Financial and Technological Innovation for Sustainability: Environmental, Social and Governance Performance [1 ed.] 1032264446, 9781032264448

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“This book is an excellent account of how financial and technological innovation has become critical to sustainability transformation of the world undergoing the next phase of industrialization amidst geopolitical turmoil and other obstacles to global sustainable development”. Professor Ann Fitz-​Gerald, Director of the Balsillie School of International Affairs, Department of Political Science, Wilfrid Laurier University, Canada “Under the global climate crisis, Financial and Technological Innovation for Sustainability is a timely publication contributed by professionals and scholars to address real-​life issues and solutions from the public and private sectors beyond any boundaries of jurisdictions”. Professor Walter Leal, Chairs of Climate Change Management at the Hamburg University of Applied Sciences (Germany), and Environment and Technology at Manchester Metropolitan University (UK) “This book is an essential resource for academics, professionals, and students around the world to examine interdisciplinary issues regarding ESG. With editors and contributors representing international leading scholars in the field, it offers a unique collection of contemporary global cases on the pertinence of financial and technological innovation to social and environmental sustainability”. Professor A.K.T. Tsang, Factor-​Inwentash Faculty of Social Work, University of Toronto, Canada

Financial and Technological Innovation for Sustainability

The COVID-​19 crisis has proven that sustainability of an institution or organization requires a constant review of one’s strategic positioning and the execution of pertinent plans in response to evolving externalities. Resilient organizations continue to revive themselves through effective R&D and the renewal of their range of products and services. Financial and Technological Innovation for Sustainability: Environmental, Social and Governance Performance examines approaches to sustainability under the ongoing development of energy sustainability and the green finance initiatives. It unveils global heterogeneous efforts in achieving Environmental Social Governance (ESG) performance in light of climate change, global sustainability and concerns over corporate “greenwashing”. The book assembles a wealth of case studies from a variety of contemporary organizations that actively pursue sustainable development while seeking their next economic growth. These global cases demonstrate the salience of governance that institutes continuous advancements to enable the timely revitalization of corporate strategies, technological innovation and deployment of financial resources for sustainability transformation regardless of their stages of lifecycle. They reveal distinct approaches to financial and technological innovation in Africa, Asia, Europe and North America in pursuing the shared UN Sustainable Development Goals. The intertwined public–​ private partnership and implications of geopolitics under an evolving global financial system for sustainability transformation are articulated. This book will appeal to academics as well as business and finance professionals, who are keen to understand the interrelationship between financial and technological innovation, and to those who want to comprehend the underlying global challenges and opportunities of adopting emerging technologies to reinvent a business model that forges measurable and impactful ESG performances. Artie Ng is the Inaugural Dean, professor and founder of the Centre for Sustainable Business at the International Business University based in Toronto and was a Senior Research Fellow with Waterloo Institute for Sustainable Energy (WISE). Jatin Nathwani is currently a fellow and leads the Research Cluster ‘STEM for Global Resilience’ at the Balsillie School for International Affairs, and was the founding Executive Director of Waterloo Institute for Sustainable Energy (WISE), and the inaugural Ontario Research Chair in Public Policy for Sustainable Energy (2007–​2020).

Routledge International Studies in Money and Banking

Banking, Risk and Crises in Europe From the Global Financial Crisis to COVID-​19 Renata Karkowska, Zbigniew Korzeb, Anna Matysek-​Jędrych and Paweł Niedziółka Inflation Dynamic Global Positive Economic Analysis Weshah Razzak COVID-​19 and European Banking Performance Resilience, Recovery and Sustainability Edited by Paul Wachtel and Ewa Miklaszewska The Cryptocurrency Phenomenon The Origins, Evolution and Economics of Digital Currencies Gianni Nicolini and Silvia Intini Ethical Finance and Prosperity Beyond Environmental, Social and Governance Investing Ugo Biggeri, Giovanni Ferri, Federica Ielasi, Pedro Manuel Sasia Alternative Acquisition Models and Financial Innovation Special Purpose Acquisition Companies in Europe, and the Italian Legal Framework Edited by Daniele D’Alvia, Ettore Maria Lombardi and Yochanan Shachmurove Financial and Technological Innovation for Sustainability Environmental, Social and Governance Performance Edited by Artie Ng and Jatin Nathwani For more information about this series, please visit: www.routle​dge.com/​Routle​dge-Intern​atio​nalStud​ies-​in-​Money-​and-​Bank​ing/​book-​ser​ies/​SE0​403

Financial and Technological Innovation for Sustainability Environmental, Social and Governance Performance Edited by Artie Ng and Jatin Nathwani

First published 2024 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2024 selection and editorial matter, Artie Ng and Jatin Nathwani; individual chapters, the contributors The right of Artie Ng and Jatin Nathwani to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks and are used only for identification and explanation without intent to infringe. British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Ng, Artie, 1966- editor. Title: Financial and technological innovation for sustainability : environmental, social and governance performance / edited by Artie Ng and Jatin Nathwani. Description: Abingdon, Oxon ; New York, NY : Routledge, 2024. | Series: Routledge international studies in money and banking | Includes bibliographical references and index. Identifiers: LCCN 2023024782 (print) | LCCN 2023024783 (ebook) | ISBN 9781032264448 (hbk) | ISBN 9781032264455 (pbk) | ISBN 9781003288343 (ebk) Subjects: LCSH: Finance–Technological innovations. | Finance–Environmental aspects. | Sustainability. Classification: LCC HG173 .F4877 2024 (print) | LCC HG173 (ebook) | DDC 332–dc23/eng/20230830 LC record available at https://lccn.loc.gov/2023024782 LC ebook record available at https://lccn.loc.gov/2023024783 ISBN: 978-​1-​032-​26444-​8 (hbk) ISBN: 978-​1-​032-​26445-​5 (pbk) ISBN: 978-​1-​003-​28834-​3 (ebk) DOI: 10.4324/​9781003288343 Typeset in Sabon by Newgen Publishing UK

Contents

List of Illustrations List of Contributors Acknowledgements

ix xi xv

PART I

Introduction

1

1 Exploiting Financial and Technological Innovation for Sustainability Transformation

3

A RTI E N G A N D JATIN N ATH WAN I

PART II

Cases in America, Europe and Africa

21

2 Emerging Technological Innovation of Renewable Energies through Cleantech Ventures: The Complementary Role of Venture Capital

23

M A D J I D S O LTA N I AN D A RTIE N G

3 Social Bond as an Innovative Financial Instrument for ESG Initiatives: The Case of Toronto

54

H O H O N L E U N G, SA L LY MIN GL E YO RKE AN D ART IE NG

4 Sustainable Development of Solar Power for the European Transition to Renewable Energy: The Case of the Czech Republic D AV I D H A M P E L , GA B RIE L A O L ŠA N SKÁ, KAMIL FU C HS A N D J I TK A J AN O VÁ

75

viii  Contents

5 Scaling Renewable Energy Capacities for Sustainability in Africa: Cases of Innovative Financing Options

96

S A L LY M I N G L E YO RKE , P H IL IP KO FI ADO M AND ART IE NG

PART III

Cases in Asia-​Pacific

121

6 Sustainable Finance to Support Climate Action in Asia-​Pacific and Southeast Asia

123

B R I A N H O A ND FRE DRIK AN DE RSE N

7 Turning an ESG Agenda into Action through New Product Development: The Roles of Sustainability Management Control Systems in a Japanese Manufacturer

146

A S A K O K I M URA , H IRO YUKI SE L ME S- ​S UZUKI AND NOR IO SAWABE

8 Environmental, Social and Governance (ESG) Initiatives and Developments in Taiwan

165

Y I - ​H U A L I N , CH E N G- ​H SUN L E E A N D SH UN - ​Y I FANG

9 Financing Technological Infrastructure and Knowledge Transfer for Green Innovation in the Greater Bay Area of China

188

TI F FA N Y C H EN G H AN L E UN G A N D YIN G GUO

10 Design and Implementation of Electric Vehicle Transport Systems: Cases of Metropolises in Asia-​Pacific

213

A N D R E W YA N G WU, YUI- ​Y IP L AU, L O K MA N WONG, JU AI WU A N D Z . Y. D O NG

PART IV

Conclusions

231

11 Prospects for Global Sustainability Transformation: Political Economy of an Industrializing World

233

A RTI E N G A N D JATIN N ATH WAN I

Index

250

Illustrations

Figures 1.1 2.1 2.2 2.3 2.4 2.5 2.6 3.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 6.1 6.2 6.3 6.4

Lifecycle perspective of sustainability innovation Postcombustion capture process Removal of carbon dioxide by amines Precombustion capture process Oxy-​fuel combustion process The charging and discharging modes of PHS CAES plants The four-​step framework to mobilize funds for sustainability Comparison of purchase prices of electricity from renewable energy sources in the Czech Republic Installed capacity of solar power plants (solid line) and their production (dashed line) in the Czech Republic, Germany and Spain Development of agricultural and nonagricultural land types in the Czech Republic Total area of built solar power plants (SPP) and area of SPP built on arable land in 2009, 2010 and 2011 in individual regions of the Czech Republic The area of solar power plants (SPP) built on arable land and the total area of arable land in 2009, 2010 and 2011 in individual regions of the Czech Republic Structure of arable land acquisitions in the Czech Republic between 2009 and 2012 Comparison of the price of energy from new power plants in 2009 and 2019 Global total carbon dioxide emissions in 2021 by region Global annual sustainable debt issuance, 2013–​2021 Use of proceeds from green bonds in APAC (2020–​2022) Green debt issuance in the six largest ASEAN economies (2016–​2021)

13 28 28 29 30 31 32 59 79 80 84 87 88 89 90 126 128 129 130

x  List of Illustrations 6.5 Breakdown of green, social, sustainability and sustainability-​ linked bonds in APAC by volume (2018 vs. 2021) 6.6 Breakdown of sustainable finance raised by CLI and its listed REITs and business trusts by instrument type as of 31 December 2022 8.1 Measures and action paths for net-​zero by 2050 8.2 Taiwan’s 2050 net-​zero transition 8.3 2050 net-​zero transition 8.4 A budget of nearly NT$900 billion by 2030 8.5 Sustainable development roadmap for greenhouse gas emission disclosure 9.1 A model of dynamic capabilities for regional knowledge exchange and knowledge transfer in the Greater Bay Area 9.2 Knowledge transfer nexus for developing sustainability competency 10.1 EV sales of Shanghai and the Delta Region in China in 2021 10.2 EV charging stations in Sydney and the New South Wales of Australia

133 136 168 169 169 170 172 203 204 216 224

Tables 2.1 Cleantech industry categories 2.2 Characteristics of cleantech ventures 3.1 SIBs issued across countries (2013–​2019) 3.2 Eligible projects under social and green debenture frameworks by the city 4.1 Percentage of soil sealing (SS) in 2018 and growth rate of soil sealing in percentage points calculated based on data from 2006 to 2018 6.1 Examples of SLLs secured by CLI and its listed REITs and business trusts 7.1 Trends in sustainable investment 8.1 Compliance disclosure status of sustainability reports from 2014 to 2021 8.2 Carbon emission disclosure channels 9.1 Green innovation policies and plans in the GBA 10.1 Types of EVs sold in the Shanghai and Delta Regions in 2021 10.2 MTR Corporation Limited –​Number of parking spaces and electric vehicle charges

38 40 63 64 83 138 150 175 176 191 217 220

Contributors

Philip Kofi Adom is Associate Professor of Economics at the Ghana Institute of Management and Public Administration. His main research areas are in energy and environmental economics. Current research looks at cross-​ cutting issues such as gender, intersectionality and enabling policy environments within the Global South. Fredrik Andersen is based in Singapore, where he leads Deloitte’s Centre of Excellence for Climate & Sustainability in Asia-​Pacific. Fredrik works with internal and external stakeholders to support ESG initiatives and projects across the region. He also works with NGOs, corporations, regulators and investors to support corporate climate actions. Z.Y. Dong is a Professor at Nanyang Technological University of Singapore. His previous roles include Director of UNSW Digital Grid Futures Institute, Ausgrid Chair Professor, and Director of Ausgrid Centre for Intelligent Electricity Networks. He led R&D support for the Smart Grid, a Smart City national demonstration project in Australia. Shun-​Yi Fang is the Director of the ESG sustainable development team in the Taiwan Economic Journal (TEJ), mainly developing solutions for ESG management in Taiwan’s financial industry. TEJ, founded in 1990, specializes in providing consistent and accurate data for financial analysis that facilitates investment and business decision-​making. Kamil Fuchs is a Professor of Economics at the Faculty of Business and Economics at Mendel University in Brno. He received his PhD in Economics in 1984 from the University of Economics in Prague. Until 2009, he taught microeconomics, macroeconomics and history of economic theory at Masaryk University in Brno. He specializes in the history and specifics of the development of Czech economic thought. Ying Guo is a Doctor of Business Administration student in the Faculty of Business at City University of Macao. She has a master’s in Accounting and Management from the University of Southampton, UK. Her research

xii  List of Contributors interests include corporate social responsibility and environmental, social and governance (ESG). David Hampel is an Associate Professor in the Department of Statistics and Operational Analysis, Faculty of Business and Economics at Mendel University in Brno. He deals with applications of statistics in different fields, especially bioeconomic modelling, risk analysis, planning and evaluation of experiments. Brian Ho is on Assurance Partner at Deloitte leading its ESG assurance-​related services in Asia-​Pacific. He is a member of the HKICPA Sustainability Committee and HKMA ESG Committee. Brian has taught at the Chinese University of Hong Kong and conducted research at CKGSB and Sun Yat-​ Sen University in China. Jitka Janová is the Head of the Department of Statistics and Operational Analysis and the Bioeconomy Modelling Lab in the Faculty of Business and Economics, Mendel University in Brno, Czech Republic. In her research, she focuses on operations research applied to bioeconomics, forest management and sustainability science. Asako Kimura is Professor at the Faculty of Business and Commerce, Kansai University, Japan. She received her PhD in Business Administration from the Graduate School of Business Administration, Kwansei Gakuin University, Japan. Her current research interests focus on management accounting for CSR and sustainable development. Yui-​yip Lau is a Senior Lecturer at Hong Kong Polytechnic University. To date, he has published more than 330 research papers and secured over HK$10 million in research grants. His research interests are supply chain management, impacts of climate change, health logistics, human remains and regional development. Cheng-​Hsun Lee is an Assistant Professor of Accountancy at the National Cheng Kung University, Taiwan. He received his PhD in Accounting from Simon Fraser University in Vancouver, Canada. His recent research interests are environmental, social and governance (ESG), financial disclosure, management accounting and corporate finance. He has published scholarly and impactful articles. Ho Hon Leung received his doctoral degree in Sociology, McGill University. He is a Professor of the Department of Sociology of SUNY Oneonta, NY, USA and an Adjunct Professor with the International Business University (IBU) in Toronto, Canada. His recent research interests are urban and rural issues, comparative aging and architectural sociology. Tiffany Cheng Han Leung is Assistant Professor in the Faculty of Business at City University of Macao. She gained her doctorate from the School of Management at the University of St Andrews (Scotland). Her research

List of Contributors  xiii interests include ESG, social and environmental accounting, corporate social responsibility and business ethics. Yi-​Hua Lin is an Assistant Professor of Accountancy at Southern Taiwan University of Science and Technology, Taiwan. She received her PhD in Accounting from the National Cheng Kung University, Taiwan. Her recent research interests are corporate social responsibility, ESG and environmental accounting issues. Jatin Nathwani is the founding Executive Director, Waterloo Institute for Sustainable Energy (WISE). He was the inaugural Ontario Research Chair in Public Policy for Sustainable Energy (2007–​2020). He is currently a Fellow and leads the Research Cluster ‘STEM for Global Resilience’ at the Balsillie School for International Affairs (BSIA). Artie Ng is the Inaugural Dean of International Business University based in Toronto. He received his PhD from the Adam Smith School of Business at the University of Glasgow, Scotland. He has held visiting professor positions in Asia and Europe and adjunct professorship with the Department of Industrial & Systems Engineering at the Hong Kong Polytechnic University. Gabriela Olšanská began her career in the Faculty of Agronomy at Mendel University in Brno, where she focuses on the cultivation and processing of aromatic and medicinal plants. She has a deep knowledge of agricultural production in the Czech Republic, and she is currently engaged in advisory work in the field of food product development. Norio Sawabe is a Professor at the Graduate School of Management and the Graduate School of Economics, Kyoto University, Japan. He received his PhD in Economics from the Graduate School of Economics, Kyoto University. He has been studying intertwined evolutionary relationships between management philosophy and management control practices. Hiroyuki Selmes-​Suzuki is a Senior Lecturer at the Graduate School of Economics, Kyoto University, Japan. He received his PhD in Accounting and Finance from Manchester Business School, University of Manchester, UK. His recent research interests include management accounting and sustainability management accounting practices and their interplay with popular culture. Madjid Soltani completed his PhD at the Waterloo Institute for Nanotechnology, University of Waterloo, and his postdoctoral studies at Johns Hopkins University. He has published in impactful science and technology journals. He is a Senior Research Fellow with Waterloo Institute for Sustainable Energy and an Adjunct Professor with IBU. Lok Man Wong is currently with the Department of Computer Science, University of St Andrews in UK. Since 2020, she has been a Research

xiv  List of Contributors Assistant for Monash University and Hong Kong Polytechnic University. Her research interests are organizational change management, electric vehicle and EV charging infrastructure development in different countries. Andrew Yang Wu is a Lecturer and Researcher at Hong Kong Polytechnic University. He has published around 30 journal articles and book chapters with world-​leading publishers. He has obtained various research funding from government authorities and universities. His research interests include energy markets, public policy, electric vehicles and machine learning. Juai Wu is a Lecturer with the College of Automation & College of Artificial Intelligence, Nanjing University of Posts and Telecommunications, Nanjing, China. He is also a Visiting Scholar at Hong Kong Polytechnic University. He has led and participated in multiple research projects granted by government authorities and industries. Sally Mingle Yorke is a Lecturer at Hong Kong Polytechnic University. She received her PhD in Accountancy from City University of Hong Kong and her MPhil and BSc (first class honours) from the University of Ghana. She is a member of the Institute of Chartered Accountants, Ghana.

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Acknowledgements

We are grateful to the editorial team at Routledge for their support and encouragement in the writing and compilation of this book. In particular, we would like to thank Kristina Abbotts and Christiana Mandizha. We are indebted to the authors of all the chapters for their tremendous efforts and insights from their respective disciplines and regional focuses. Finally, we would like to express our gratitude to our affiliated institutions in support of innovative and scholarly research for a positive impact on sustainability of our world.

