DBS Sustainability Fellow & BNP Paribas Fellow; Finance PhD Coordinator
•Research Member, European Corporate Governance Institute; Steering Committee, Impact & Sustainable
Finance Faculty Consortium; Scientific Committee, Geneva Centre for Philanthropy; Technical Committee for
Sustainable Finance, Enterprise Singapore & Singapore Standards Council; Member of “China ESG 30” (by
Caixin Magazine)
•Finance Section Editor, Journal of Business Ethics;Associate Editor of Management Science, Journal of
Business Research, British Accounting Review, Asia-Pacific Journal of Financial Studies; Editorial Review
Board member of Strategic Management Journal
•Teaching Sustainable Finance, Entrepreneurial Finance, Corporate Finance, VC&PE, Applied Econometrics
for undergrads, Masters, DBAs, PhDs andExDat SMU
•Research on ESG & sustainable finance, corporate finance, corporate governance, international business,
strategy & entrepreneurship
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3. CONFIDENTIAL
Agenda Part 1 Green Finance: Basic Concepts
Part 2 Green & Sustainable Investment
Part 3 Other Sustainability-Related Issues
Part 4 Two Key Areas: Financing Decarbonisation & Nature
Part 5 Coffee Break
Part 6 Climate- and Nature- Related Risks & Opportunities
Part 7 Overview of Green Finance Solutions
Part 8 Discussions
The information in this document is developed by SMU Executive Development. No distribution or reproduction of this material is permitted, without the prior written consent by SMU Executive Development. © SMU 2024 3

4. CONFIDENTIAL
What Is Green Finance?
Imagine the following two scenarios:
1.You walk into a CEO’s office, asking for $10
billion donation to protect the environment …
2.You walk into a CEO’s office, telling them that
by investing $10 billion, they get 4x financial
return and also make the world a better place
…
Green finance is about making the second
scenario possible.
That is, creating a strong business case for
protecting the environment.
The information in this document is developed by SMU Executive Development. No distribution or reproduction of this material is permitted, without the prior written consent by SMU Executive Development. © SMU 2024
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5. CONFIDENTIAL
What Is Green Financ e?
Green finance refers to using financial
instrument or investment to direct capital to a
business or project, in exchange for the delivery
of positive environmental & social externalities
Including equity, debt, grant, financial derivatives
or risk management tool (e.g., credit, investment
guarantee, insurance product or commodity, etc.)
For corporations: financing businesses and
projects that have environmental, social, and
governance (ESG) benefits
For investors: receiving decent returns from
sustainable investment
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6. CONFIDENTIAL
Climate Change & Carbon Footprints
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Overwhelming evidence of climate change caused by human activities, leading to global warming, extreme weathers, and
more frequent natural disasters.
Carbon footprint includesall emissions that are influenced by a business’ decision. This means that in addition to direct
emissions, all indirect emissions are also included.
We are breaching the 1.5° C boundary, and
will soon hit the 2°C boundary

7. CONFIDENTIAL
Financing for Climate Change Adaptation & Mitigation
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•While “sustainable” refers to broad environmental, social, and governance (ESG) issues, most of
the discussions are around “climate change,” fuelled by Paris Agreement (hold the increase in
the global average temperature to be well below 2 °C above pre- industrial levels; achieving Net
Zero by the middle of this century)
•Countries committed Net Zero/Carbon Neutral by 2050 (mostly developed) or 2060
(mostly developing)
•US$100 billion annually in finance for
developing countries

8. CONFIDENTIAL

9. CONFIDENTIAL

10. CONFIDENTIAL
Green & Sustainable Investment
Sustainable investment
Blending social and financial
returns
Financial
returns
Environmental & Social impact
0% IRR
0
Traditional investment
Maximizing financing return
Traditional philanthropy
Maximizing social return
Source: World Economic Forum
Total assets under management (AUM) of green & sustainable
investing reached $30.3 trillion by 2022, and is estimated (by
Bloomberg) to hit $53 trillion by 2025, a third of global AUM.
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Source: Global Sustainable
Investment Alliance