Part I

Introduction



1 Exploiting Financial and Technological Innovation for Sustainability Transformation Artie Ng and Jatin Nathwani

Introduction The evolution of Environmental Social Governance (ESG) originated within the concept of responsible investing and seeking long-​term sustainable investment opportunities and returns in alignment with sustainability issues (UN PRI [United Nations Principles for Responsible Investment]). The financial services sector has taken initiatives to embrace and advocate “ESG” as a resolution in addressing concerns over environmental and social sustainability as well as irregularities associated with the global financial crises over the past decades instigated by complex financial instruments and schemes, such as mini-​bonds and derivatives. Over time, institutional investors and asset managers have developed an enhanced awareness of ESG’s relevance in their communications to stakeholders and introduced key ideas within decision making for long-​term return –​a momentum sustained in response to the global financial crisis of 2008/​09. Such a great expectation of ESG and its principled framework pertinent to critical global issues have impressed many stakeholders around the world. ESG relates to the long-​term performance of an organization with respect to social and environmental sustainability, such as climate change, sustainable development and human health issues. ESG reporting on nonfinancial information by listed firms is expected to enhance financial market transparency for decision making by investors and lenders considering risks and returns. A business organization increasingly needs to be evaluated against its economic and financial sustainability based on a set of financial and nonfinancial leading indicators as a shift in the paradigm of the contemporary financial system. There are institutional services providers, such as international credit rating agencies, offering independent metrics on ESG performance based on corporate disclosures. Some recent studies have suggested certain relationship between disclosed ESG performance and reduced costs of capital (Bylund and Jonsson, 2020; Lodh, 2020; Priem and Gabellone, 2022). However, such evaluations, based on a certain period of data and incomparable reporting standards, might not effectively project a company’s performance in various categories of ESG performance, given requirements for assessments over DOI: 10.4324/9781003288343-2

4  Artie Ng and Jatin Nathwani an extended period on a wide range of nonfinancial indicators considering materiality in different industries. While ESG has been frequently adopted as a key word in investor and public relations communications, there are growing concerns over greenwashing attempts that use the language of sustainability through a manipulation of disclosed information (Anantharaman et al., 2021; Boiral, 2016). There are also critics who argue that “greenwashing” is “behaviour or activities that make people believe that a company is doing more to protect the environment than it truly is”, as defined by the Cambridge Dictionary. There are several reported cases of greenwashing and “impression management” among business corporations in the auto industry (Aurand et al., 2018; Boiral et al., 2022). Other concerns over “greenwashing” relate to the competencies of new corporate executive positions responsible for ESG investing and reporting. An organization exposed to both a global and local (“glocal”) business environment needs to be aware of three main levels of dynamic forces that influence its sustainability. The recent study by Biermann et al. (2022) suggests that the pursuit of Sustainable Development Goals (SDGs) relevant to ESG principles has had some political impact on institutions and policies, from global to local levels of governance. This impact has been expansive while influencing how institutions perceive sustainable development. There are still challenges in implementing scalable solutions with profound normative and institutional impacts, from legislative action to augmenting resource allocation for sustainability performance among business organizations. Neo-​classical finance has even pointed out the end of ESG (as nothing special), which nonetheless should be integral of a long-​term analysis (Edmans, 2023). In sharp contrast, global banks continue to finance fossil fuel energy investments on a large scale relative to low-​carbon supply technologies on the basis of short-​term profits (Bloomberg NEF, 2023). On a global scale, Weinstein et al. (2013) reflect that existing policies and norms to reconcile human demands for resources with the planet Earth’s ability to supply them have resulted in practices that mainly treat the symptoms of unsustainability rather than their underlying causes. Moreover, the increase in our knowledge about humankind’s role in ecosystems is not keeping pace with our understanding of the consequences of our actions, resulting in a deepening inability to address sustainability issues. Global risks associated with climate change are consequential, including adverse impacts on human health and the ongoing migration of the population from the global south that causes social and economic issues on various continents (Murphy et al., 2018). Such external risks are nonetheless seemingly not fully priced in the global capital market unremittingly dominated by neo-​classical finance. The complexity of global challenges and intersecting domains of knowledge requires a systems-​thinking framework for the realization of sustainable development through proactive ESG practice by business organizations with measurable performance. We note, Mark Carney’s compelling contributions,1

Exploiting Financial and Technological Innovation  5 who has emphasized the significance of such transformation of the financial system for sustainability at a global or macro level as well.2 • At the macrolevel, risks caused by global climate change, geopolitical environment, inflationary economies, and other concerns over sustainability that demand a global response to these pertinent issues across borders and continents of the world. Policy innovation and formulation for decarbonization backcasting from a future endpoint is increasingly desirable given the underlying time constraints (Robinson, 1982; Nathwani and Ng, 2010). • Meso-​level impact of unsustainability caused by deteriorating regional environment and pollution as well as inadequate community engagement and untimely social innovation that requires institutional response in connected regions and jurisdictions. • Microlevel impact of unsustainability associated with weak governance and organizations misaligned with sustainability issues that necessitate leadership and governance response; for instance, corporate governance facing regulatory measures and stakeholders’ queries should be aware of the growing importance of disclosures and reporting on ESG performance. For the meso-​level, Linnér and Wibeck (2021) point out four categories of drivers as particularly important to consider in view of international transformation efforts across regions: technological innovations, political economy redistribution, new narratives, and transformative learning. Four features are important for bringing clarity to how deliberate transformations can be encouraged: (1) the function of drivers in enabling and restricting transformations of societal systems characterized by detailed or dynamic complexity, (2) cultural and geographical contexts of transformations, (3) where in the systems the drivers are intended to intervene and (4) the role of critical junctions in time, where transformative trajectories can branch out. Linnér and Wibeck point out the potential of regional innovation strategies in the context of less favoured regions and argue that these strategies have an important role to play in regional renewal even though their impact to date has been modest (Morgan, 2004). With respect to the development of cities in regions, Bridges (2016) reviews the debates surrounding the role of institutions in sustainable urban governance, as well as the tools available to assess the plurality of actors working within and across institutional boundaries. Sustainability as a guiding principle in urban planning requires a fundamental reorientation of the rationalities that have governed discrete aspects of social, economic and political life in cities. Institutions, in ordering the administrative and management activities of urban governments, are critical in efforts to hasten the adoption of sustainability ideals and in the implementation of associated projects. At the microlevel, there are local expectations on comprehensive disclosures on management accountability for ESG performance, strategy, and innovation. However, the reality is that while ESG contains a reasonably

6  Artie Ng and Jatin Nathwani wide range of performance indicators from social, environmental, to corporate governance, companies could seek to underscore certain performance areas to their advantage. Listed companies could be strong in governance for financial results but weak in pursuing environmental sustainability. They need to reconsider their existing management system in place and consider the next step for technological adoption in scale for transformation when overcoming the hurdles during this transition (Ng and Nathwani, 2010). Leadership needs to focus on progress in ESG performance with a view to integrate environmental science, management science and business solutions beyond positive impression, compliance and brand equity. It is pertinent to the environmental sustainability of the plant earth, the social sustainability of humanity and governance for organizational sustainability. Against this background, this introductory chapter analyzes the imperative of combining financial and technological innovation for new paradigms of sustainability transformation among business organizations should they strive to maintain agility and sustainability. Financial and Technological Innovation for Transformation Financial Innovation

The global financial system has undergone a paradigm shift since the 2008/​09 financial crisis, seeking new potential by exploiting technological innovation on the one hand and tackling sustainability issues on the other. Gąsiorkiewicz and Monkiewicz (2022) examine how the emergence of a digital finance system functions in a socioeconomic context as it is to make significant changes in the financial system, whereas a government has a noticeable role to play in this critical development in which customer services will be enhanced and expedited but will be subject to more risks and challenges. New regulatory measures to protect consumers and encourage more responsible investments become inevitable. However, a greater challenge to the world as a whole is the ongoing much needed transition to a low carbon economy that requires a multilevel transformation of the economic and sociotechnological system for bettering environmental and social sustainability. Ryszawska (2018) has pointed out that new concepts of finance have emerged in this sustainability transition, including green finance, sustainable finance, climate finance and carbon finance. It is highlighted that such a new approach of finance should be purpose-​and mission-​oriented in contrast with the traditional role of finance, which focuses largely on wealth creation. There should be a broader perspective on sustainable development that depends greatly on a wide-​scale system transformation as well as multidimensional interactions between industry, technology, markets, policy, culture and civil society. As the UN special envoy on climate action and finance and vice-​chair and head of ESG at Toronto-​based Brookfield Asset Management, Carney

Exploiting Financial and Technological Innovation  7 (2021) particularly emphasizes the significance of economic transition to net zero in the United Nations Climate Change Conference of the Parties (COP26). A framework has been advocated for business leaders, investors, and policymakers as they embark on a green recovery. It is also the latest rebuke of unfettered capitalism and free-​market fundamentalism offered up by a high-​profile figure from the world of finance (Carney, 2021). It has been pointed out that the existing tension between market-​determined value and human-​led social values –​provides a foundation for what Carney calls “mission-​oriented capitalism”. His vision is in line with prevailing trends in business, in which corporations and markets make returns for shareholders, but whose core purpose is to “improve our lives, expand our horizons, and solve society’s problems, both large and small”. Drawing on the turmoil of the past decade, Carney (2021) articulates how “market economies” have evolved into “market societies” where price determines the value of everything. Green finance is seen as an effectual tool for such a transition. A green financing system has emerged to integrate international capital markets that sets priorities for climate financing in support of progress towards the SDGs to foster energy sustainability in concert with the development of Industry 4.0 on a global scale (Ng et al., 2021). Being part of the planetary system, one can hardly underestimate the imperative of embracing developing economies under a green recovery framework. The recent advancement in the cost efficiency of clean energy technologies that rationalize financial decisions for the replacement of fossil fuels. The clustering of green financing institutions as globally distributed hubs for redirecting investments into sustainable infrastructures is consistent with the goal of mitigating climate change as advocated in the Paris Agreement. A range of innovative financing instruments for sustainability have been developed over the last decade (Ng et al., 2022). These instruments range from debt and equity instruments, such as climate bonds, green bonds and ESG equity, for measurable performance linked to scalable sustainability solutions. Public‒private funding partnerships also enable reallocation of resources into the development of sustainable infrastructures in many places. Such movements are driven by the interests of stakeholders and the public at large asking for corporate accountability and support for sustainable development by the business sectors. Institutional funds and blue-​chip asset management firms have gathered to adopt their ESG-​integrated approach in marketing their financial products and services (e.g. RBC Asset Management). Recent research has furthered that ESG practices could play a role in creating value for companies while avoiding harm from the perspectives of risk and strategy (Wang et al., 2023). There are also specialized venture capital firms, such as Breakthrough Energy, cofounded by Bill Gates, that have developed schemes to pursue technology-​based ventures with disruptive and scalable technologies for renewable and sustainable energies.

8  Artie Ng and Jatin Nathwani Technological Innovation across Industries

Addressing environmental sustainability challenges requires technological innovation across key industries that are sources of greenhouse gas emissions. In particular, Matos et al. (2019) emphasized the increasing significance of technological innovation for sustainable development, as it provides a range of possibilities to solve or mitigate critical environmental sustainability problems created from the past. At the same time, technological innovation in businesses could stimulate social prosperity while addressing social and economic problems by developing new industries and employment opportunities. Zhang et al. (2019) also reveal the influence of management and technological innovation on organizational performance in relation to the mediating role of sustainability. It was deliberated that management and technological innovation could contribute to sustainability performance over time. Kuzma et al. (2020) echo that innovation is a positive factor for sustainability performance in their recent meta-​analytic study. Such innovation nevertheless often requires a cluster of interrelated organizations that nurture the development of a dynamic ecosystem driving the process of technological innovation. To elaborate, Jacobites (2018) points out that ecosystems are pertinent to interacting organizations, which are “enabled by modularity, not hierarchically managed, bound together by the nonredeployability of their collective investment elsewhere”. Ecosystems tend to augment value, as they enable managers of different organizations to facilitate multilateral dependence without necessarily entering into formal contractual relationships. There are various complementarities among these organizations within an ecosystem for their developments or transformations. The ongoing sustainability transformation of the automobile industry towards zero emissions provides an example of the criticalness of continuous technological innovation while creating a new ecosystem. For instance, Toyota and GM have gone through their own sustainability transformation to survive and excel in light of new competitions from a disruptive new entrant such as Tesla. Such a new entrant challenges the status quo by developing electric vehicles (EVs) with disruptive technologies and designs that adopt batteries as a solution to zero emissions. As a result, such a new entrant has become independent of the oil and gas industry –​a traditional ally with the auto makers that produce vehicles that consume fossil fuels supplied by the network of gas stations built. Instead, an emerging EV ecosystem is built around the development of EV charging infrastructure as well as the overall supply chain for battery technologies and related productions. For instance, Canada is positioned to develop the EV battery supply chain: (1)  mining and mineral processing; (2) cathode and anode manufacturing and chemical precursors; (3) battery manufacturing; (4) EV manufacturing and parts supply and (5) battery recycling.3 On the other hand, Toyota has taken a strategy of sophisticating its hybrid technologies to substantially reduce

Exploiting Financial and Technological Innovation  9 the use of fossil fuels as a pathway towards low-​carbon emissions. It also embarks on the development of hydrogen fuel technology as an alternative solution for zero emissions that will somewhat continue to be dependent on supply from the existing oil and gas ecosystem, demonstrating an alternative cross-​industry reliance strategy for reducing carbon emissions.4 Organizational Sustainability: A Reality Check of Governance, R&D Capabilities and Lifecycles Governance for Sustainability

Sustainability transformation requires visionary and pragmatic governance to lead such a change within an organization. The effective governance of innovating firms also takes a capacity of novelty, visibility and appropriability (Tylecote and Conesa, 1999). However, such capacities could vary in different sectors due to variations in industry-​specific expertise, stakeholder enfranchisement and country-​specific corporate governance systems. As the concept of sustainability could be subjective to an organization, it is also dependent on open facilitation and social processes through engaging stakeholders on sustainability issues (Loorbach et al., 2011). It takes an organization to carefully examine its strategic pathway towards sustainability given its absorptive capacity and technological capacity; there are literally no unequivocal answers for various companies even within an industry. However, it is certain that there is a significant role of management science in sustainability transitions in association with governance for sustainability. Over the past decade, sustainability has become an integral part of corporate strategy in many business organizations. There are newly created senior executive positions with “ESG” or “sustainability” in his or her title among major corporations. In addition, there are corporate policies on ESG and/​or sustainability as well as a “triple bottom line” statement that embraces a firm’s financial, environmental, and social aspects of performance (Hall et al., 2010). Such a policy is typically aligned with corporate disclosures on past sustainability performance, as expected by stakeholders and regulators. Arguably, there have been misconceptions about the relationship between ESG and sustainability performance (Whelan, 2022). Sustainability transformation requires a governance structure to facilitate a change in culture and effective coordination within an organization for the latest ideas, technologies and tools. ESG, if linked with sustainability performance, takes focused governance and leadership to drive continuous sustainability innovation. R&D Capability for Sustainability Innovation

R&D investment is considered a critical intangible factor for the growth and development of organizations in terms of revenues and valuations over

10  Artie Ng and Jatin Nathwani time (Lev, 2001). For continuous sustainability innovation, it is inevitable for the world and its organizations to invest in its R&D capability pertinent to its specific materiality with respect to sustainability that ultimately improves its sustainability in operations and overall offering of products and services. The research by Fernández et al. (2018) reports that expenditures on R&D contribute to the reduction of CO2 emissions in various developed countries, including the European Union and the United States. It argues that public policy makers should promote R&D expenditures from both public and private sectors, which can be a driver of sustainable development, where economic growth can be optimized with a reduction in CO2 emissions. Technological innovation within the energy industry is considered particularly salient in providing renewable energy solutions for attaining zero emissions. Huenteler et al. (2016) deliberate that innovation in energy technologies with a long-​term focus is important for public policy planning in mitigating climate change. Specifically, the results of their study suggest that solar PV technology has a lifecycle pattern of mass-​produced goods, which is characterized by early product innovations with a subsequent surge of process innovations in manufacturing solar cells. On the other hand, wind turbine technology is more similar to the lifecycle of complex products and systems in which innovative activity evolves over different parts of the product (Huenteler et al., 2016). There are in fact dissimilar innovation and learning processes in developing renewable energy technologies, which in turn require reassuring technology policy. The study by Sarpong et al. (2022) further points out the significance of a sustainability pathway model for an economically viable innovation system driven by specific R&D activities. It advocates aligning R&D investments with the development of talent and learning institutions, which results in a “trivalent force” for a “growth-​boosting sustainable innovation system” (Sarpong et al., 2022). Corporations seeking their own pathways towards sustainability need to develop their unique R&D strategies that facilitate a sustainability transformation. The concept of absorptive capacity is considered relevant as organizations need to embrace the relationship between knowledge-​ based dynamic capacities and innovation-​ based performance. Corporate managers working to foster innovation need to proactively organize their resources, procedures and structure to uphold effective knowledge absorption and dissemination. Optimizing the allocation of R&D expenditures to facilitate the growth and development of a technology-​based venture is considered critical as well. For instance, Beladi and Mukherjee (2022) investigate whether a technology leader would invest more in R&D compared to a technology follower and explore how a technology follower could enter the market based on a particular R&D process. The exponential growth of R&D expenditures by Tesla, as an EV market leader, over the last decade from US$232 million in

Exploiting Financial and Technological Innovation  11 2013 to slightly over US$ 3 billion in 2022 demonstrates its basis for continuous technological innovation backed by consistently incremental R&D resources. A Lifecycle Perspective

The development of the emerging EV industry provides insight into the lifecycle of technology-​based firms from the early stage to expansion and subsequent challenges in upholding continuous innovation when approaching maturity. The technology S-​curve is often referred to as a relevant framework to explain the substitution of new for past technologies within an industry level. Improvements in product performance typically result from the interaction of advancements in component technologies and architectural technologies, as presented in prior studies by Christensen (1992a, 1992b). As it is demonstrated that the flattening of S-​curves is a firm-​specific phenomenon, progress in conventional technologies is considered crucial when they are maturing. There could be new entrants with innovations in architectural technologies that redefine product functionality and performance and further market innovation to create their own advantages (Christensen, 1992a, 1992b). To elaborate on a lifecycle perspective, Sood (2010) notes that the technology S-​curve can explain the phenomenon of technological evolution as “technologies evolve through an initial period of slow growth, followed by one of fast growth culminating in a plateau”. In theory, there are three major stages of the S-​curve of technological evolution, including early, growth, and maturity stages. In reality, technology-​based firms with various R&D capabilities and market innovation could create their own paths of technological evolution with irregularities resulting in multiple S-​curves rather than with a single S-​curve. Adner and Kapoor (2016) suggest a framework of innovation that considers both focal competing technologies and ecosystems, as an episode of technology transition is portrayed by an ecosystem emergence challenge. Nonetheless, investing in R&D and building absorptive capacity for sustainability is crucial for new ventures and mature firms to strive or even survive. The sublinear nature of large organizations seeking continuous growth requires faster continuous innovation or inevitable deterioration (West, 2018). Nonetheless, there are second movers attempting to conquer sustainability challenges with substitutes or improved effective solutions (Hoppe, 2000). From the financing perspective, venture capitalists represent a group of investors typically under a limited partnership structure to provide equity funding to early-​stage technology-​based ventures with a prospect of high growth through rapid expansions. However, these new ventures, first movers or second movers otherwise, are also characterized by their high failure risks given limited resources as well as challenges in scaling their operations with

12  Artie Ng and Jatin Nathwani their newly developed products and services. Venture capitalists take the risk of investing in a portfolio of technology-​based ventures, many of which would fail over time, whereas a few emerge to become scalable technology enterprises that provide multiples of their initially invested capital to the investors of a venture capital fund. One of the critical roles of venture capitalists is their expertise in monitoring and advising their invested ventures throughout their various stages of development by building a strong management team and a strategic business network for the new ventures. Being different from general investors, venture capitalists offer their insights about an emerging sector and overcome the hurdles in developing a new company and their new products to improve their chances of success. Through a staged financing approach, venture capitalists develop their real options through an investment agreement that allows them to increase their stakes in a new venture subject to meeting a set of milestones, such revenue growth by an investee company. The financing cycle of a new venture is largely composed of several key stages. During the initial stage, a new venture starts with the seed capital invested by the founders, their family members, their friends and angel investors. The funding is mainly used in product research and development and forming a start-​up team. During the early stage, the new venture will focus on developing a protype and producing it in a volume to generate the initial sales revenues as external funding is sought from venture capital funds. The founding management team of a venture needs to ensure continuous technological innovation in its new product and service offering to capture early adopters and increase their market presence with an enlarged customer base. At this stage, investors committed face relatively lower risks than those committed at the previous stage as the investee company has started to generate revenues and cash flows from its sales. However, the risk of failure is still considerable. The next stage takes place when a venture attempts to scale up its operations for further revenue growth and business expansion as venture capitalists consider injecting additional capital at this so-​called later stage. If the investment risk associated with this stage of development is reduced, the company can seek sizable equity funds through a stock exchange by issuing shares through an initial public offering (IPO). Venture capitalists are able to harvest their returns by existing or selling their shares to other investors upon this IPO. Subsequently, companies would have reached their initial maturity after their IPOs but will likely be facing more competition and scrutiny as a publicly listed company that is required to provide regular financial and nonfinancial disclosures. For instance, listed EV companies are under pressure to deliver progressive results on a periodic basis, and the expectation of their continuous technological innovation has merely started at this stage of their lifecycle. To scale up their businesses at maturity, long-​term financing instruments, such as green bonds, can be issued to build production capacities, as relatively more stable operating cash flow is anticipated (see Figure 1.1).

Exploiting Financial and Technological Innovation  13

Figure 1.1 Lifecycle perspective of sustainability innovation.

Discussion The ongoing sustainability transformation among industries relies on a combination of financial and technological innovation as mutually reinforcing factors for sustainability transition for measurable performance. It is envisaged that this transition necessitates the development of a complementary emerging ecosystem supported by sustainability investing and financing sources, ranging from venture capital to institutional funding, to nurture the growth and development of businesses from early to mature stages to deliver a range of solutions substantiated by their sustainability competence and disruptive innovation capacities. The ongoing coevolution of the energy and transport industries provides an excellent example of financing and investing opportunities for sustainability transformation through renewing the technological infrastructures that support a variety of electric, hybrid and hydrogen fuel solutions for decarbonization. Corporate governance needs to think strategically when dealing with both external and internal potential challenges in their sustainability transition. While governance is a critical internal leadership factor within an organization, ESG involves external factors in dealing with sustainability risks, namely, climate and social risks, while navigating through a pathway that is complicated by geopolitics. Organizations need to consider these increasingly material factors associated with unsustainability and the growing external costs resulting in global supply chain issues, higher operational costs and food crises across the global southern affected by climate change (Bauer and Rudebusch, 2021). These emerging events have reduced the options

14  Artie Ng and Jatin Nathwani for central banks in mitigating an inflationary environment. Human health and sustainable development are a relationship that continues to evolve and requires attention by governance. The adverse impact of climate change on the global financial system is apparent and has caught the attention of financial regulators who have demanded disclosures on climate change among the financial institutions around the world. Such regulations have implications for conventional myopic behaviour –​short-​termism in financial services. The study by Lozano and Barreiro-​Gen (2022) shows that organizations can contribute directly to some of the SDGs but not to others. Therefore, the discourse must change from the notion of SDG integration within an organization to the contributions that an organization can make to the SDGs. Some continuous technological innovation within an organization is the quest. Executives must think beyond financial rewards and embrace the concept of responsible product innovation (Zhu et al., 2018). It requires a concerting relationship among innovation management practices, organizational cultures, setting strategic priorities and product safety. Internally, corporations need to reconsider their governance as a key strategic factor of ESG. Corporate directors need to consider the purpose of their organizations beyond short-​term profit seeking. There are opportunities for institutions and organizations to rethink and reformulate their business models to integrate sustainability strategies. They need to augment the absorptive capacity to innovate with science-​based technology management as well as to reengineer their operational and supply chain management practices focusing on measurable results on sustainability. Beyond stages relying on the entrepreneurial strengths of a founder, companies reaching maturity need to enhance their overall quality control of products and services through systematic innovation. Concluding Notes The future of corporate ESG performance will be scrutinized by both market forces seeking optimized investment returns in light of sustainability risks as well as increasing international regulatory requirements on disclosures of pertinent climate risk exposures and a range of external reporting on sustainability performance (e.g. Task Force on Climate-​ related Financial Disclosures and International Sustainability Standards Board). Such disclosure requirements are expected to enhance transparency about actual performance while reducing information asymmetry for investment decision making. Under the current global financial system, there are public policy-​ related incentives to create necessary conditions for private partnerships. In particular, there are “carrots and sticks” for private firms to integrate sustainability into their products and services as well as day-​to-​day operations. As climate change mitigation has become a critical global measure pertinent to environmental sustainability, policy on zero emissions with a time-​ based endpoint of regulatory measures creates constraints for private firms

Exploiting Financial and Technological Innovation  15 to optimize their profit making over a confined period. Corporations seeking long-​term economic sustainability need to progressively advance their technological innovation and adopt them into their products and services as part of their strategic low-​carbon execution plan while overcoming typical myopic focus on short-​term financial results. This phenomenon has been observed in the automobile industry that is seemingly being transformed into EV or hydrogen-​fuelled paths, which will trigger the energy sector to reconsider their future economic prospects over the period of transitions in which fossil fuels will be gradually redeveloped into alternative low-​carbon or carbon-​ free derivatives, such as hydrogen. Within a business organization, corporate governance is urgently asked to adopt a combination of arts and science approaches to sustainability transformation as a priority being a global citizen with a clear purpose. Surviving organizations going through such transitions are required of capabilities to institute technological innovation and disruptive solutions. While leadership from the governance level is crucial to formulating and substantiating corporate strategy, a dynamic interaction among various levels of an organization creates viable bottom-​up solutions for sustainability. Adoption of a culture of management science with innovative performance management tools for continuous improvement is essential. Technological disruptions are much needed in key industrial sectors, such as energy, transport, building and manufacturing; R&D for timely translation into responsible product innovation is key. For instance, there will be applications of artificial intelligence and other advanced information technologies to track sustainability data performance that could enhance operational effectiveness by eliminating unnecessary manual errors, human complacency, empire building, collusion and greed, as unveiled in past financial crises and irregularities (Leal, 2022; Ng, 2022). Growing applications of IT and blockchain to improve the assurance and timeliness of ESG reporting are expected to be complementary as well. Towards the world’s decarbonization, it is crucial that these technological innovations for sustainability are implemented across key industries on a global basis. Such widespread, cross-​border development would also imply necessary greening of the global supply chain and logistics system in a progressive manner. Business organizations around the world are increasingly in demand to procure their production materials and external services from sources committed to international environmental and social sustainability standards. Suppliers are asked to comply with these emerging standards carefully as part of the pertinent global ESG initiatives. Multinationals are expected to develop their respective long-​term sustainability goals while promoting green practices in their international suppliers based on a range of direct, indirect, industrywide strategies across borders (Villena and Gioia, 2020). In building such an extended sustainable supply network and logistics for sustainability transformation, managers need to integrate social and environmental responsibility into economic and business considerations with proper training and incentives to their suppliers worldwide.5

16  Artie Ng and Jatin Nathwani Complementary regional technological innovation for sustainability through knowledge sharing on sustainability competence is a synergistic initiative. The study by Petraite (2022) notes that technological learning within a national innovation system is considered a core of technological upgrading at the firm and economy levels. While national innovation system can be a primary source of technological knowledge acquisition for innovating firms, we need to recognize the relevance of globalization of innovation networks as well as the timely internationalization of innovative firms through open economies during the transitions. To enhance the sustainability competence of human capital, it is beneficial for an economic region to embrace the development of a global innovation system network to facilitate knowledge exchange and technological learning. Such an open learning approach can also build up the sustainability capacity of firms and even a cluster of industrial players to promote the development of emerging firms and transformation of the existing enterprises for a renewed and sustainable supply chain. Such regional development requires a careful design and facilitation of learning networks under a supportive, collaborative and open environment composed of complementary components. Nevertheless, the reality of heterogeneous political and financial systems around the world renders disparities. Regional policies and regulatory measures vary around the world –​solutions and approaches utilized are likely to be quite different: global case studies unveil the variations and potentially complementary measures. Policy makers need to consider seeking solutions on a global scale, with regional and local endorsements and adaptations. Collaboration among major economies under a peaceful environment as a prerequisite to local, regional and global sustainable development and ESG performance is crucial for sustainability innovation with scalability. It also takes augmented transparency to engage in the forthcoming pathway towards global sustainability transformation. At the macro, meso and micro levels, there ought to be adequate global, regional and local initiatives with respect to policy formulation, institutional mechanisms and organizational innovations. Policy makers should evaluate the time constraints to achieving net-​zero emissions considering unmitigated climate risks as well as environmental and social consequences. The growing relevance of ESG disclosures with accountability for sustainability performance and control measures combining financial and nonfinancial indicators to reflect organizational sustainability, inclusive of carbon emission data, provide critical information about sustainability performance for decision makers, taking into consideration the collective intelligence of environmental, social and management sciences. Notes 1 Mark Carney, Former Governor Bank of England and Bank of Canada and author of “Values’, Building A Better World for All, Signal, Penguin Random House, 2021.

Exploiting Financial and Technological Innovation  17 2 Source: www.ctvn​ews.ca/​mob​ile/​w5/​mark-​car​ney-​s-​jour​ney-​from-​money-​man-​to-​ clim​ate-​cha​nge-​crusa​der-​1.5341​873 3 Canada has been considered as a country to develop the supply chain for the emerging EV industry (Source: www.inves​tcan​ada.ca/​ind​ustr​ies/​batter​ies-​and-​elect​ric-​ vehic​les-​ev) 4 For instance, Toyota launched its first commercial hydrogen car named “Mirai” at the end of 2014 with the prospect of having traditional oil and gas companies providing the hydrogen fuel (Source: www.shell.com/​ins​ide-​ene​rgy/​hydro​gen-​cars-​ hit-​the-​high​way.html) 5 For instance, the development of the EV industry in association with battery manufacturing requires a complementary supply chain for a wide range of raw materials. Both security and sustainability of the supply of these critical materials are critical due to the lead times involved (International Energy Agency, 2022).

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20  Artie Ng and Jatin Nathwani Villena, V. H., and Gioia, D. A. (2020). A More Sustainable Supply Chain. Harvard Business Review. https://​hbr.org/​arch​ive-​toc/​BR2​002 Wang, N., Pan, H., Feng, Y., and Du, S. (2023). How do ESG practices create value for businesses? Research review and prospects. Sustainability Accounting, Management and Policy Journal, Vol. ahead-​of-​print. https://​doi.org/​10.1108/​ SAMPJ-​12-​2021-​0515 Weinstein, M. P., Turner, R. E., and Ibáñez, C. (2013). The global sustainability transition: It is more than changing light bulbs. Sustainability: Science, Practice and Policy, 9(1): 4–​15, DOI: 10.1080/​15487733.2013.11908103 West, G. (2018). Scale: The Universal Laws of Life, Growth, and Death in Organisms, Cities, and Companies. New York: Penguin. Whelan, T. (2022). ESG Reports Aren’t a Replacement for Real Sustainability. Harvard Business Review. https://​hbr.org/​2022/​07/​esg-​repo​rts-​arent-​a-​repl​acem​ ent-​for-​real-​sus​tain​abil​ity Zhang, Y., Khan, U., Lee, S., and Salik, M. (2019). The influence of management innovation and technological innovation on organization performance. A mediating role of sustainability. Sustainability, 11(2): 495. https://​doi.org/​10.3390/​su1​ 1020​495 Zhu, A. Y., Zedtwitz, M., and Assimakopoulos, D. S. (2018). Responsible Product Innovation. Cham: Springer.

Part II

Cases in America, Europe and Africa

2 Emerging Technological Innovation of Renewable Energies through Cleantech Ventures The Complementary Role of Venture Capital Madjid Soltani and Artie Ng

Introduction Without energy, industries are unable to produce any products, access to computing systems and data centres are stalled, and goods cannot be shipped to their destinations; thus, sustainable energy systems are increasingly required for the world’s continuous industrial developments under the current climate crisis (Østergaard & Sperling, 2014). The use of renewable energy sources is critical to ensuring a reliable supply of low-​emissions electricity (Kumar & Madlener, 2016).Sustainable developments and the applications of renewable energy sources are two independent yet intertwined factors. Because of its position at the intersection of the environmental, economic, and social spheres, sustainable improvement is tri-​ dimensional. Creating things and providing services for people requires utilizing resources, which are obtained by extraction from the natural world. Pollution and emissions enter the environment as a result of these actions. Continuous manufacturing implies continuous environmental degradation. Upcoming generations have to deal with the deteriorating environment to enable their lives and activities. Therefore, we must take precautions immediately to prevent further damage. The United Nations established these precautions as targets when it developed the Millennium Development Goals for sustainable development and the Sustainable Development Goals for 2030. This is how a critical link has developed between eco-​friendly growth and alternative energy. Sustainable development, which entails incorporating sustainable development concepts into national policies and programs and redefining natural resource losses as acquisitions, is one of the eight Millennium Development Objectives set by the United Nations (Güney, 2019; Wu et al., 2018). This chapter aims to examine the variety of emerging renewable energy solutions from a technical perspective through a literature review. It further reveals how the role of venture capital, a distinct source of funding originated from the United States for technology-​based ventures, could be instrumental DOI: 10.4324/9781003288343-4

24  Madjid Soltani and Artie Ng to the commercialization process driving us towards scalable business enterprises. While the constraints of the traditional approach to venture capital are explored, challenges to the growth and development of emerging cleantech firms are articulated. Literature Review: R&D for Renewable Energies To attain sustainable development, renewable energy sources, which may require long-​term planning, seem to be one of the most popular and effective options. As a result of growing pollution levels and robust fossil fuel consumption, there has been an increase in the need for and interest in renewable energy sources, which is primarily due to technical advancements. Energy, energy security, and climate change are addressed and regulated in many nations. The United Nations has outlined the targets development in its 17 Sustainable Development Goals that countries should meet by 2030 to achieve sustainable development, including universal access to modern, cheap, and sustainable energy sources (Güney, 2019): • By 2030, everyone should have access to affordable, safe, and cutting-​edge energy services. • The share of renewables in the global energy mix is expected to grow substantially by 2030. • The world’s energy efficiency growth rate should double by 2030. • Investments in energy infrastructure and clean energy technology and the development of international collaboration meant to expand access to renewable energy sources, for instance, advanced and clean fossil fuel technology and energy efficiency, should be augmented by 2030. • Developing nations, notably the least developed countries, those with the shape of small islands, and those with no seas, should have expanded their infrastructure with new technologies to provide contemporary and sustainable energy services by 2030, which is in line with their assistance plans (Güney, 2019). Cumulative prospect theory was used in a fuzzy Multicriteria Decision-​ Making (MCDM) model that Wu et al. (2018) used to assess China’s renewable energy options. In a literature review conducted in 1997 of industrial systems designed for packaging beverages, Miettinen and Hämäläinen (1997) suggested combining Analytic Hierarchy Process and Life Cycle Assessment (LCA) techniques to weigh the effect classifications. After that, Pineda-​Henson et al. (2002) examined and used the methodological framework combined by integrating Analytic Hierarchy Process and LCA to evaluate consequences to the environment and assess the options for process development in relation to the case of paper and pulp manufacturing. Martín-​Gamboa et al. (2017) and Vázquez-​Rowe and Iribarren (2015) discussed the pros and cons of combining data envelopment analysis with

Innovation of Renewable Energies through Cleantech Ventures  25 LCA for maintainable assessment in energy systems that do not prioritize either renewable or traditional creation, providing examples of the initiatives and attempts at using this merged MCDM+​LCA approach. Azapagic et al.’s (2016) contribution to the area has allowed for a broader range of applications; they argue that the lifecycle strategy paired with other instruments should be used to lead the sustainable assessment of the systems because of the MCDM and LCA framework’s desired attributes. Bhandari (2022) and Aunedi et al. (2022) modelled the emerging energy systems to explore their capacity for hydrogen production and decarbonization and to assess their economic viability. Future wave energy utilization has been a topic of some interest (Ciappi et al., 2022). Egea et al. (2022) suggested a new rasped surface layout to increase the thermal storage performance of buildings. Gaucher-​Loksts et al. (2022) worked on three primary factors of building-​integrated photovoltaic systems and air source heat pumps employed in residential sections. Bilardo et al. (2022) examined the feasibility of solar-​based cooling to lower carbon emissions and fossil fuel use. They suggested a dynamic representative for energy-​free structures that includes supplementary supply and storage. To see the energy demands of zero-​energy buildings, Eslami et al. (2022) studied a solar-​power hybrid system. The simulation was further verified by developing a miniature device and putting it through its paces in the lab. The system is economically and technically achievable, as evidenced by the modelling and experimental findings, and it can be expanded to other sites in both urban and rural settings. Choupin et al. (2021) examined the means of choosing the best wave energy converter from all currently available options. The mapping efforts used to pinpoint the hotspot and its associated wave-​farm installations were detailed. Models with varying degrees of geographical detail were presented, and an index was developed to rank regions according to the responsiveness of their energy supply coupled to consumer demand. Meanwhile, wave energy has been less researched than solar energy, although this is an intriguing addition. Using dimensionless parameters and a straightforward data presentation, Fuster-​Palop et al. (2021) developed a model to calculate the payback time for PV installations on rooftops of buildings. This has the potential to bridge the knowledge gap between highly sophisticated scientific models and the understanding of the laypeople who will ultimately embrace such models. As the wind influences the façade, Bottino-​Leone et al. (2021) highlight the significance of players who have typically been disregarded by restoration interventions. These consequences may be significant for older structures that are difficult and expensive to update. Minimal renovations, such as installing interior insulation, may be necessary for the preservation of such structures. To combat the high levels of carbon dioxide that are released during the standard ammonia and urea production process, Moura et al. (2021) presented a new method that is based on the bioreformation of natural gas. This method necessitates a corresponding economic plan to achieve

26  Madjid Soltani and Artie Ng commercial success and widespread adoption. New and traditional energy processes were compared by Carminati et al. (2021), who aimed for three things: money from selling power abroad, less trouble in long-​distance gas transit, and new ideas for alternative carbon dioxide destinations. Despite the novel approach, the authors’ cost estimates show that the benefits of adopting new energy processes outweigh the additional expenses. Despite the world’s rapid evolution during the last few years, with the permeation levels of renewable energy sources achieving double percentages in the electricity supply of several countries, many countries and industries, such as transportation, are still at the nascent level in clean energy permeation (Østergaard et al., 2020). Currently, fossil fuels such as natural gas and coal are used to meet the energy demands of nearly every country worldwide. Thus, an increase in energy consumption correlates with a rise in carbon emissions (Mekhilef et al., 2012). There is a worldwide trend towards switching from traditional fuels to renewable energy systems to meet the rising energy demand (Borovik & Albers, 2018). One definition of sustainable development is to ensure that the levels of current resource consumption do not jeopardize the capability of forthcoming generations to fulfil their essential requirements. According to this concept, financial, environmental, and social factors contribute to sustainable growth. Meeting the ever-​increasing energy demand is critical to achieving sustainable development. Engineering Perspectives on Achieving Zero Emission through Solutions Considering the ever-​increasing growth of greenhouse gases in the atmosphere, especially carbon dioxide, it is necessary to reduce carbon emissions and the generation of pollutants to address global warming. The main source of carbon production is fossil fuel power plants, which serve as the primary source of greenhouse gas production. The best way to prevent carbon dioxide emissions is to substitute fossil fuels with renewable and clean energy. Combustion output and industrial processes contribute 65% of the CO2 that exists in greenhouse gases. Therefore, the use of methods and technologies for separating and removing CO2 from the chimneys of power plants and industrial units can serve to reduce the number of emissions and thus prevent an increase in global temperature. In this section, we will explain some innovative engineering methods for achieving zero emissions, such as carbon capture, electric vehicles, and renewable energy methods like energy storage. Carbon Capture and Storage

Carbon capture and storage refers to carbon absorption and storage. Carbon capture and storage is a technology that can absorb 90% of the released

Innovation of Renewable Energies through Cleantech Ventures  27 carbon dioxide that results from the consumption of non-​renewable fuel in electricity and industrial production and prevents its release into the atmosphere (Mercedes, 2010). Absorption of Carbon Dioxide

In this method, carbon dioxide is separated from the exhaust gas streams produced in industrial processes (Zheng, 2011). Carbon dioxide absorption technologies are divided into three categories: (1) The separation of carbon dioxide after combustion (postcombustion capture) (2) The separation of carbon dioxide before combustion (precombustion capture) (3) The combustion of carbon dioxide with pure oxygen (oxy-​ fuel combustion) Carbon dioxide absorption either after combustion or at the end of the tube relies on the physical or chemical absorption of carbon dioxide. Precombustion carbon dioxide capture removes carbon dioxide from a synthetic gas fuel (a fuel produced from coal, oil, or natural gas) before it burns. Oxygen fuel combustion occurs when oxygen is used instead of air during the combustion process to produce an almost pure carbon dioxide gas vapour (Mercedes, 2010). Postcombustion Capture

Postcombustion separation is a comprehensive method that can be installed and implemented at various CO2 emission sources (both power plants and industrial units). Amine technology has been used for decades to absorb CO2 from exhaust and natural gas. Figure 2.1 shows simplified images of this type of separation. While the exhaust gas produced by gas power plants contains approximately 7% of carbon dioxide, this amount is 12% to 14% for coal-​burning power plants and almost 20% for the cement industry. Carbon dioxide concentration, exhaust gas, and exhaust gas pressure are the relevant factors for choosing a chemical substance. Fifty-​nine percent of CO2 can be separated from gas by using amines. Other chemicals, including ammonia, can also be used to absorb CO2. Removal of Carbon Dioxide by Amines

Flue gas flows through a large absorber tower. The exhaust gas comes in contact with the absorbent fluid that consists of amines mixed with water. Carbon dioxide is created and transferred to the tower. During this process,

28  Madjid Soltani and Artie Ng

Figure 2.1 Postcombustion capture process. Source: Ramdin et al. (2012).