11. CONFIDENTIAL
Despite the small market size, the potential for green & sustainable
investing in emerging economies is enormous
•Air and water pollution caused by rapid industrialisation and urbanisation
•Deforestation and loss of biodiversity due to land conversion for agriculture and infrastructure
development
•Climate change impacts, such as rising sea levels and more frequent natural disasters
•Labour issues, particularly in the garment and footwear industries
•Income inequality and poverty in rural areas
•Lack of access to quality healthcare and education, especially in rural areas
Implications for emerging economies and societies
Under UN SDGs, Paris Agreement and many other international frameworks, trillions of dollars of
sustainability investing capital internationally will be allocated to this region in the next few decades
Opportunities for creating positive social impact and generating decent financial returns
Green & Sustainable Investment in Emerging Markets
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12. CONFIDENTIAL
What are the relationships between sustainability, ESG, and other concepts
such as stakeholders, corporate social responsibility (CSR), socially
responsible investing (SRI), sustainability, etc.?
Sustainability is the overarching theme.
In order to achieve sustainability, we need to take care of stakeholders’ interests
through stakeholder management.
Stakeholder management is achieved through CSR and SRI.
The outcomes of CSR and SRI (thus stakeholder welfare) are measured by
ESG.
Also sometimes referred to as the triple bottom line: planet, people, profit.
Sustainability andOtherConcepts
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13. CONFIDENTIAL
Environmental, Social, Governance (ESG)
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Main ESG Issues
Environmental (E) Social (S) Governance (G)
oClimate change and
carbon emission
oNatural resources use and
energy and water
management
oPollution and waste
oEco-design and innovation
oBiodiversity risks
oEtc.
oWorkforce health and safety,
diversity and training
oData privacy
oHuman rights and societal
equality
oCustomer and product
responsibility
oCommunity relations and
charitable activities
oEtc.
oShareholder rights
oComposition of board of
directors (independence
and diversity)
oManagement
compensation policy
oFraud and bribery
oEtc.
ESG metrics can be developed along these dimensions (e.g., ESG ratings) to quantify sustainability performance.

14. CONFIDENTIAL
"Value“: The financial or economic worth of an asset, investment, or business,
often measured in terms of profitability, return, and risk.
Primarily focused on financial returns (e.g., NPV, P/E ratio, ROI).
“Values”: Ethical, social, or environmental principles that guide decision-
making, often embodied in ESG considerations.
Guided by ethical considerations and long-term sustainability.
Potential tradeoff: A company may provide high financial returns (value) but have a
questionable environmental record (values). Conversely, an investment in a renewable energy
firm may be more aligned with sustainable values but may provide lower short-term financial
returns.
Value vs. Values
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15. CONFIDENTIAL
•Heavy Industry (steel, cement,
chemicals, petrochemicals, etc.)
•Transportation (heavy-duty trucking,
shipping, aviation, etc.)
•Agriculture (livestock,rice cultivation,
soil management,etc.)
•Buildings and Construction
•Energy (oil, gas, coal, critical minerals)
These sectors account for 10-15% of
global GDP, but over one-third of total
GHG emissions
They can’t be shut down, but can be
decarbonised with renewables
Decarbonising Hard-to-Abate Sectors
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Hard-to -abate sectors are industries or sectors where reducing greenhouse gas emissions is particularly
challenging due to technical, economic, or structural reasons.