Figure 2.2 Removal of carbon dioxide by amines. Source: Ramdin et al. (2012).

which is referred to as reduction, CO2 separates from amines. Figure 2.2 shows the facilities and steps of amine reuse for the reabsorption of CO2. The electricity generation efficiency of typical gas power plants falls from 58% to 51% in this kind of CO2 separation process. Due to the higher amount of CO2 emitted, the efficiency drop is greater in coal-​burning power plants than in gas power plants, showing a decrease from 45% to 38% (Energy, 2015). Choosing a suitable amine depends on various conditions. Ethanolamine is the most popular amine compound for separating CO2 at atmospheric pressures. It is also generally used to remove CO2 at higher pressures. Providing the required heat to separate CO2 from the amine

Innovation of Renewable Energies through Cleantech Ventures  29 solution is the most consuming stage of the separation process. The advantage of ammonia separation is the low energy required in the reduction process. The problem is the quick evaporation of ammonia, which can be solved by cooling the exhaust gas before the process to slow the reaction speed. Precombustion Capture

The precombustion capture process is applied to combustion and electricity generation. When carbon dioxide is removed, the hydrocarbon is converted into a composition of hydrogen and carbon dioxide, which are easily separated (Zheng, 2011). Figure 2.3 shows the general schematic of the steps involved in carbon dioxide absorption by the precombustion separation method. The process of converting natural gas into hydrogen and carbon dioxide is performed under high-​temperature conditions and requires a high level of energy. This issue leads to a 10% to 14% reduction in electricity production compared to the levels achieved by conventional gas-​based power plants. The efficiency of such a power plant would be approximately 44% to 47% (Jansen et al., 2015) that of traditional plants. Compared to the separation method following combustion, less energy is needed in the carbon dioxide transfer stage to exert pressure on CO2 and stimulate its condensation, and the required equipment size is small. Oxy-​fuel Combustion

In this method, hydrocarbon fuel is combusted with a large amount of pure oxygen. The exhaust gas includes vapour water and carbon dioxide, which are then separated by cooling. Vapour water is condensed and transforms into the liquid phase, and CO2 is separated. Large air separation units are

Figure 2.3 Precombustion capture process. Source: Ramdin et al. (2012).

30  Madjid Soltani and Artie Ng

Figure 2.4 Oxy-​fuel combustion process. Source: Ramdin et al. (2012).

commercially used to produce pure oxygen for various industrial processes. Figure 2.4 shows the steps and facilities needed for this separation. Combustion with pure oxygen produces high temperatures. The efficiency of the electricity production in power plants using pure oxygen fuel (plants fuel-​oxy) can be greater than that in conventional plants using air for combustion. However, separating air and condensed carbon dioxide requires energy, which causes a 12% reduction in productivity. Therefore, the power generation efficiency of this method is approximately 43% to 48% (Yu et al., 2012) of traditional methods. Providing a simple way to trap almost all of the CO2 without emitting other gases, including NOx, is one of the advantages of this method. Energy Storage System

Energy storage system is a useful way to diminish greenhouse gases and approach a net zero emission system. This technology contains pumped hydroelectric storage (PHS), compressed air energy storage (CAES), flow batteries, solid-​state batteries, capacitors and supercapacitors, superconducting magnetic energy storage, and flywheels (Luo et al., 2015). Even though some energy storage system technologies, such as the flywheel and supercapacitor, are extremely efficient, quick to react, and have high power densities, they can only provide power for brief periods. PHS and CAES are the primary technologies currently used in energy management applications, such as peck shaving, particularly in grid-​connected and large-​ scale systems (demand> 100 MW; White et al., 2013). However, PHS application has been limited by geographic constraints (Kousksou et al., 2014). Therefore, CAES technology is a fascinating substitute for grid-​integrated or remote modes, even for moderate energy demands that are still under development. Thus, research has suggested hybridizing CAES with power cycles

Innovation of Renewable Energies through Cleantech Ventures  31 using its isothermal and adiabatic arrangements. PHS and CAES have acceptable technology readiness levels, but they are geographically constrained, have low energy densities, and cause environmental problems (White et al., 2013). Pumped Hydroelectric Storage (PHS)

PHS technology covers approximately 99% of the energy that is stored on a large scale (Rastler & Electric Power Research Institute, 2010). Features of the PHS technology include reversible pumping and generation modes, which could be created by using a power generation set made up of the pump, generator, and turbine. A PHS has two reservoirs, as shown in the graph: the upper reservoir stores charged water, and the lower reservoir holds discharged water. Figure 2.5 shows the process used in PHS plants in two modes. (Stenzel & Linssen, 2016). Water flows downhill and through turbines to meet demand in cases of high electricity demand or a decline in the production of renewable energy. The largest plants can generate up to 5 GW of power, and several facilities support discharge times that are longer than a day. PHS typically has high

Figure 2.5 The charging and discharging modes of PHS. Source: Bitew et al. (2019).

32  Madjid Soltani and Artie Ng round-​trip efficiency of between 65% and 85%, fast response (less than one minute), and very large power and energy capacities. A limited number of suitable geographic sites, low energy density, and large reservoir footprint are the main drawbacks of PHS (Aneke & Wang, 2016; Chen et al., 2009; Javed et al., 2020). Compressed Air Energy Storage

CAES is a large-​scale energy storage technology. Compression trains, storage tanks, and expansion parts make up the majority of a CAES plant (Budt et al., 2016). In CAES plants, rotary equipment powered by excess energy from conventional or renewable power plants with low demand is used to pressurize the ambient air. The compressed air is then transferred to compressed air storage, which is primarily in underground caverns. Figure 2.6 illustrates the electricity production when air is released from the CAES. Fuel burning, similar to that in a traditional gas turbine, can increase the output power of CAES plants (B. Wang & Bauer, 2017). The presence of numerous natural caverns and bodies of water with sufficient qualifications does not limit the installation restrictions of CAES to the same degree as it does for PHS, but there are still geographic limitations that apply to the majority of these arrangements. In contrast, plants that use fabricated CAES have higher costs per unit of generated power due to their lower energy density (Georgiou et al., 2020).

Figure 2.6 CAES plants. Source: Wang and Bauer (2017).

Innovation of Renewable Energies through Cleantech Ventures  33 Integrating Emerging Technologies

The world is experiencing a surge in technological advancements, including emerging technologies like digital twins, metaverse, cryptocurrency, blockchain, data, IoT, artificial intelligence (AI), and biotechnology. These emerging technologies have the potential to transform various sectors, including renewable and clean energy technologies, especially smart grids. For example, digital twins can simulate the performance of energy systems and optimize their operations, while the metaverse can facilitate virtual collaboration and remote monitoring of renewable energy assets. Blockchain can ensure secure and transparent energy transactions, and data analytics can provide insights into energy usage patterns and optimize energy management. This work aims to investigate the connection between emerging technologies and renewable and clean energy technologies, with a focus on smart grids. We will analyze how these technologies can be incorporated to create more sustainable, reliable, and efficient energy systems, and the challenges and opportunities that come with their adoption. In this paper, we will explore the key emerging technologies, including digital twins, metaverse, cryptocurrency, blockchain, data, IoT, artificial intelligence, and biotechnology, and their potential applications for renewable and clean energy technologies, with a particular focus on the smart grid. To support our discussion, we will draw on recent research and case studies that demonstrate the linkage between these emerging technologies and their applications for renewable and clean energy technologies. Sustainable growth is based on three important pillars: economics, environment, and society. This means that the management of any kind of activity must simultaneously consider people, the economy, and the environment in the same context. Emerging technologies must be sustainable to be implemented in new modern social systems. Energy plays a dynamic role in the socioeconomic growth of countries and has an important environmental footprint. The transition of energy systems from fossil fuels to renewables is a convenient trend driven by the need to decarbonize these systems. Digitalization is also a megatrend in various aspects of human life, and it has had an undeniable impact on energy systems. New optimizations of the energy sector are almost entirely concentrated in digitalization, electrification, and decarbonization. Smart systems require the digitalization of many aspects. Some technologies, such as smart grids, are prerequisites for further renewable energy growth. Big data systems, cloud processing, IoT, digital twins, and other AI-​based technologies could make smart systems such as smart grids both efficient and reliable for tomorrow’s power market. The new industry era has introduced a more efficient and practical interface and a closer human‒machine collaboration. This collaboration includes human intelligence and high-​precision machine capacity. This means that energy could be more efficiently harnessed from various renewable energy

34  Madjid Soltani and Artie Ng resources in terms of region and time, and it could be more efficiently transmitted and consumed as well. However, the discussion of productivity includes economics in its measure of efficiency as well. Therefore, the target of combining various technologies is the improvement of productivity from various perspectives. Therefore, renewable energies should be more efficient, reliable, cheaper, greener, and finally sustainable. Complicated modern energy systems target productivity through smart innovation in the value chain (KPMG, 2016). For example, in the case of transportation, the efficiency of all related processes should be considered. This full consideration is referred to as well to wheel efficiency. This means that from the discovery and extraction of oil wells to the end of the value chain, which is the turning of the wheels of motor vehicles, all of the processes and activities involved, as well as their corresponding efficiencies, should be considered and optimized. Towards this end, various technologies should be utilized or even audited and optimized. The integrity of the entire value chain is a key aspect that should be monitored and actively improved by digital systems and AI. However, in this case, another disruptive option could be followed. For instance, if electrification is considered to be a part of the value chain, efficiency and productivity would be inherently improved. Suppose that you receive oil at the well that is 100% of the available exergy; when it is extracted and transferred to the petrochemical plant, the exergy remaining would be 10% lower, thus representing 90%, and another 10% would be consumed by its conversion to petrol. When it is being pumped at the gas station, the exergy remaining would be approximately 75%. The efficiencies of vehicle’s engines and other devices would finally cause a further reduction of approximately 13% of the energy potential in the oil at the well! Alternatively, if the gas is extracted, sweetened, transferred to power plants, converted to electricity, and injected into electric cars at charging stations, then the final energy expended in the turning of wheels would represent approximately 35% of the energy potential of the oil at the well. This indicates that there may be potential solutions in other fields that can offer better solutions than simply improving productivity in a single field through technology updates. Deployment of Artificial Intelligence and Other Emerging Technologies

AI plays a very significant role in the future of energy systems. Disruptive innovations in this field could stimulate a great revolution in manufacturing processes, energy production, transmission, distribution, and certain energy consumption methods. Connectivity and smart control can be used to orchestrate all parts of energy systems into integrated systems. This could result in a more productive energy value chain from the perspectives of economics, agility, smartness, digitalization, and user-​friendliness. Future energy systems require more intelligent and skilled human resources. Considering the dynamics of smart systems, human components should not only have

Innovation of Renewable Energies through Cleantech Ventures  35 good academic reputations but also well-​developed skills in the diligent use of both hardware and software. The optimal management of such energy systems requires big data, cloud processing, and a high level of skill and expertise. Renewable energies have undertaken a long journey to curb prices. By today, they are more competitive than ever, and they have an opportunity to take over the energy market to address the environmental concerns of the Earth. However, it should be noted that the global effects of large renewable energy production are not yet clear. It could be advised that the geographical distribution of these power plants should be studied in detail before pursuing any further unbalanced development of these systems. The global trends in the energy market indicate a high rate of energy transition from oil, gas, and other fossil fuels to electricity. Perhaps the most important aspect of this transition is transportation. In the transportation sector, the effects of the IoT and digitalization in both manufacturing and consumption are more evident. In this regard, the integrity of the system forces future energy systems to enable greater connectivity in the power generation and transportation sectors. They should be planned and controlled as a whole system, provided that the infrastructure for smart demand detection and generation as well as smart charging and traffic management systems can work together synchronously. Through the application of such complicated and smart systems, energy systems could be more decarbonized and efficient than ever. Lifecycle management and the use of recyclable materials are of great importance to energy systems. Another upcoming vital issue for the energy sector is the coherence of energy and water. The future problem involving the scarcity of water resources should be solved through specific energy methods. These methods are similar to current mechanical or membrane-​based desalination systems but have greater efficiency and cost effectiveness. Maintaining the effect of climate change below 1 °C does not have any meaning if no water remains for human survival. Although future trends think about resources outside of the Earth, leaving the earth completely seems to be an extremely long-​term goal. Considering the electrolysis of the hydrogen economy, the lack of water on Earth seems to be a contradiction. Therefore, scientists should also think about and seek solutions for coping with this dilemma. In any event, there are many issues of importance that could be predicted in the future, but the specific restrictions being imposed by science, technology, or even nature could map the future of energy (Emerging Technologies: Digital Twins, Metaverse, Cryptocurrency, Blockchain, Data, IoT, Artificial Intelligence, Biotechnology, 2023). Considering all of the above, the future megatrends in the development of energy markets are articulated as follows: • Placement of distributed generation and microgeneration • Adoption of linked systems • Growth of energy productivity

36  Madjid Soltani and Artie Ng • • • •

Connection of utility scaled energy storage Acceptance of new market members Harnessing of visibility using good data Advancement of local energy markets

In addition to the abovementioned issues and due to the enormous reduction in renewable energy prices, renewables represent an important aspect of future energy systems. The main emerging trends in the development of renewable energy systems are highlighted below: • Renewables see growth despite the higher than anticipated Capex that arises from technical requirements in power supply and polysilicon plants. • Distributed production accounts for 45% of all novel solar PV accompaniments due to its high reliability and independence from fuel lines. • Trade obstacles persist at the midpoint of the industry and work towards remodelling the global industrial map. Many large users of PVs have begun to restrict their exports to other countries, and some, such as China, have started to produce PVs outside the mainland to cover international needs. • Wind technology improvements focus on larger turbines with recyclable materials. • Floating offshore wind generated power reaches a commercial scale. • The Li-​ ion battery cost reduction trend ends due to raw material restrictions, so the higher charges for energy storage technologies are set to last throughout 2022, which means that the intermittency of renewable power will undergo an increase in cost. • Energy market investors scale up their associated renewables assets investments and resources. • The growing development of green hydrogen infrastructures is driven by upcoming policy quotas. However, the electrolysis process requires power, which should be provided by renewables, and these renewable power generation plants produce both carbon dioxide and energy. Therefore, the overall energy payback from these systems should be investigated in an integrative manner (EY, KPMG, 2016). The Rise of Renewable Energy and Clean Tech Ventures with Disruptive Technologies: The Role of Venture Capital Commercialization of Renewable Energy

As detailed by the agreement that took place in Paris between the United Nations on Climate Change (COP21), to decrease the bound Earth’s rate of temperature growth to the 2 °C top and 1.5 °C target, novel energy technology will be needed (Wüstenhagen & Teppo, 2006). To decrease the emissions of carbon and CO2 capture, innovations that prevent the most

Innovation of Renewable Energies through Cleantech Ventures  37 prominent side effects of climate change will be essential. Among government-​ backing research and commercialization, novel technologies must deal with the so-​called “valley of death” (Randjelovic et al., 2003). In this regard, entrepreneurs repeatedly return to venture capital (VC) to seek money for the initial, high-​risk steps involved in commercialization of technology-​based firms through staged investments (Nesheim, 2000; Ng et al., 2017). VC providers have sensed a breakthrough in clean energy technology (cleantech) recently. VC investments in cleantech are expected to grow substantially in this decade alone. Simultaneously, the cutting-​edge Energy Coalition, a gathering of rich investors organized by Bill Gates, expressed that they would invest a huge amount of money in commercializing new energy innovations. Novel venture creation, entrepreneurship, external corporate venturing, and VC in the form of allied VC gained substantial attention from scientists during this decade. The technological development and industry invention literature have massively shifted their focus from novel marketing creation or adjustment to environmental stability caused by transformation in business. Recently, it has been determined that an increase in carbon dioxide in the atmosphere poses strategic problems for corporations in a wide variety of industries globally, influencing those companies that consume fossil fuels and have an interest in advancing new opportunities (IEA, 2014). However, barriers and obstacles to the technological advances necessary in enabling a regime shift towards green energies can be attributed to technological immaturity and enhanced by the complexity and variety of its installation factors, regulatory barriers and risk aversion, uncertainty, the unsustainable power generated by renewable resources (e.g. sun, wind), the sharp devaluation of existing facilities, network incompatibilities, and factors such as high sunk costs and aesthetic or environmental concerns. Cleantech Ventures

Cleantech ventures can be utilized to optimize the consumption of organic and natural resources by technologies while decreasing the ecological side effects. A Cleantech Venture Network can involve agriculture, manufacturing materials, renewable energy, household affairs, public displacement, and water treatment (Parker). Eleven cleantech industry categories compiled by Cumming et al. (2016) are displayed in Table 2.1. Clean energy ventures are considered to introduce technologies related to energy and undertake actions that reduce environmental side effects and could be financially competitive (Moore, 2004). These clean technologies are categorized into four principal groups: Renewable energy sources, distributed energy power processes, natural gas, and demand for overall efficiency (Li & Zahra, 2012). Renewable ventures consider environmental, political, social, and economic factors. Financial factors are included in money management by regulating consumer expenditure on energy and by supplying energy saving behaviours for economic development. The environmental side

38  Madjid Soltani and Artie Ng Table 2.1 Cleantech industry categories (adapted from Cumming et al., 2016) Key categories in the cleantech industry • Advanced materials and nanotechnology • Agriculture and nutrition • Air quality • Consumer products • Enabling technologies and services • Energy generation, storage, and infrastructure • Environmental information technology • Manufacturing and industrial technologies • Material recovery and recycling • Transportation and logistics • Waste and water purification and management

of these ventures can be seen as the air contamination, greenhouse effects or other consequences for the ecological community that arise from the provisioning of energy. The social factors of renewable ventures consist of the maintenance security of supply and demand. VC in Cleantech Ventures

The lack of initial money to invest is cited by numerous entrepreneurs as an obstacle to progress or even a stopping point for the development of start-​ ups. As explained by Frank et al. (1996), ecologically oriented ventures deal with the same monetary barriers as other field corporations do; nevertheless, they have additional challenges to success that are represented by those investors who cannot or will not exhibit concern for the environmental side of the equation. Nonetheless, only a few studies have probed VC and the subsequent banking in green technologies, cleantech, and environmental technologies (Diefendorf, 2000) surrounding it. In recent years, the concepts of “clean energy” and “cleantech” have appeared more frequently and are being used in investing circles. However, there is a lack of consistency in clean energy definition among original financial organizations. Data, experience, and instruments are all necessary to forecast and qualify project risks in the field of clean energy and to develop plans to diminish them. Among the renewables, the development of wind energy has demonstrated that when investors are capable of understanding and judging the risks involved, they will begin to invest in clean energy (Daily et al., 2002). Entrepreneurs always strive to continuously invest in corporations to reach maximum success, so they may dismantle their agreements once they notice that there is no future in a company. In the field of renewable energies, it is necessary to continuously optimize the operational systems to make them worth investing in and ensure that those funds are not withdrawn.

Innovation of Renewable Energies through Cleantech Ventures  39 To maintain the necessary cash flow, a close connection with researchers is required so that their knowledge can be transferred to effective new business development opportunities. Principles of VC Investing

While there have been numerous inquiries into VC investing, there is significantly little knowledge about the principles of assessing capital cleantech VC. Cleantech VC investing has become a quickly rising subsector within VC investments. While the growing energy prices could provoke establishers to require investing in clean technological establishment ventures, it might also serve to deter incumbents, which are energy suppliers such as utilities and gasoline producers, from purchasing new start-​ups. It is notable that the curvilinear influence of oil costs on cleantech VC investment plays a key role. Rising oil prices raise cleantech VC agreements; however, they do so at a crawling rate of growth. The moral is that increasing gasoline prices is not always a remedy. The unengaged consequence of greater oil values is an increased level of enthusiasm in taking more complex actions to produce more contaminating oil deposits. Officeholders are not going to value unpolluted alternatives and replacements unless they are available for acquisition. The solution is cleantech VC; however, there are countervailing actions that need to be considered. Subsequently, a wait-​and-​see approach to pursuing the dream of growing oil values results in the invention of extreme needs in the market of cleantech VC, which is not appropriate. For assessing cleantech VC deals, press is considered to be a promising descriptive variable. Such data are used by both the suppliers and clients of cleantech. Therefore, media and press coverage can assure the continuity of information, which helps in the credibility and dissemination of the information. Additionally, these determinants aid in the gradual development of novel markets. The principal, significant, and positive effect of media on cleantech VC is being bolstered by this public mindset. Therefore, the positive press mantle of substitute renewable energy resources is likely to be enthusiastic (Tunçalp & Yıldırım, 2022). For further details, see Table 2.2. A high amount of uncertainty avoidance can be a feature of countries stiff codes of conduct and behaviour. Novelty in VC investing requires proactive risk-management and an openness to fresh ideas. In addition, cleantech VC investing is much more perilous than typical VC investing; countries with risk aversion may have acquired such technology to assess the level of public enthusiasm, which could serve to reverse such priorities in the development of cleantech. Countries with extreme uncertainty avoidance are more likely to make few VC investments than those with low levels of uncertainty avoidance (Caldeira et al., 2003). Since culture can be thought of as time-​invariant, governments and administrations need look for alternative methods of increasing VC. One such approach might be the insistence on strong governance by policymakers. Additional regulations could

newgenrtpdf

Characteristics

Cleantech venture capital

High-​tech venture capital

Accumulation of benefits

Despite private ownership, the association benefits for the public are outstanding due to the environmental impact. Works on the production segment of the economy, which makes it difficult to assess the risks and opportunities of market development and create scalable growth and returns within an established energy industry. Capital-​intensive while facing substantial technological risks related to the utility of the technology, marketing, and qualification requirements (Cumming et al., 2016)

The private benefits are considerable due to scope of ownership (copyrights, patents).

Evaluation of risks, returns, and opportunities for capturing market share Capital requirements

Focuses on the commercialization of an emerging technology, making the assessment of risks and opportunities for market development relatively less challenging and enabling returns for technological innovation in an open market. Less capital intensity than cleantech, and the founders are more likely to acquire equity shares with majority control.

40  Madjid Soltani and Artie Ng

Table 2.2 Characteristics of cleantech ventures

Innovation of Renewable Energies through Cleantech Ventures  41 be particularly important since this inconsistency is thought to have an important positive effect on cleantech VC agreements. Establishing a policy rule that increases the number of contract accomplishments, property rights, policies, and authoritative systems while decreasing the rate of crime, public anger, and discord is the principal goal of cleantech VC contracts. The rise of VC investment consequently decreased during the period of 2006 to 2011, and it has seen the reclamation of private funding backing for early established companies. This novel curiosity, however, has not been sufficiently diffused among companies that are developing advanced energy-​ based technologies. By reviewing the publicly accessible information on the returns at this time, VC needs to balance the achievement portfolio of the cleantech segment against those of the hardware, software, and medicine technology segments. Observations

The allocation of funds in renewables and clean energy technologies is thought of as riskier than investing in other segments that produce lesser returns. When cleantech investments result in good outcomes, the returned cash from the capital is much smaller than that from ventures in other sectors, as calculated by both the cash multiplicity. Victories come to naught in balancing the high risk involved in this segment. Moreover, in pursuit of optimal profit, VC financiers prefer to put money into software and medicine rather than into clean technologies. Cleantech’s actions in pursuit of profound technology novelties resulted in poor returns. Specifically, the cost of novel materials, processes, and chemicals, in addition to putting money into companies for hardware unification, has resulted in the loss of approximately $1.25 billion. Investors responded to this accomplishment by transferring cleantech funds to appliances related to software that are simultaneously low capital-​intensive and offer larger growth opportunities. The commercializing of novel cleantech requires the approval of individuals who can later draw the attention of investors away from key industries and patient moneymakers. To supply this type of backing, the United States, in addition to 19 countries, needs to establish mission novelty assurance to replicate assistance for developed energy R&D. Authorities should also raise support for the marketing of these studies through connections with officeholders aside from those who are accelerators. To encourage corporations to pursue cleantech innovations, governments should advocate regional friendship between established industries and new start-​ups and propose enthusiastic technology exchange among national and international laboratories. If adopted, this policy could aid in creating the proper environment for drawing the attention of a diverse mixture of investors to fund further innovations. These authorities can also accredit establishments to pursue knowledge advancement by applying public funding sources outside of VC findings. Finally, this policy advice aligns with novel declarations from personal segments, significantly

42  Madjid Soltani and Artie Ng the advanced Energy Coalition’s declaration of assurance to retain and supply clean energy novelties. Development of Hi-​tech Start-​ups Digitalization Trend in the Renewable Energy Market

In particular, the importance of large demanding situations drives our admiration for renewable power. The low speed of replacing the fossil gas supply, which has remained unchanged despite assistance from unstable power sources, is thought to be the very source of this disaster. The key to breaking through the barrier to increasing the value of energy distribution is the increasing public willingness to favour businesses that invest money into renewable power. It is fully expected that in Germany, the boom of solar and wind electricity will account for as much as 80% of the power needs by 2030 (Pakulska & Poniatowska-​Jaksch, 2022). Several factors have contributed to the active increase in renewables. First, it is estimated that this system could even benefit electricity by bringing the world’s tech gamers into the renewable electricity marketplace. Between 2015 and 2020, ICT corporations accounted for half of world’s renewable power. The IoT, which is one of the technologies seeing the largest boom, has seen an over 13-​fold increase. Global power corporations claim that funds worth approximately $17 trillion might be obtained worldwide, which broadly exceeds that of the subsequent two decades both within the novel transmission and distribution connections and in emerging technologies (Pakulska & Poniatowska-​Jaksch, 2022). In this segment, there is tremendous confidence in the adoption of a group of actors from the various enterprises from other sectors into the energy marketplace (Liu et al., 2022). The task, specifically for the optimal development of related subindustries, that is, solar and wind power, is to increase the renewable energy balance in our power systems. Towards this end, there are three problems that are typically encountered: improving the accuracy of forecasting and the requirements for achieving independence from the effects of climate elements (Dóci et al., 2015), facilitating the storage of power generated from renewable sources (Denholm & Mai, 2019), and enabling the unification of dispersed users-​ manufacturers within the present power system (Dai et al., 2021). Even now, satellite data are captured to advance insulation predictions, while satellite mapping and LIDAR equipment allow an extra efficient diagramming of the entirety of the primarily sun and wind powered systems. Due to devices that use a novel, advanced stage of control (e.g. laser scoping and drones), the number of records supplied via wind turbines and PV systems is rising exponentially (Weiller & Pollitt, 2016). This indicates a growing interest in detailed answers regarding energy. The negative aspects of energy storage issues, specifically PV and wind energy, are potentially driving the current increase in this sector

Innovation of Renewable Energies through Cleantech Ventures  43 (approximately 16 twofold and approximately threefold growth, respectively), but the renewable energy storage capacity nevertheless fails to meet the needs of the sector. From 2010 to 2019, the volume of energy contained at PHS sites was approximately 3.1%, and that for global hydropower was recorded at 6%. New studies are demonstrating that the large storage of renewable energy falls CO2 production (Hittinger & Azevedo, 2015). The largest, but still small, storage penetration of nondispatchable wind and PV energy power is assessed in terms of the capacity of this kind of energy as determined for water turbine power plants, which nevertheless represent 20% and 30%, respectively (BCG. Digital Transformation in Power and Utilities, n.d.). These circumstances may improve with the development of flexible RE. The diffusion of nondispatchable PV and wind energy is anticipated to be the stage of being the most massive resource for renewable electric power among power storage systems in the international market (approximately 94.6%) in 2000 (Mirzaei et al., 2019), in addition to offering extra efficient analytical tools and the application of 20% and 30% between 2010 and 2019, respectively, for the collection of the energy in PHS AI algorithms for the real-​time case management of energy-​based systems. Six percent of the world’s total digitalization of energy management is likewise related to reduced inefficiencies in the transmission of synthetic AI methods for the real-​time management of power systems. This important goal is subject to development through large stages rather than simply through providing digital applications involving energy companies. Barriers to Stability in Marketing Models for Start-ups

The capability to quickly and successfully adapt novel marketing and business models is a promising competitive resource that offers stable benefits and a critical stage in leveraging the durability of associations. However, we have determined that despite the significance of the subject, numerous marketing model companies have failed, and the reasons for this are relatively underexamined in academic research and are no longer applied in the principles of these types of start-​ups. Inigo claimed that businesses can exhibit enthusiasm for four administrative adjustments that are key to introducing sustainability: leveraging the opportunities provided by fresh-​social and environmental rules, managing their cost chains more sustainably, designing sustainable products and services, and developing sustainable business models (Nunes et al., 2022). The ability to transition to new enterprise models quickly and appropriately provides a sustainable competitive benefit and an important stage for enhancing the sustainability and overall operations of the organization (Geissdoerfer et al., 2018). There are three principle issues in sustainable commercial enterprise model novelty. The first is that although conferences and workplace considerations on commercial enterprise model innovation are conducted, the insights generated are not appropriately cached. The

44  Madjid Soltani and Artie Ng second is that despite the generation of bright ideas concerning the sustainable of enterprise models, sustainability is not being applied in start-​ups. The third is that most implemented commercial enterprise models in the energy market fail over the years (Geissdoerfer et al., 2018). Most studies address the limitations in common cases but lack theoretical clarity on the variety of ways in which challenges can be addressed to provide stability through a wide range of business prototypes (Vermunt et al., 2019). Outside limitations and forces that constrict organizations from growing their commercial enterprise model in a feasible way are taken into consideration. These limitations were categorized into three groups: institutional, marketplace, and sales. The absence of severe policy pressures and monetary motivations are clearly the principal obstacles to enterprise models achieving the stability of industrial innovation, while in the social classifications of marketing and business, the principle challenge is the shortage of buyer or purchaser approval driven by economic enthusiasm for social connections. Regarding the substance of marketing and selling, Vermunt et al. (2019) mentioned the challenges associated with maintaining efficient relations among shareholders, which is exacerbated by the lack of participation of shareholders in decision making. Andrea Kelly da Silva Nunes found obstacles to marketing models for stable start-​ ups in various classes. The current academic foundations of marketing models were focused on problems based on the following types: the associational and organizational class, markets and business, novelty, assessment, advancement, the delivery chain, progression, and coordination. As mentioned above, the sustainable value exchange matrix instrument (Morioka et al., 2018) is implemented to assess the cost propositions, market price detention, and cost making associated with the types of issues observed in the literature. Green Start-up Economics: Where Do the Specific Challenges Stand?

Capital investment procures the right of entry to the stock, and money is a prominent dilemma for younger corporations, which is in accordance with the principles of entrepreneurial economics. Appropriate investments have exerted an extreme impact on the success of start-​ups in recent years (Bergset, 2018; Carter & Van Auken, 1991). Some crowdfunding platforms also focus on corporations and activities, which are concerned with environmental issues, and inexperienced investors leverage money for a range of aims (Lehner, 2013). Few public banks supply investments to businesses operating in feasibly related regions (Cowton & Thompson, 2001; Weber, 2012). Even as an association might experience conflict in obtaining finance, green and novel start-​up makers may have previous experience in specific or special challenges. Because of their (indirect) engagement with environmental conservation, young start-​ups work in atmospheres where market defeats are common (Di Domenico et al., 2010; Patzelt & Shepherd, 2011;

Innovation of Renewable Energies through Cleantech Ventures  45 York & Venkataraman, 2010). Environmental conservation initiatives have conventionally been seen as part of a social mission meant to combat environmental abasement (Tietenberg & Lewis, 2018). Progressively, in recent years, entrepreneurs have taken advantage of pertinent market opportunities arising from sustainability concerns (Cohen & Winn, 2007; Dean & McMullen, 2007), thus reproducing novel markets in a novel market phase of ecologically affable services and products (Mrkajic & Murtinu, 2016). Sustainable entrepreneurs are therefore often likely to stop promoting their goods and amenities; however, they are likely to seek market circumstances that permit them to become involved and experience success in the market. This course of action pertaining to the role of the “political entrepreneur” is pursued to exchange aid, taxes, rules, or enthusiasts (Dean & McMullen, 2007) or even an “institutional entrepreneur” operating to link the marketplace with the establishmentarian context that they work from (Pinkse & Groot, 2015) represents a lasting behaviour rather than an isolated incident. VC-Funded Renewable Energy Technology Firms: Success and Potential Limitations

One noticeable VC group focusing on investing in clean and renewable energy is Breakthrough Energy Ventures (BEV). This group was founded by the Breakthrough Energy Coalition in 2016 to invest in renewable energy and accelerate creativity in renewable energy and other related technologies to decrease greenhouse gas side effects, and it is entrepreneurially supported by a plethora of the world’s top marketing leaders. Like BEV, this group has invested more than $1 billion in committed initial finance to commence technical developments in clean sustainable energies. BEV’s goal is to inspire the world to develop and scale critical solutions to achieve net zero greenhouse gas emissions so that everyone can benefit from affordable and abundant clean energy. This group consists of famous individuals working in the field of technology and supporting new and emerging start-​ups (https://​bre​akth​roug​hene​rgy.org/​, 2022). BEV prioritizes investment in the five problems that contribute the most to greenhouse gas diffusion: electric power, transportation, agriculture, tooling, and construction. The company also focuses on difficult areas of development with promising sustainability potential, such as affordable grid-​scale storage, fuel production, global microgrid development, zero carbon building materials, and geothermal energy (Gibbons et al., 2019). An example of this company’s investment in clean energy is CarbonCure Technologies. Investing in this project has saved 500 megatons of CO2 emissions per year in the concrete industry (Gibbons et al., 2019). Tesla is an innovative company founded in 2003 with funding support provided by VC to fuel its subsequent growth and the development of its electric vehicle and other clean energy businesses (Tesla, 2021).1 To achieve its goal by focusing on the two important factors of sustainability, it adopted

46  Madjid Soltani and Artie Ng the following overall approach from its start: (1) creating a sustainable marketing model assessed as zero emissions in the transportation industry and (2) moving towards a carbon-​neutral economy (Szekely, 2017). Using this approach, Tesla can have an effective influence in the current governmental policies for increasing energy efficiency, moving towards lower emissions in the combustion of fossil fuels, and optimizing and increasing the use of clean energy. In addition, one of the important goals of this company is to improve the lifecycle of its products from production through consumer consumption to the recycling of used components (Tesla, 2021). Additionally, this company produces products out of recyclable materials, an important example being the production of lithium-​ion batteries under the Tesla power wall brand, which is a Tesla energy product. By storing renewable energy for domestic and commercial use, these batteries have had a very good result in terms of lowering energy consumption and promoting the use of renewable energy in supplying electricity to homes and businesses (www. Tesla.com/​powerw​all, 2023). Tesla also recently doubled the capacity of its batteries to demonstrate its commitment to its goals for sustainable energy growth. Tesla’s cooperation with Solar City to provide solar panels called solar roofs that have the appearance of traditional roofing tiles is one of the actions of this company performed in cooperation with other companies as aligned with its main goal (www.fins​mes.com/​2022/​04/​3-​ways-​tesla-​is-​lead​ ing-​the-​sus​tain​abil​ity-​cha​nge.html, 2022; www.Tesla.com/​blog/​tesla-​and-​ solarc​ity, 2023). Nonetheless, to survive and grow sustainably, a technology-​based venture must constantly innovate, develop its ideas, and avoid complacency. They need to overcome various obstacles to growth and development while striving to obtain external funding, particularly from a VC firm that, beyond financial support, provides advice on surviving the “Valley of Death.”2 However, VC funds tend to be removed from their invested ventures after reaching an IPO that allows substantial amounts of capital to be raised from the public. Post-​IPO development could still be challenging with respect to continuous product and service innovation after a company reaches its maturity, despite its early success and support by VC. The continuous innovation and effective R&D that are to sustain growth by a listed tech company are not guaranteed. The 133-​year-​old Kodak Company was founded by George Eastman in the field of manufacturing equipment, raw materials, and photographic services. This company has been an industrial symbol in America and became one of the most popular companies in the world by producing small packages of yellow film, but this company could not keep up with the onset of the digital age and its novel technology and was forced to declare bankruptcy in 2012. Among the most important factors for the failure of such companies are noncompliance with new technologies, destructive innovation, lack of integration of external and internal knowledge, self-​satisfaction, inconsistent leadership, and loss of focus on product innovation, pertinent emerging technologies,

Innovation of Renewable Energies through Cleantech Ventures  47 and the underlying trends in the industry. Of course, these things are very important to a company’s survival in the technology field (Lucas & Goh, 2009; Phoo Pwint Khaing, 2016; Roychowdhury, 2019). Nokia, which was founded in Finland in 1865, is another such example. At the beginning of its establishment, it mainly engaged in papermaking and logging. However, as the mobile phone industry developed, Nokia gained its fame by entering into this industry. In 2013, Microsoft purchased Nokia’s mobile telephone business, indicating that the former mobile phone giant was out of the market. Although Nokia has tried to make progress in smartphone production for the past 10 years, its efforts have failed (Aspara, 2013). Its failure has been attributed to an ignorance of market dynamics, its competitors, and its consumer’s needs, and, more critically, the fact that the company was unable to keep up with the rapid development of emerging technologies that drastically challenged the status quo (S. Wang, 2022). Concluding Notes In this chapter, the technological management approaches pertinent to the renewable energy sector are investigated. Zero-​emission strategies, energy storage facilities, and innovative renewable energy systems are presented as opportunities to both independent VCs and allied corporate VCs with a strategic interest. Moreover, there are growing factors that serve to stimulate such enthusiasm, such as increasing oil demands, greenhouse gas emissions, climate change risks, rising sea levels, and perhaps even improvements in living standards. However, these cleantech ventures face significant challenges to their survival, specifically VC risk preferences, the timeframes of investment outcomes, venture framing, and investment domain familiarity. These issues can be addressed by adjusting risk-​taking practices with active portfolio management and networking strategic resources in the pertinent industries. A collection of reserves in renewables and clean energy industries could enable more risks than investing in other segments despite incremental revenues. Cleantech ventures have yet to demonstrate more exceptional financial outcomes than other technology-​based ventures. Moreover, bearing in mind the best investment options with consideration of the widespread risks and outcomes, VCs could prefer to allocate more funding to software and health-​related technologies, rather than to cleantech ventures. Commercializing newly occurring renewable energy novelties involves obtaining the approval of people who can then draw the attention of investors away from patient investors. These authorities should raise financial backing for the marketing of these studies rather than relying on networks of officeholders. To encourage corporations to support breakthrough cleantech innovations, the people in charge should advocate local corporations and propose an enthusiastic exchange of knowledge and technology between