16. CONFIDENTIAL
Financing Decarbonisation
•Where to deploy capital
•Power system: coal-to-clean, grids, storage
•Industry: efficiency, electrification (hard-to -abate sectors)
•Mobility & built: public transit, electric vehicles (EVs); energy
efficient buildings
•Mobilising capital – especially from private sector
•Public/concessional capital to de-risk
•Sustainability-linked bonds/loans
•Price signals; carbon revenues as cash-flow top-up
•Make projects bankable
•Credible transition taxonomy & disclosure
•Just transition & integrity
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17. CONFIDENTIAL
Financing for Nature & Biodiversity
•Financing for nature and biodiversity involves mobilizing
capital for projects that protect, restore, and sustainably
manage natural ecosystems, biodiversity, and related
resources.
•Nature and biodiversity finance is essential for addressing
the global biodiversity crisis, achieving net-zero targets,
and supporting ecosystem services vital for the economy
and society.
•Key Areas of Focus: Forest conservation and
reforestation; sustainable agriculture and fisheries;
ecosystem restoration; nature-based solutions ( NbS) for
climate mitigation and adaptation
•Opportunities: Growing interest in natural capital and
ecosystem service valuation provides avenues for
innovation in financing instruments.
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18. CONFIDENTIAL
Green finance is less profitable.
Green finance is only for environmentalists.
Green finance is limited to renewable energy.
Green finance is too complex.
Green finance is only for large corporations.
Green finance is a passing trend (especially with what’s happening in the US).
Common Myths about Green Finance
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19. CONFIDENTIAL
SMU Classification: Restricted
Green Financing and
Sustainable Investments
Financial Solutions for
Climate Risks
Dr. LIANG, Hao
Ho Bee Professorship in Sustainability Management
Associate Professor of Finance
Academic Director of Singapore Green Finance Centre
Co-Lead of Sustainable Business Research Peak
27 October 2025

20. CONFIDENTIAL
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•Physical risk: the risk related to the exposure to detrimental climate change and weather extremes
(both acute and chronic) that impact the economy and the company
•Transition risk: the risk related to the process of adjustment towards a low-carbon economy
Climate-Related Risks, Opportunities, and Financial Impact
•Changed land- use policies or water conservation practices
impacting the agricultural sector
•The costs the energy industry faces in developing clean/low-
carbon technologies
•A reduction in the value of investments in carbon- heavy
industries
•The requirements of additional regulation and reporting
•Stranded assetsare assetsthat have suffered from
unanticipated or prematurewrite-downs, devaluations
or conversion toliabilities
•E.g., for oil & gas industry: oil & gas reserves, drilling rigs,
seismic vessels, processing terminals, pipelines, tankers, etc.

21. CONFIDENTIAL
Nature-Related Risks and Impacts
The relation between nature and business: dependencies,
impacts, risks and opportunities (TNFD, 2023a)

22. CONFIDENTIAL
Sustainability-Related Debts
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Social Impact Bond – Pay for Success Model
Green Bond

23. CONFIDENTIAL
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•Emission trading (ETS) market is a form of carbon pricing
and an approach to limit climate change by creating a
market with limited allowances for emissions
•ETS works by setting a quantitative total limit on the
emissions produced by all participating emitters
•One emissions permit is considered equivalent to one tonne of
CO2 emissions
•The price automatically adjusts to this target
•A polluter having more emissions can purchase the right to emit
more (i.e., paying for its own externalities)
•The entity having fewer emissions sells the right to emit carbon
to other entities
•Besides compliance- based ETS, there are two other options to price carbon
•Voluntary carbon exchange (Climate Impact X and AirCarbon in Singapore – high quality carbon credits)
•Carbon tax (Singapore: S$25 in 2025; $50-80 in 2030)
Carbon Pricing

24. CONFIDENTIAL
•Traditional idea of green financing: directing capital toward “green” firms/projects and away
from “brown” firms/projects
•Basic logic: encourage businesses to adopt green/sustainable practices and deprive the brown
sectors from capital until they “die”
•Some issues with the traditional green financing logic….
•As a fact, brown (or hard- to-abate sectors) will exist for a long while.
•Asymmetric impacts: increasing capitals to green firms leads to small improvement in their
greenness, whereas depriving brown firms from capitals leads to large magnitudes of
pollutions.
•In addition, financiers have to forgo significant economic profits.
Financing Green or Green Transition?
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25. CONFIDENTIAL
Transition Finance
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•Instead of financing green businesses,
we should actually finance brown
businesses …
•… but help them become more energy
efficient and “decarbonise,” by setting
transition targets, pathways, and
technology roadmap
•Using financial tools such as
sustainability-linked bonds/loans
(SLB/SLL), & transition bonds/loans