48  Madjid Soltani and Artie Ng national and international laboratories under mutually beneficial terms. If implemented, these pieces of policy advice would draw the attention of a different mix of investors to the funding of innovations at various stages of development. Likewise, they would permit establishments to advance their skills by applying mutual public sources beyond the need for VC funding with predetermined return constraints under an extended timeframe necessitating continuous innovation. Finally, these pieces of advice need to be reinforced by initiatives from the private sector for coinvesting in resources to back technological innovation in renewable energy, continuous corporate R&D, and scalable solutions while jointly managing the risks involved. Notes 1 Reportedly, Tesla’s first round of financing was raised from venture capital firm Compass Technology Partners and one of its founders (source: https://​fin​foc.com/​ the-​fund​ing-​needs-​of-​tesla/​). 2 The concept of “Valley of Death” refers to the period of development in which many start-​up firms fail and discontinue operations due to insufficient resources and a lack of market traction (source: https://​corpor​atef​i nan​cein​stit​ute.com/​resour​ ces/​wea​lth-​man​agem​ent/​vent​ure-​capi​tali​sts/​)

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3 Social Bonds as an Innovative Financial Instrument for ESG Initiatives The Case of Toronto Ho Hon Leung, Sally Mingle Yorke and Artie Ng

Introduction In 2019–​2022, several major global events raised critical concerns about the “survival” of the world, if not sustainable development. The outbreak of COVID-​19 was transmitted across the globe in a matter of a couple of months. It was estimated that almost 7 million people died of the virus and 757 million people were infected (World Health Organization, 2023). The unthinkable consequence of this pandemic is a result of global stagnation for more than two years. The military conflict between Russia and Ukraine started in February 2022. Other than causalities and destruction of the war and the soaring price of gas and oil, the hostilities among the rivalries might lead to the use of nuclear weapons, scholars and politicians warned. Finally, climate change-​related natural disasters have surged fivefold over 50 years, disproportionately impacting poorer countries (United Nations, 2021a). A few examples include Cyclone Idai devastating millions in Zimbabwe, Malawi and Mozambique in Southern Africa and severe droughts in Ethiopia, Kenya and Somalia and other Central American countries in 2019, Australia’s worst wildfire in 2020 and deadly floods in India and Bangladesh in 2022. The United States alone faced intense and costly climate-​related natural disasters ranging from wildfires to winter storms, heat waves and tornadoes in 2021–​ 2022, and the estimated annual cost of damage was approximately $119.1 billion (Smith, 2023). Of all these recent destructive happenings, critical crises on environmental and social sustainable development, people in the world should have learned the implications of these warning signs: European countries heavily relying on fossil fuel and natural gas, devastating impacts on the livelihood of people and the environment, and supply chain challenges during COVID-​ 19. However, one positive sign is that air quality improved from COVID lockdowns (Albayati et al., 2021; United Nations, 2021b) due to the closure of production lines, limited traffic in all forms and so on; in general, people DOI: 10.4324/9781003288343-5

Social Bond as an Innovative Financial Instrument  55 travelled and shopped less except for essentials. This “natural experiment” indicates that there is an indisputable correlation between human consumption and greenhouse emissions to the environment that can worsen climate challenges (see NASA, 2021). While different global institutions, such as the United Nations (UN), World Bank, and World Health Organization (WHO), and governments in different countries are joining forces to oversee the world’s challenge to climate change, this chapter takes a relatively micro approach to examine how the Canadian city of Toronto’s social and green bonds can contribute to sustainable development. It begins with a literature review on green bonds and social bonds, highlighting their rationale and approaches from a global perspective on UN Sustainable Development Goals (SDGs). Furthermore, this study examines the scope of sustainable development and its funded programmes in the city of Toronto and investigates how its issued green bonds and social bonds have complemented the Environmental Social Governance (ESG) strategy and/​or fallen short for one of the largest metropolitans in Canada. It articulates whether there is an uncultivated potential of leveraging social bonds for investing in the development of other pertinent sectors in support of salient social outcomes while attaining the expectation of the capital market on risk and return (Philips and Johnson, 2021; Edmans, 2023; Wang et al., 2023). Canada’s Support of the Sustainable Development Goals Canada has always been a country that commits itself to supporting socially and environmentally responsible actions in its own communities, across the country and around the world. Canada joined all UN Member States in adopting goals for sustainable development in 2015 and has been working hard to accomplish a set of 17 SDGs that cut across social, economic and environmental needs. Along influential leaders in the world, Justin Trudeau, the Prime Minister of Canada and the cochair of the UN SDG Advocates, is anticipated to present its second Voluntary National Review in July 2023 at the UN High-​Level Political Forum on Sustainable Development. Canada’s progress on SDGs is to be highlighted since its first review in 2018. Canada’s 2021 Annual Report on the 2030 Agenda and the Sustainable Development Goals (Government of Canada, 2022b) reports the process of Social SDGs (No Poverty, Zero Hunger, Good Health and Well-​being, Quality Education, Gender Equality), Economic SDGs (Affordable and Clean Energy, Decent Work and Economic Growth, Industry Innovation and Infrastructure, Reduced Inequality, Sustainable Cities and Communities), Environmental SDGs (Clean Water and Sanitation, Responsible Consumption, Climate Action, Life Below Water, Life on Land), Peace SDGs (Peace, Justice and Strong Institutions), and SDG on Partnership working on innovative and inclusive collaboration over more than new partnership through SDG Funding Programme administered by the Government of Canada. The government’s

56  Ho Hon Leung, Sally Mingle Yorke and Artie Ng ongoing efforts in the reconciliation with the indigenous communities and supporting in their sustainable economic development are pertinent to the country’s SDGs performance. The City of Toronto is also part of the effort to materialize some of the SDGs (City of Toronto, 2022b) set by the UN and Canada, the details of which are beyond the scope of this chapter. What is worth investigating is its innovative policies on SDG through green bonds and social bonds (see Furness and Wilkes, 2022). In addition to being adjacent to Lake Ontario, one of the five Great Lakes of North America rich in natural beauty and resources, Toronto was ranked eighth out of 173 as the most liveable city in the world (City of Toronto, 2022c). As the largest city, most populated city and most multicultural city in Canada, Toronto is an ideal site to experiment SDGs with green and social bonds (see City of Toronto, 2023b, 13) for raising funds through government, company and private ‒ public collaboration for projects considered environmentally and socially beneficial. Before articulating the uncultivated potential of leveraging green and social bonds for the development of other pertinent sectors in support of salient environmental and social outcomes while attaining the expectation of the capital market on risk and return, the background of SDGs, green bonds and social bonds is introduced in the following. SDGs, Social Bonds and Green Bonds Funding Requirements for SDGs

The SDGs were proposed by the UN member states in 2014 to replace the Millennium Development Goals. On September 25, 2015, the proposal was adopted and ratified by all 193 UN Member States as part of the 2030 Agenda for Sustainable Development, which set out a 15-​year plan to achieve the goals. While the Millennium Development Goals comprised a set of eight goals that primarily focused on developing countries as the development agenda during 2000–​2015, the SDGs cover a much broader range of issues and are made up of 17 goals, with each goal having several underlying targets (total of 169 targets) and data indicators. The goals and targets are networked such that links among goals exist through targets that refer to multiple goals (Le Blanc, 2015). The 17 goals cover the three dimensions of sustainable development: economic growth, social inclusion and environmental protection (Sachs et al., 2018; Miola and Schiltz, 2019). The goals are a universal call to end poverty, protect the planet and ensure shared peace and prosperity and thus represent the reference goals for the international community. All countries are expected to take ownership and establish a national framework for achieving the 17 goals. The fundamental SDG principles include social inclusion, international cooperation, responsible production and consumption, and universal access to clean energy. Inherent in these goals are the international collaboration to fulfil human rights in promoting rights

Social Bond as an Innovative Financial Instrument  57 to food, health, education, gender equality, clean water and sanitation and decent work protected under international human rights (Park, 2018). The UN estimates that an annual investment of approximately $5 to $7 trillion will be required between 2015 and 2030 to achieve the SDGs across all sectors, with developing countries needing between $3.3 trillion and $4.5 trillion per year for basic infrastructure, food security, climate change mitigation and adaptation, health and education, and incremental capital expenditures of $1.9 to $3.1 trillion (Zhan et al., 2014). Additionally, there is an annual incremental global funding requirement of approximately US$ 2 to 3 trillion for the six major societal transformations (in the fields of education, health, energy systems, agriculture, urban planning and technology). The World Bank further estimates the investment requirements of low-​and middle-​ income countries for infrastructure-​ related SDGs to be between $1.5 trillion and $2.7 trillion per year, constituting 4.5% to 8.2% of their combined GDP, depending on their respective policy choices (Rozenberg and Fay, 2019). For SDG on health in low-​and middle-​income countries, the WHO estimates US$ 134 billion annually, which is expected to increase to $371 billion (WHO, 2017). McCollum et al. (2013) estimate that stringent climate policies consistent with a 2 °C climate change target require an additional clean-​energy investment of US$ 800 billion per year. According to the UN, the current investment levels are far from the scale needed and speed necessary to achieve the SDGs and objectives of the Paris Agreement on climate change. Specifically, low-​income developing countries will still face a financing gap of $300 to $400 billion per year even after significant increases in their domestic revenues (Sachs et al., 2018). Sachs et al. (2019) concluded that no country is on track for achieving all 17 goals while acknowledging major performance gaps even in the top countries on some SDGs. By 2022, the world had experienced a reversal of years of progress towards attaining the SDGs mainly due to the confluence of the COVID-​ 19 pandemic, climate change and military conflicts such as the Russian and Ukraine wars (United Nations, 2022; Sachs et al., 2022). Private Sector as a Potential Source of Finance for Responsible Investments

Given the significant investment requirement and slow progress towards the achievement of SDGs, public finance alone may not be sufficient to achieve the SDGs, and the need for private sector contribution through both good governance in business practices and investment in sustainable development is indispensable (Zhan et al., 2014). Complementary significant contributions from the private sector through investment flows from both domestic and foreign private investors can create and build on potential synergies between private and public sectors to speed up progress towards meeting crucial targets for achieving the SDGs by 2030. Global financial assets for such a purpose are estimated at over $200 trillion, so financing is available (United Nations, 2022). Zhan et al. (2014) estimated

58  Ho Hon Leung, Sally Mingle Yorke and Artie Ng the cash holdings of transnational corporations (TNCs) to be approximately $5 trillion; sovereign wealth fund assets to be $6 trillion; and the holdings of pension funds domiciled in developed countries to be $20 trillion. Zhan et al. (2014) further estimated the value of assets under Management of the Signatories of the Principles for Responsible Investment at almost $35 trillion. This is further reinforced by the presence of a breed of investors who are interested in gaining commercial value while making social impact (Del Giudice and Migliavacca, 2019; Fraser et al., 2018; Joy and Shields, 2013; Roth, 2011; Mulgan et al., 2011). Investment in the goals makes economic sense, as achieving the SDGs could open up US$ 12 trillion of market opportunities and create 380 million new jobs by 2030 (United Nations, 2022). Despite the growing private interests in SDG investment, it appears that most private resources are not being channelled towards sustainable development (Zhan et al., 2014), especially in developing countries at the scale required to attain the SDGs by 2030 (Sachs et al., 2022). Lower to middle-​ income countries, which constitute 42.9% of the world’s population, account for only 15% of investment spending. High-​income countries, which constitute 15.8% of the world’s population, account for approximately half of the world’s investment spending. There is therefore a need for a strategic framework for private sector investment to help structure efforts to mobilize funds, to channel them to SDG sectors and to maximize impacts while mitigating drawbacks (United Nations, 2022). Zhan et al. (2014) propose a four-​step framework that entailed mobilizing funds for sustainability, ensuring that funds are used to finance concrete sustainable development-​oriented investment projects and creating an enabling environment that maximizes sustainable development benefits and minimizes risks (see Figure 3.1). Overall, the consensus is that there is a need for a comprehensive transformation of the international financial and debt architecture that will utilize innovative financing tools to create lasting solutions and foster international cooperation (Sachs et al., 2022). This will require the development finance system to design SDG-​based public investment strategies and mobilize private capital to fund global public goods, including strategies for making capital markets work for people in developing countries (Atlantic Council, 2022). To ensure that such funds, when attained, are directed towards the needed investments, results-​based financing tools with well-​defined terms may present an innovative tool to achieve such objectives. Social Impact Bonds

Social Impact Bonds (SIBs) as a defined category of internationally recognized social bonds are financial instruments whose proceeds, or an equivalent amount, are to be exclusively applied to finance or refinance in part or in full new and/​or existing eligible social projects (CIMA, 2021). Hence, SIBs are a form of public–​private partnership where the government partners with private investors or social investors (who seek a blend of financial return

Social Bond as an Innovative Financial Instrument  59

Figure 3.1 The four-​step framework to mobilize funds for sustainability. Source: UNCTAD.

and social good) to fund interventions that tackle social problems (Sinclair et al., 2021; Tan et al., 2021; Dayson et al., 2020; Andreu, 2018; Fraser et al., 2018). As a financial instrument, it has a conventional bond characteristic in that the funds are borrowed from investors in exchange for periodic payments of interest and repayment in full of the loan. However, the repayment condition differentiates it from a normal bond instrument. Investors receive their principal and financial rewards when the project’s targeted outcomes are achieved (Tan et al., 2021; Dayson et al., 2020; Fraser et al., 2018; Park, 2018; Azemati et al., 2013). Hence, financial reward investors are tied to the achievement of performance targets for social projects. This distinguishing feature treats SIBs as equity instruments as the financial risk embedded in the project shifted from government to private investors (Bolton and Savell, 2010). If the social project funded by a social bond does not achieve its target or demonstrate the expected performance, investors will not be able to obtain their investments (Sinclair et al., 2021). Some SIB contracts may require the outcome funder (government) to back up the original bond to safeguard investors (Joy and Shields, 2013). Thus, SIBs are innovative financing tools that leverage private finance for complex social interventions while emphasizing payments for results rather than mere delivery of a required service (KPMG, 2022; Gustafsson-​Wright et al., 2015; Joy and Shields, 2013;

60  Ho Hon Leung, Sally Mingle Yorke and Artie Ng Roth, 2011). SIBs are referred to as Pay for Success projects in the United States, Social Benefit Projects in Australia and Development Impact Bonds (DIBs) in low-​to middle-​income countries, such as India and Colombia (Tan et al., 2021; Gustafsson-​Wright et al., 2015). For DIBs, the outcome funder is a donor agency or a foundation rather than the government (in some cases, government partners with a third party; Gustafsson-​Wright et al., 2015). Social bonds in general involve four parties. The first party, the government (central or local) responsible for providing social services, commissions the eligible social project for a target population. A service provider, as the second party, is contracted to deliver the social project commissioned by the government. The third party is the external investors who will cover (all or some of) the upfront costs of the project in exchange for a commitment by the government (outcome funder) to repay their initial investment plus a return if the predefined target outcomes of the commissioned project are achieved. The last party may be referred to as specialist intermediaries who are often involved in developing the project, securing the contract, facilitating investment and managing the project’s delivery. Given that the bond emphasizes payment by results, the contract may appoint an independent evaluator to monitor and measure the outcome of the project (Tan et al., 2021; Dayson et al., 2020; Fraser et al., 2018). Use of Green Bonds

Green bonds were invented as a way of using fixed income investments (fixed payments on a fixed schedule) to mitigate climate change. Green bonds are any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or refinance, in part or in full, new and/​or existing eligible green projects (CIMA, 2021). Eligible green projects should provide clear environmental benefits such as renewable energy, energy efficiency, pollution prevention and control, sustainable water and wastewater management and so on. Green bonds have gained increased attention in global capital markets in the wake of increasing risks of climate change and the increasing investment requirements of the Paris Agreement (Maltais and Nykvist, 2020). Green bonds principally offer a means to mobilize private financial resources towards the financing of climate change solutions (Climate Bond Initiative, 2018). By 2018. Green bond issuance has increased to an estimated $250 billion, and this is expected to further increase to $1 trillion by 2021 (Climate Bond Initiative, 2018). In 2018 alone, the corporate sector issued green bonds worth $95.7 billion (Flammer, 2021). In alignment with this global interest, Canada published its Green Bond Framework and issued its inaugural green bond in an amount of C$ 5 billion in 2022. (Government of Canada, 2022a). Both green and social bonds are structured like conventional bonds, and their proceeds can help governments address specific issues of sustainability concern (environmental and social issues). However, some notable differences

Social Bond as an Innovative Financial Instrument  61 exist between these two bonds. Green bonds are issued by governments, multinational banks or corporations, while social bonds are usually issued by governments. The buyers of a green bond typically have recourse to the issuer’s entire balance sheet; hence, the investors are not exposed entirely to the financial risks of the specific projects the green bond finances (Climate Bonds Initiative, 2018). Repayments of social bonds are dependent upon outcome success, which imposes risk on investors (Tan et al., 2021; Fraser et al., 2018; Roy et al., 2017; Gustafsson-​Wright et al., 2015). Due to their unique characteristics and sustainability focus, governments could use these two instruments complementarily by enjoying the synergistic benefits associated with such complements. In social bonds, governments can allegedly enjoy a relatively lower cost of capital. This phenomenon is consistent with research on the capital market about the relationship between ESG score and reduced cost of capital (Lodh, 2020). As repayment to investors is contingent upon successful project outcome, it is expected to result in greater accountability and to deliver better outcomes, thereby creating a “win‒win” solution for all stakeholders, as it presents investing opportunities to socially minded investors and presents governments with upfront necessary funds repayable upon successful programming (Fraser et al., 2018; Bolton and Savell, 2010). Government can therefore benefit from private sector rigor and performance management to drive results (Broccardo and Mazzuca, 2019; Gustafsson-​ Wright et al., 2015). The focus on outcome-​ based payments improves performance and enhances transparency (Mulvaney and Kriegler, 2014), evaluation of government expenditures and stabilization of economic activity, thereby contributing to the self-​realization of the targeted population (Schinckus, 2018). Improvement in environmental and social outcomes is seen by governments as complementary benefit or savings for the economy (Dayson et al., 2020; Berndt and Wirth, 2018; Liebman, 2011; Mulgan et al., 2011) and an ultimate reduction in taxpayer expenditure (Care and De Lisa, 2019; Sinclair et al., 2014). It provides the government with the opportunity to deliver on social projects that would have otherwise faced the prospect of not being financed and realized (Broccardo and Mazzuca, 2019; Disley et al., 2019; Mulgan et al., 2011). The use of green and social bonds by governments to support respective green and social projects in addressing specific social and environmental issues contributes to the attainment of the three dimensions of sustainable development: economic growth, social inclusion and environmental protection (Sachs et al., 2018; Miola and Schiltz, 2019). Qualified Projects Under SBP

The Social Bond Principles (SBP) outline best practices when issuing SIBs to promote transparency and disclosure to underpin the integrity of the bond market (CIMA, 2021). The distinguishing feature of social bonds is in the use of their proceeds for eligible social projects. SBP sets out high-​level categories

62  Ho Hon Leung, Sally Mingle Yorke and Artie Ng for eligible social projects. According to the principles, eligible social projects should provide clear social benefits, which can be assessed and, where feasible, quantified by the issuer. That means the social projects need to directly address or mitigate a specific social issue and/​or seek to achieve measurable positive social outcomes. Eligible social projects include projects on affordable basic infrastructure, access to essential services such as health and education, employment generation and unemployment reduction and socioeconomic advancement and empowerment targeted towards the less advantaged in a population such as those living below the poverty line, marginalized population, people with disability, uneducated, women, and so on. The first social project, the Peterborough Prison project, using social bond proceeds ($7.61 million), was commissioned by the Ministry of Justice in the United Kingdom in March 2010. The purpose of the social project was to reduce prison recidivism among short-​term male prisoners over a six-​year period. According to the financial terms, investors receive outcome payments if the reconviction rate falls by a minimum of 7.5% across all cohorts. If any cohort on its own reaches a 10% reduction in reconviction, there is the possibility of early repayment (Social Finance, 2011). Another social project (Rikers Prison) that used SIB proceeds ($9.6 million) was commissioned by the City of New Mayor’s Office in the United States in September 2012. This was an Adolescent Behavioral Learning Experience programme to reduce the reincarceration rate among adolescents at Rikers Prison through Moral Reconation Therapy over a period of three years with a conditional 12-​month extension. The predefined target was a 10% reduction in readmission bed days (future days in jail) (Broccardo and Mazzuca, 2019). Other examples are the Community Hypertension Preventive Initiative commissioned in Canada in October 2016, the Ways to Wellness Programme in the United Kingdom and the Mental Health and Employment Partnership Programme in the United Kingdom (evaluated by Carè and De Lisa, 2019). Statistics on the Use of Social Bonds Around the World

SIB has garnered significant interest since its first introduction in the United Kingdom in 2010. According to Social Finance (n.d.), there are currently 138 impact bonds that have raised capital worth $441 million across the world, touching the lives of 1,711,902 people spread across America, Europe, Australia, Africa and Asia. The United Kingdom issued an additional 13 SIBs in 2012. In 2013, the United States, Australia, Netherlands and Germany SIBs issued their first SIBs. The total number of SIBs issued that year was eight. In 2014, Belgium and Canada issued their first SIBs. By 2015, Portugal, Switzerland, Austria, Israel and Finland had also issued their first SIBs. Two DIBs benefiting people in Peru and India were also introduced. By close of 2015, a total of 54 SIBs had been issued across 15 countries. In 2016, 19 SIBs were issued. In that year, Israel, Sweden and South Korea issued their first SIBs. The highest number of SIBs, 41, was issued in 2017, while ten

Social Bond as an Innovative Financial Instrument  63 Table 3.1 SIBs issued across countries (2013–​2019) Countries Austria Netherlands Argentina Australia Belgium Cameroon Canada Chilli Colombia Finland France Germany India Israel Japan New Zealand Nigeria, Congo, Mali Peru Portugal South Africa South Korea Sweden Switzerland Uganda/​Kenya United Kingdom United States Total per year

2013

2014

1 2

2015

2016

2017

1 3

3

1

2

5

1 1

3 1

1

1 1

1

1 1

1 1 3 8

2 3 7

13 2 25

1 1 1 2 2 1

2018

1

1 1

1

1 7 19

12 5 41

3 1 1

1 3 1

3 2 1 3

2019

1

1

1 4 3 14

3 10

Total 1 11 1 10 2 1 4 1 1 2 5 3 3 3 3 2 1 1 4 1 2 1 1 1 47 26 138

and 14 SIBs were issued in 2018 and 2019, respectively. Overall, the United Kingdom has issued 47 SIBs, which is the highest number issued by any country. The United Sates follows with 26 SIBs and Australia with ten SIBs. France has five SIBS. The remaining SIBs are spread across the remaining countries (see Table 3.1). The Case of Toronto Toronto is home to more than 2.9 million people whose diversity and experiences make this city a leading financial centre in North America and one of the world’s most diverse and liveable cities. As the fourth largest city in North America, Toronto is the centre for various creative industries, namely, technology, film, music, culture and industrial innovation. Toronto being reconfigured of immigrants from various parts of the world has created a unique diversity of cultural and linguistic backgrounds. For instance, over 400,000 landed immigrants to Canada became residents of Toronto between

64  Ho Hon Leung, Sally Mingle Yorke and Artie Ng 1996 and 2001. Approximately 60% of these immigrants came from China, India, Pakistan, the Philippines, Sri Lanka, Hong Kong, Iran, the Russian Federation, South Korea and Jamaica (Government of Canada, n.d.) Similar to many other metropolises, there are various social and economic development issues that require financial aid and support from public resources. Toronto has been one of the largest municipal government borrowing programmes in Canada to finance its capital projects. The city has been a regular issuer in the public Canadian debt market, with several sinking fund debentures each year. Debenture issues are initially distributed and traded by several Canadian investment dealers. Retail investors can participate in investing in the City of Toronto’s debentures derived under its Social Debenture Framework. Eligible projects are capital projects for various social initiatives, including (i) social and affordable housing affordable basic infrastructure (access to clean drinking water, sewage and sanitation systems and transit); (ii) access to essential services (long-​term care, senior services and emergency shelters) and (iii) socioeconomic advancement and empowerment (public libraries and community hubs). In addition to its Social Debenture Framework, the City of Toronto has developed its Green Debenture Framework with the objective of upholding its climate action strategy to achieve a set of long-​term low-​carbon goals by reducing local greenhouse gas emissions and enhancing social equity while supporting economic development through such transformational changes. Eligible projects under these two frameworks are highlighted in Table 3.2. Table 3.2 Eligible projects under social and green debenture frameworks by the city Social debenture framework

Green debenture framework

• Social and affordable housing new development and/​or capital repair projects • Affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transit) • Access to essential services (e.g. long-​ term care, senior services, emergency shelters) • Socioeconomic advancement and empowerment

• Renewable energy, production and distribution • Energy efficiency • Pollution prevention and control and utilizing waste as a resource • Sustainable clean transportation, for humans, goods and services mobility enhancements • Climate change adaptation and resilience • Eco-​efficient and/​or circular economy principles integration • Green buildings

Social Bond as an Innovative Financial Instrument  65 Its defined Social Debenture Framework is independently reviewed by Sustainalytics, a global leader in environmental, social and governance research and ratings. This external verification ensures that the city’s framework aligns with the International Capital Markets Association SBP. Under this approach, the city has successfully issued three social bonds over the past few years. In June 2020, the City of Toronto issued an inaugural social bond offering of $100 million. Being the first government in Canada to establish a Social Debenture Programme, it has taken a leadership position in a series of sustainable financing initiatives to promote positive and equitable socioeconomic outcomes (City of Toronto, 2022a, 2022b, 2022c). This first $100 million bond issue has a 10-​year maturity to mature on December 2, 2030 providing a yield of 1.6%. While this borrowing cost is considered the lowest ever secured by the City, the proceeds from this issuance will be used to help fund Shelter, Support and Housing Administration’s George Street Revitalization project and 1,000 New Shelter Beds projects. The Social Debenture Program demonstrates the city’s commitment to advance positive social action and sustainability for Torontonians. In September 2021, the City of Toronto issued a public debenture offering for an additional $100 million social bond to help finance critical capital projects that enhance social outcomes. The transaction is a follow-​on of the City’s inaugural Social Bond, originally issued in June 2020, with a ten-​year term and coupon interest rate of 1.6% and will mature in December 2030. This is the city’s second offering of a sustainable debenture of this type. The City of Toronto remains the only government in Canada that has issued a Social Bond in the public debt market. This bond issue was priced with an “all-​in cost” of 1.937%, bringing this bond reissuance to an outstanding amount of $200 million. The proceeds from this issuance will be used to help fund projects from the following programmes: (i) Toronto Transit Commission (TTC): TTC Easier Access Program; (ii) Shelter, Support and Housing Administration: George Street Revitalization and (iii) Housing and Shelter Infrastructure Development. In July 2022, the City of Toronto issued its third social bond. This social bond issuance was for $235 million, with a 20-​year maturity and a coupon interest rate of 4.55% and will mature on July 27, 2042. There are concerns about the inflationary environment that has driven up the cost of capital across the financial market as well as the economic implications from the rising interest rate environment. One of the key implications is that there will be higher interest expenses and overall repayment amounts to be borne by the financed social projects, and ultimately by the end users. However, its successful financial closure reflects investors’ confidence in both the City and Toronto’s economy. This issuance was considered well received and has a total of 29 Canadian and international investors. The proceeds will be used to fund council-​approved capital projects from several city divisions and agencies, such as the TTC’s Easier Access Program and the George Street Revitalization project.

66  Ho Hon Leung, Sally Mingle Yorke and Artie Ng The city was recognized by the international capital market for its leadership in the green, social and sustainability bond and loan market, winning the Social Bond of the Year–​ Local Authority/​ Municipality at the 2022 Environmental Finance Bond Awards for a second consecutive year. In the meantime, the city is able to maintain an AA credit rating by S&P Global, an AA credit rating by DBRS Morningstar and an Aa1 credit rating by Moody’s. These ratings are a reflection of the city’s pragmatic financial management during the pandemic, with significant financial support secured from other sources for a well-​diversified economy. Discussion While Toronto sets out with a promising development in social bonds and articulates the use of the appropriate funds in some key areas such as affordable housing, basic infrastructure, transportation, access to essential medical services and socioeconomic advancement and empowerment, what can the city learn about the shortcomings of these programmes in climate change-​related environmental and energy issues (see City of Toronto, 2023b) and the impact of COVID-​19 on every aspect of livelihood in Toronto? The challenges to these three SDGs have been exacerbated in the last three years when climate change-​related natural disasters intensified, the energy crisis deepened during the military conflicts between Russia and Ukraine and the impacts of COVID-​19 on all aspects of life persisted. These present challenges intersect both environmental and social issues. Rather than taking a piece-​meal approach to issues, the City of Toronto recognizes the importance of integrating ESG factors throughout the entire city organization when making green and social bond investment decisions and monitoring the ESG performance of the investment (City of Toronto, 2023b, pg.11). Such an amalgamated public‒private approach has enabled the city to gain access to private funding from the international capital market as a means to financing public initiatives when public funding sources remain limited. As reflected in the case, utilization of private funding has apparently imposed a discipline to oversee accountability for financial prudence in cost control and viable economic return while achieving certain social goals. The city has obtained the ISO37120 Certification, which provides a set of indicators to administer the performance of city services and quality of life, at the highest platinum level for eight consecutive years: 2014–​2021 (ibid., pg.10). Starting in 2021, the City of Toronto is the first city in Canada to issue an annual ESG Performance Report. The 2023 City of Toronto Environment, Social & Governance Performance Report (2023b) further reports that the city has issued $980 million of green and social bonds since 2018, specifically $150 million green bonds and $100 million social bonds in 2021. The long-​ term project performance funded by the green bond (see City of Toronto Green Bonds, 2022) and the social bond (City of Toronto, 2022a) is too early to evaluate, although both bonds received good ratings and awards (Social

Social Bond as an Innovative Financial Instrument  67 Bond of the Year, n.d.; City of Toronto, 2022a). Additional indicators from Moody’s Investor Service, a bond credit rating corporate, reported that the city’s significant physical property and land were not subject to material risks caused by environmental concerns. Despite the expectation of reduced cost of capital associated with these social and environmental performances, the social bonds issued as reflected in the case are subject to higher interest rates under an inflationary environment to offset the required returns in the capital market within the paradigm of neoclassical finance. Projects financed under the social debenture framework or ESG concept are arguably still constrained by the fundamentals of corporate finance that hinges on long-​term economic value creation regardless of specific ESG factors (Edmans, 2023). While the city is a place to attract educated domestic migrants and international immigrants who have good access to basic services, one of the major challenges is to provide affordable housing supply, the evaluation further pointed out (ibid., p.16). However, what happened from 2019 to 2023 reveals some critical calls for ESG; they are the collapse of the health care system, especially during the pandemic, lack of affordable housing and gun violence in terms of social order. The severe impact of COVID-​19 on the world is beyond imagination. The domino effect imploded every single social system and the people’s livelihood. The compounded effect of the existing burdens in the Canadian health care system, such as high health care expenditure per capita compared with other countries in the world challenged by shrinking government budgets and the rapidly aging population, could no longer shield itself from the shockwaves of medical staff shortages, the closure of emergency rooms and extended wait times during the pandemic (Canada’s Health System is crashing, 2022); Toronto’s health care services, which rely heavily upon provincial and federal support, cannot escape the fate (Covid-​19 in the Toronto Context EX17.1, n.d.). The migration of nurses from publicly funded hospital positions that are unionized to private agency work (CBC/​Radio Canada, 2022) and Canadian medical professionals brain drained to the United States (see Jarvis, 2022) would not help the situation. Many reasons have contributed to this crisis of the lack of affordable housing in Toronto. A deliberately sclerotic planning process has slowed construction amid a rapid growth of population, poor zoning for the soaring housing needs and the pandemic buying mania corroded the balance between supply and demand, Board (2022) observed. Furthermore, it is reported that 34% of Toronto residents felt that the lack of affordable housing was an issue compared to 23% in the rest of Canada, and 32% of Great Toronto Area (GTA) respondents worried about rising rent compared to 25% nationally. Similar to people anywhere in North America, drivers in Toronto have to face soaring gas prices as a result of inflation and the military conflict between Russia and Ukraine, which also leads to higher prices in shipping commodities, including food production and public transit. Baron, director

68  Ho Hon Leung, Sally Mingle Yorke and Artie Ng of the MMA program at the University of Toronto’s Rotman School of Management, told CityNews in an interview (Westoll, 2022). Recent increases in hate crime against Asians because of COVID-​ 19 (Balintec, 2022) and gun violence in Toronto (Brown, 2022) do not help maintain, let alone develop sustainably, the role of being an economic engine of the country. Furthermore, Canada is planning to receive a record high number of immigrants in its history, over 460,000 a year from 2023 to 2025, to help ease the rapid increase in the aging population, increase the labour force and stimulate economic growth (Canada’s immigration levels plan 2023–​2025). These current crises and future challenges do not paint a rosy picture about the quality of living in Toronto, despite various promising reports on ESGs and ratings of the bonds on the city. The consequence of an unbearable city is that it does not retain the population and attract newcomers. Therefore, what else can social bonds and even green bonds support in light of these burning issues? The overall arching issue in Toronto is to provide a liveable, affordable and enjoyable place to retain its population, prevent brain drain and nurture the people’s and the city’s sustainable development. The projects eligible for both bonds listed in the framework in Table 3.2 deserve closer scrutiny between the agenda and some specific urgent needs highlighted in this chapter. While COVID-​19 took more than 50,000 lives in Canada (Canada, 2023), 80% of all reported COVID-​19 deaths were residents of nursing and senior homes (Clarke, 2021). The report also suggests that in general, Ontario experienced the largest increase in “excess deaths” at 28% compared with other provinces (CBC/​Radio Canada, 2021). This trend is very alarming for the rapidly aging population. This also calls for more, better and targeted senior services that must be supported by betterment of health care services in all aspects. Although job-​to-​job transition might tend to be associated with higher wages (see Danninger, 2016), other factors, such as a good working environment, stability and good work-​life balance, can retain employees (Styr, 2022). A city that offers job opportunities, quality of life and a sense of belonging are identified as key factors to minimize brain drain and maximize brain gain (Ferrario and Price, 2014). Quality and timely social and environmental projects supported by necessary policies can help reduce high turnover not only in the health care sector but also in other sectors. A concurrent issue related to the health care crisis is services for mental health across cultures and generations, which have been exacerbated during COVID-​19. Investments in mental health services are one of the highest priorities in debenture frameworks. This chapter does not allow extensive discussion on each possible eligible project under a social and green debenture framework. The above suggestions should be further debated and developed in different platforms and media. However, it would be fruitful to highlight some of the missing elements in the framework. Hate crime towards minority groups, especially Asians, during COVID-​19 works against the value of multiculturalism, which is the leading spirit and

Social Bond as an Innovative Financial Instrument  69 ideology in Canada. The city should make good use of the funding generated from the bonds to invest in projects to build a safe place not only for victims of hate crime but also for crime in general. Preventive measures should be an integral part of these projects. Programmes to promote core Canadian values such as equality, equity, inclusion, multiculturalism and democracy should be embraced within the framework. The programmes should not be just mirage verbal but with deliverables and actions that also improve the well-​ beings of Canada’s indigenous communities under a framework of social and environmental sustainability. Of all other options, investment in lifelong learning that embrace mutual respect of cultures is vital. This can take place in different forms, such as from formal and continuous education, energy literacy, vocational and career (re)training, to recreation for its citizens. This development coincides with the needs for socioeconomic advancement and empowerment in such a framework. Citizens can pursue different soft skills through recreation and simultaneously nurture their mental health. These are intangibles pertinent to the advancement of the city’s human and economic capitals that are seemingly unincluded in the existing framework. Finally, the redevelopment of post-​COVID space, vacant space due to store closures deserves careful and long-​term vision. This challenge intersects well-​planned projects from both green and social bonds. The policies must balance excessive material consumption and its impact on the environment. Conclusions The beginning of this chapter outlines the important reflections from some major global events, namely, the COVID-​19 pandemic, the energy crisis out of political and military conflicts between Ukraine and Russia and climate change-​related natural disasters, which have intensified concerns over global sustainability in the last three years. The warnings out of them are asking all citizens in the world to stop and think about what epochs we are living in. Global institutions and all levels of governments in the world advocate different initiatives and policies to curb the negative impacts. The City of Toronto recently introduced experimental green bonds and social bonds to finance best practices on ESG. Being the most populous and multicultural city in Canada, this economic engine with rich human capital can become a leading model for sustainable development. While it is too early to evaluate the project outcomes funded by bonds, this chapter reviews the eligible projects under the social and green debenture framework proposed by the city. Some discrepancies are found between such a defined framework and the current challenges. Fundable projects should be supported by a more holistic and long-​term vision in a Canadian context. A balanced development between infrastructures and intangibles with green components should be established. Some of the values that guide and evaluate the performance of ESG must be aligned with the needs in cities in the categories of climate change, social conditions, local agriculture and food and human capital

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74  Ho Hon Leung, Sally Mingle Yorke and Artie Ng Sinclair, S., McHugh, N., Huckfield, L., Roy, M., & Donaldson, C. (2014). Social impact bonds: Shifting the boundaries of citizenship. In Social Policy Review 26 (pp. 119–​136). Bristol: Policy Press. Sinclair, S., McHugh, N., & Roy, M. J. (2021). Social innovation, financialization and commodification: A critique of social impact bonds. Journal of Economic Policy Reform, 24(1), 11–​27. Smith, A. B. (2023). 2022 U.S. billion-​dollar weather and climate disasters in historical context. NOAA Climate.gov. Retrieved February 26, 2023, from www.clim​ ate.gov/​news-​featu​res/​blogs/​2022-​us-​bill​ion-​dol​lar-​weat​her-​and-​clim​ate-​disast​ers-​ his​tori​cal-​cont​ext Social Bond of the Year. (n.d.). Environmental Finance. Retrieved from www.enviro​ nmen​tal-​fina​nce.com/​cont​ent/​awa​rds/​enviro​nmen​tal-​finan​ces-​bond-​awa​rds-​2022/​ winn​ers/​soc​ial-​bond-​of-​the-​year-​local-​author​ity/​munic​ipal​ity-​city-​of-​toro​nto.html Social Finance. (n.d.). https://​sibd​atab​ase.social​fina​nce.org.uk/​ Social Finance. (2011). Reducing reoffending among short sentenced male offenders from Peterborough prison. London: Social Finance. Styr, C. (2022). 5 things that keep workers at their job and it is not salary. World Economic Forum. Retrieved from www.wefo​rum.org/​age​nda/​2022/​12/​5-​thi​ngs-​ that-​make-​work​ers-​stay-​at-​their-​jobs-​not-​sal​ary/​ Tan, S., Fraser, A., McHugh, N., & Warner, M. E. (2021). Widening perspectives on social impact bonds. Journal of Economic Policy Reform, 24(1), 1–​10. United Nations. (2021a). Climate and weather related disasters surge fivefold over 50 years, but early warnings save lives–​WMO report | UN news. United Nations. https://​news.un.org/​en/​story/​2021/​09/​1098​662 United Nations. (2021b). Air quality improvements from Covid Lockdowns confirmed | UN news. United Nations. Retrieved February 27, 2023, from https://​ news.un.org/​en/​story/​2021/​09/​1099​092 United Nations. (2022). The Sustainable Development Goals Report. Wang, N., Pan, H., Feng, Y., & Du, S. (2023). How do ESG practices create value for businesses? Research review and prospects. Sustainability Accounting, Management and Policy Journal, Vol. ahead-​of-​print. https://​doi.org/​10.1108/​ SAMPJ-​12-​2021-​0515 Westoll, N. (2022, June 22). Looking at how Canadians, including nondrivers, are paying more due to soaring gas prices. CityNews. Retrieved March 1, 2023, from https://​toro​nto.cityn​ews.ca/​2022/​06/​22/​gas-​pri​ces-​can​ada-​onta​rio-​toro​nto/​ World Health Organization. 2017. WHO Estimates Costs of Reaching Global Health Targets by 2030. WHO News Release. Retrieved from www.who.int/​news-​room/​ det​ail/​17-​07-​2017-​who-​estima​tes-​cost-​of-​reach​ing-​glo​bal-​hea​lth-​targ​ets-​by-​2030. Accessed November 3, 2022. World Health Organization. (2023). WHO coronavirus (COVID-​19) dashboard. World Health Organization. https://​covi​d19.who.int/​?mapFil​ter=​dea​ths Zhan, J., Bolwijn, R., Casella, B., Clements, J., El Kady, H., & Endo, K. (2014). World Investment Report 2014. Investing in the SDGs: An action plan. UNCTAD, United Nations, New York and Geneva.