26. CONFIDENTIAL
Transition Finance Tools
•A sustainability-linked loan (SLL) or
sustainability-linked bond (SLB)
agreement links finance terms to
the achievement of predetermined
sustainability performance targets.
•Unlike labeled bonds or loans, the
proceeds from an SLL or SLB can
be used for general corporate
purposes.
•A transition bond or loan is issued
to finance projects aimed at
reducing carbon emissions in
sectors not yet eligible for green
bonds.

27. CONFIDENTIAL
Transition Finance Frameworks
•Standard Chartered estimates that emerging markets will
need$94.8 trillionin transition finance to meet net zero
goals by 2060. China alone will need $35.1 trillion.
•The global transition finance market is still tiny, but
growing exponentially
•Several international frameworks are being developed
(e.g., G20 Transition Finance Framework, Asia Energy
Transition Initiative, ICMA Climate Transition Handbook);
Monetary Authority of Singapore launches the world’s
first multi-sector transition taxonomy (Singapore-Asia
Taxonomy)
•Utilising “blended finance”: combining development
funds with private and philanthropic capital to finance
adoptions of renewable energies
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28. CONFIDENTIAL
Scaling Blended Finance for Transition
•Despite the promise of transition finance,
financiers usually face significant risks in
the adoptions of renewable energies, and
are concerned about below-market returns
for such projects.
•Blended finance: combining development
funds with private and philanthropic capital
to finance decarbonisation in brown sectors.
•De-risking energy transition assets;
•Risk-adjusted returns for private capitals;
•Concessional (below-market)returns for
public and philanthropic capitals.
•Also applicable to nature/biodiversity
finance

29. CONFIDENTIAL
•Blended Finance:
Combines public and philanthropic capital to de-risk
private investments in biodiversity.
•Green Bonds and Sustainability-Linked Bonds:
Dedicated to financing projects like reforestation,
biodiversity conservation, and sustainable land use.
•Nature-Linked Loans and Guarantees:
Loans tied to biodiversity performance indicators, with
incentives for meeting conservation targets.
•Payment for Ecosystem Services (PES):
Financial incentives for landowners to preserve or
restore ecosystems, such as carbon credits for
reforestation
Instruments for Nature and Biodiversity Finance
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30. CONFIDENTIAL
Market Mechanisms and Emerging Trends
•Biodiversity Credits: Tradable units representing
measurable outcomes in biodiversity
conservation, such as habitat restoration.
•Natural Capital Accounting: Integrating the value
of ecosystems and biodiversity into financial
decision-making, both at company and national
levels.
•Carbon Markets and Nature-Based Solutions
(NbS): Projects that integrate carbon credits with
biodiversity conservation, like mangrove
restoration or regenerative agriculture
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31. CONFIDENTIAL
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32. Q&A
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The information in this document is developed by SMU Executive Development. No distribution or reproduction of this material is permitted, without the prior written consent by SMU Executive Development. © SMU 2024

33. CONFIDENTIAL
SMU Classification: Restricted
VISIT US @
EXD.SMU.EDU.SG
THANK YOU.
AND WE ARE
HAPPY TO
WORK WITH
YOU.
SMU EXECUTIVE DEVELOPMENT
Singapore Management University,
Administration Building, 81 Victoria Street,
Singapore 188065 | Tel: [phone]
LIANG, Hao
Ho Bee Professor in Sustainability Management
Associate Professor of Finance
Academic Director of Singapore Green Finance Centre
Co-Lead of Sustainable Business Research Peak
Singapore Management University