4 Sustainable Development of Solar Power for the European Transition to Renewable Energy The Case of the Czech Republic David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová

Introduction Between the launch of the European Union Renewable Energy Directive and the end of 2019, the total capacity of photovoltaic systems in the European Union increased almost ten times up to 119 GWp (European Commission, 2020). The update of the Renewable Energy Directive in 2018 set a target of at least 40% greenhouse gas emissions reduction and 32% renewable energy (European Commission, 2018). Finally, the European Green Deal published in 2019 represents EU’s key action to reach climate neutrality and set the target even higher to at least 55% of greenhouse gas reduction by 2030. Almost all European Union (EU) goals are demanding, including this one (see Kabát et al., 2014). However, EU, state and institutional support alone will not be sufficient unless the public embraces the transition to solar energy. Generally, to implement climate change adaptation measures, it is of utmost importance that all stakeholders involved are well informed, engaged and supportive of adaptation (Janová et al., 2022). Accordingly, public and industry awareness and willingness to accept the transition will be crucial in attaining the goal. In 2020, the energy mix of the European Union consisted of 34.5% oil and petroleum products, 23.7% natural gas, 17.4% renewables, 12.7% nuclear energy and 10.5% solid fossil fuels, and the EU imported 57.5% of its energy consumption because its own production satisfied only 42.5% of its needs (Eurostat, 2022). Accelerating the deployment of solar energy appears to be crucial to fulfil the goal, as it has one of the lowest electricity generation costs (Kougias et al., 2021). However, the availability of land for the required photovoltaic capacity has been repeatedly questioned. Ground mounted photovoltaics systems in the EU have the technical potential to generate more than 2850 TWh of electricity annually (SolarPower Europe, 2020a, 2020b), but the use of arable land for solar energy production has been repeatedly debated. The rooftop solar photovoltaic potential DOI: 10.4324/9781003288343-6

76  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová in the EU on existing buildings was quantified as 640 TWh annually (Bódis et al., 2019). Several studies suggest that the technical potential of rooftop solar photovoltaics (Huld et al., 2018) and ground-​mounted solar photovoltaics (European Commission, 2018) on marginal (nonarable) land will be sufficient for reaching the ambitions of installed solar photovoltaic power. However, to considerably increase the share of solar photovoltaics, alternative places to install solar photovoltaics are being considered, such as building integrated solar photovoltaics, floating solar photovoltaics, solar carports, road-​integrated solar photovoltaics, urban solar photovoltaics and vehicle integrated solar photovoltaics and agrivoltaics (Willockx, 2022). Agrivoltaics means the combination of agricultural crop production and photovoltaics on the same land. This solution may represent a synergy of energy and crop production, as it can be beneficial and financially more attractive for shade-​loving crops than separated production systems (Willockx, 2022). In the Czech Republic, 50% of the electricity is produced in domestic brown coal power stations and approximately 35% in nuclear reactors; the rest is covered by renewable sources, particularly by biogas, solar power plants (SPPs) and biomass (Pokorná, 2018). While biogas and SPPs are relatively new sources and require intensive information and legislative support to become established (Pokorná, 2018), biomass is more accepted and established mainly due to the long history of forestry in the Czech Republic. However, due to climate change impacts, exhausted soil and a lack of biodiversity, forests face critical challenges and will require new information and policy support (Janová, 2016). In 2010, the installed capacity of SPPs in the Czech Republic reached 1971 megawatts (MW), which shot Czech Republic to prominent position in annual and total photovoltaic installations among EU countries, see Jäger-​Waldau (2018). However, in the following years, solar plant installation activity has diminished. Recently, the situation has improved with 2,083 MW in 2021, but in 2022, according to the Czech Energy Regulatory Office, the total installed capacity in the submitted applications will reach almost 14,000 MW. The entire sector has experienced stagnation over the past decade, while the EU as a whole has steadily increased the numbers. This stagnation in the Czech Republic is generally attributed to changes in state support for solar energy and a general negative perception of SPP construction in society due to its low scenic beauty and encroachment on arable land. Only the energy crisis triggered by the war in Ukraine has rapidly increased the willingness of the public and businesses to invest in solar energy. In this chapter, we will analyse the period of changes in state support and reveal the real impact of the solar boom on the encroachment of arable land.

Solar Power for the European Transition to Renewable Energy  77 On the Economics of Transition to Solar Energy in the Czech Republic Lessons Learned from Economic Theory

At the launch of intensive subsidy support, it was often perceived as excessive and purposeful by the public, that is, as support aimed at enabling the profit of powerful interest groups. However, the solar energy programme itself is economically justified and beneficial for several reasons. It offers positive effects in terms of climate protection and the use of renewables, a strategic reduction in dependence on a risky resource, which Europe is now facing a decade after the launch of intensive support, and the promotion of self-​ sufficiency for individual operators or households, which will gain an additional advantage when market energy prices rise. Positive effects may also be associated with the companies providing the relevant technologies: solar panels, improved energy storage capacity and skilled labour; regionally, the overall impact on employment may be significant. The most important negative implications then arise mainly from the way in which the programme is implemented for support. It is not so much a subsidy approach that necessarily implies an advantage over normal investment opportunities, but as long as it expresses a social consensus and does not constrain private investment activity in another desirable area, it is acceptable. However, not only does a guaranteed purchase price represent a reduction in investor uncertainty, but the increasing length of its application introduces two risk motives. First, from the investor’s point of view, the criterion of guaranteed appreciation of the investment may clearly prevail, discouraging the search for savings, improvement and, in general, development. This may be further encouraged by the length of the time guarantee. A 20-​year time frame can be seen as an expression of the uncertainty associated with the future of the activity for which it is subsidised. A long time frame can be a source of additional follow-​up problems. While the acquisition of agricultural land for photovoltaics does not imply its definitive degradation due to the construction of buildings and roads, it is conceivable that the land may return to agricultural use once the investment has been evaluated. However, ten or more years establishes a potential threat of impact on the increase in the price of agricultural production. In particular, if changing conditions require the expansion of land for a particular agricultural commodity, then if this land is of poorer quality than the land occupied by SPPs, the cost and consequently the price of agricultural production will be affected. The importance of such a factor will depend on the commodity and its place in the production and consumption chain. These theoretical aspects have thus far not been sufficiently covered by the rules of the support mechanism or the relevant legislation. Only recently have changes been made in the authorisation of SPPs in such a way that brownfields or rooftops are primarily used.

78  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová Measures Related to Solar Power Plants

The introduction of SPPs in the Czech Republic was made possible by the so-​called Energy Act No. 458/​2000 Coll., which was the basic legislation regulating the energy sector in the Czech Republic. The Act came into effect on 1 January 2001, and various European Union legislation relating to the energy sector was implemented in this Act. Significant state support for the production of electricity in SPPs in the Czech Republic began in 2005, when Act No. 180/​2005 Coll. was adopted, which established the obligation to purchase the electricity produced by one of the main electricity distributors at the announced guaranteed prices. These purchase prices are guaranteed for 20 years. The problematic part of the law later turned out to be the maximum 5% possibility of reducing the announced guaranteed price in subsequent periods. The purchase prices are announced every year by the Energy Regulatory Authority. The law also defined support through the so-​called green bonus, which was an extra subsidy linked to each kWh produced, paid for one year after the SPP was activated. In 2005, the state targeted the development of SPPs with measures implemented, where the criterion was a 15-​year payback period for the investment. As a major cost, solar panel prices started to drop significantly from 4.5 USD/​W in 2008 to 0.9 USD/​W in 2012 (in 2015 prices); see Kavlak et al. (2018). The state failed to respond to such a dramatic drop in investment costs in time with updated legislation, and the inappropriate 5% limit on the drop in purchase prices guaranteed by the law prevented significant adjustments of support within the existing legislation. The level of support set disproportionately high in relation to the actual decrease in investment costs caused by the overbuilding of SPPs in the Czech Republic (Divišová, 2013). The Czech government reacted to the critical situation not earlier than in September 2010, when it had an amendment to the law approved in the legislative emergency mode, which significantly reduced support for SPPs built after 2010 (see Figure 4.1), and the “solar boom” in the Czech Republic practically ended. However, this amendment to the law did not change the state’s obligation towards the owners of already implemented SPPs. If we compare the situation in neighbouring Germany in 2009 and 2010, we can see the difference in approach between the two countries. While the Czech Republic was not able to adopt the necessary legislative changes and maintained the support for SPPs at a completely inadequate level in 2010, Germany proceeded to decrease the purchase prices in quarterly periods so that the purchase prices would more flexibly reflect the development of investment costs in photovoltaic technologies. The consequences can be seen in Figure 4.2, where the Czech Republic became a solar giant relative to comparable countries in 2010, but in the long term, the development of solar energy has stagnated until now (year 2022). In Germany, the effect of a vigorous but gradual reduction of subsidies can be seen, leading to a virtually uninterrupted development of solar energy. The inability of politicians in the

Solar Power for the European Transition to Renewable Energy  79

Figure 4.1  Comparison of purchase prices of electricity from renewable energy sources in the Czech Republic. Source of data: Energetický regulační úřad.

Czech Republic to react to the situation is especially surprising given that a similar situation occurred in Spain in 2007 and lessons could have been learned early on. The development of solar energy in Spain stagnated –​as in the Czech Republic –​until 2018, when the construction of more SPPs started. The resulting situation has caused considerable public and corporate discontent in the Czech Republic and has been used for political struggle. With hindsight, it can be stated that taking into account the unfair practices of some SPP owners, the awareness of the unjustified profits of SPP owners, called “solar barons,” and especially the increased costs for citizens and companies (which have been passed on in the prices of goods and services), electricity production using solar energy has been completely discredited for a long time. Support for SPPs was included in the so-​called renewable energy contribution paid by electricity consumers. In 2006, this contribution was valued at 28 CZK/​MWh, in 2010 at 166 CZK/​MWh and in 2013 at 583 CZK/​ MWh. This meant additional expenses of approximately 2,000 to 10,000 CZK for ordinary households, depending on the use of electricity, which was already a significant hit to household budgets. This contribution

80  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová

Figure 4.2 Installed capacity of solar power plants (solid line) and their production (dashed line) in the Czech Republic, Germany and Spain. Source of data: International Renewable Energy Agency.

had an equally serious impact on companies, with the largest contributor to the renewable energy contribution being the company České dráhy with CZK 682 million. Company Unipetrol, the payer of CZK 642 million, provided the analysis, resulting in the following conclusions: “Czech industry is losing approximately 29% of its pre-​tax profits in this way. For the chemical industry, this share of profit taken away has risen to 55%.” Regulatory Interventions

The state responded to the situation with several measures. In 2010, a so-​called solar tax was introduced in the form of a charge of 26% of the guaranteed electricity purchase price for photovoltaic power plants put into operation in 2009 and 2010, except for power plants with an installed capacity of up to 30 kW located on buildings. Payments of the solar tax in this form took place between 2011 and 2013. The introduction was unsuccessfully opposed by a group of senators, who filed a motion to the Constitutional Court to repeal the solar tax. In May 2012, the Constitutional Court issued a ruling rejecting

Solar Power for the European Transition to Renewable Energy  81 this proposal. The Constitutional Court found that the solar tax was in the nature of a so-​called nonreal retroactivity; it was not a real retroactivity, since in the case at hand it is clear that the tax period, or the period in which the electricity produced is subject to the charge, has only just begun with the entry into effect of the legislation (the charge does not apply to electricity produced before the law came into force). The Constitutional Court stated that genuine retroactivity is permissible only in exceptional circumstances, while nongenuine retroactivity is generally permissible. Despite this ruling of the Constitutional Court, seven companies have initiated arbitrations with the Czech Republic, of which six have thus far (year 2022) been settled in favour of the Czech Republic and one is still pending. Further adjustments in the matter of SPPs were given by Act No. 165/​ 2012 Coll., which, among other things, prescribed the identification of the true owners of SPPs. In 2013, the essential steps were the approval of Act No. 310/​2013, the end of support for new SPPs realised after 2013, and the capping of the renewable energy contribution at CZK 495/​MWh, effective from 2014. However, capping itself only changes the structure of those who will pay the costs of the promised subsidies, relieving companies in particular. In 2013, the solar tax was extended indefinitely but was reduced to 10% and limited only to plants that became operational in 2010. The last measure implemented in the area of disproportionate subsidies for SPPs is Decree 72/​ 2022 on ensuring the adequacy of the operating support provided to energy sources. The decree applies to electricity producers who were simultaneously recipients of operating and investment support and provides for the calculation of the reduction of the amount of support for electricity from renewable energy sources and other means by an amount corresponding to the amount of investment support provided. The decree regulates the method for calculating the amount of electricity from solar radiation where a risk of overcompensation has been identified in the sector. The adoption of the decree was a necessary precondition for the fulfilment of the targets set for renewable sources of electricity by 2030 by both Czech and EU legislation to verify and maintain, inter alia, the adequacy of the support for electricity from renewable sources for electricity sources put into operation in the period from 1 January 2006 to 31 December 2015. Several EU countries have experienced problems with subsidies for SPPs. In the aforementioned Spain, the disproportionate subsidy to solar owners has been drained away, in particular through the equivalent of a solar tax. Bulgaria adopted the Renewable and Alternative Energy Sources and Biofuels Act to establish a renewable energy production system in 2007. In July 2012, its target was reached ahead of schedule, and Bulgaria decided to take measures to stop further investments, especially in solar and wind power plants. This led to the end of renewable energy source investments in Bulgaria in the coming years. Although Germany has dealt with inadequate subsidies by swiftly introducing the necessary legislation, the ineffectiveness of subsidies is criticised in the field of solar power due to the climatic conditions

82  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová prevailing in Germany. This can be illustrated in Figure 4.2 by comparing the installed capacity of SPPs and the electricity produced. It is of course necessary to take account of the time lag between installation and the full ramp-​up of the installed equipment, but it is nevertheless evident that production in Germany is below the rated capacity. The situation is the opposite in Spain, where favourable climatic conditions allow the production of electricity and the considered capacity. In the Czech Republic, the installation of SPPs is often questioned by nonexperts, not least because it is unsuitable due to the lack of sunshine, but the electricity production visible in Figure 4.2 disproves this view. Another common argument against the construction of SPPs in the Czech Republic is the undesirable occupation of agricultural land, which is a potentially serious problem. Soil Sealing Problem

Soil sealing is defined by the Ministry of Agriculture (2012) as the covering of soil with impermeable materials, whereby the soil loses its natural properties and is therefore unable to perform its multiple important functions. The consequence of land sealing is the permanent loss of soil and therefore the destruction of all its productive and ecological functions. This results in a loss of high-​quality valuable arable land, which also means less availability of high-​quality fertile land for future generations. Biodiversity in the area is also reduced, and the relief of the area and the landscape as a whole is changed. Infiltration and retention are reduced, and rainfall in the built-​up area causes localised flooding. The groundwater level is also not sufficiently recharged. New buildings also pose a potential risk of contamination of their surroundings (sewage, increased traffic, etc.). The aesthetic aspect cannot be overlooked either. Fields and meadows are much more pleasing to the human eye than production halls and warehouses that increasingly surround large cities (Vejvodová, 2014). Soil sealing is a problem in all EU countries. The European Environment Agency has introduced the Soil Sealing Index to monitor soil sealing. In the description given by Eurostat (https://​data. eur​opa.eu/​data/​datas​ets/​57bxij​xrfe​9uan​aurb​rea?loc​ale=​en), we can read that the indicator estimates the increase in sealed soil surfaces with impervious materials due to urban development and construction (such as buildings, constructions and laying of completely or partially impermeable artificial material, such as asphalt, metal, glass, plastic or concrete). This provides an indication of the rate of soil sealing, which occurs when areas change land use towards artificial and urban land use. The indicator builds on data from the Imperviousness High Resolution Layer (a product of the Copernicus Land Monitoring Service). Land cover classes classified as sealed include housing areas (even with scattered houses), traffic areas (airports, harbours, railway yards, parking lots), roads, and railway tracks associated with other impervious surfaces (i.e., inside built-​ up

Solar Power for the European Transition to Renewable Energy  83 area), industrial, commercial areas, factories, energy production and distribution facilities, sealed surfaces, which are part of categories, such as allotment gardens, cemeteries, sport and recreation areas, camp sites, excluding green areas associated with them, artificial grass-​covered sport pitches, construction sites with discernible evolving built-​up structures, single (farm) houses (where possible to identify from satellite imagery), protected borders of water edges, greenhouses, permanent plastic covered soil, and solar panel parks. The evolution of soil sealing in EU countries is described in Table 4.1. Malta shows a very high percentage of soil sealing, which is understandable –​it is a small island country, followed by the Netherlands and Belgium, and surprisingly high soil sealing rates in the vast country of Germany. In addition to the current situation, it is important to monitor the dynamics of soil sealing. Apart from Malta, Cyprus and Luxembourg, small island states, higher growth rates are evident for the Netherlands, Belgium, Germany and Denmark. In general, the Nordic and Baltic countries show a lower percentage of soil sealing and a lower growth rate. Soil sealing associated with the uncontrolled expansion of settlements is currently, together with erosion, the biggest problem of agricultural soils in the Czech Republic. The long-​term trend of the development of the area of agricultural and nonagricultural land is presented by Sálusová (2018) and can currently be captured by the reports of the Czech Office of Surveying and Cadastre (see Figure 4.3). The loss of arable land has been occurring over Table 4.1 Percentage of soil sealing (SS) in 2018 and growth rate of soil sealing in percentage points calculated based on data from 2006 to 2018 Country

SS [%]‌

Growth [pp]

Country

SS [%]‌

Growth [pp]

Belgium Bulgaria Czechia Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg

6.30 0.92 2.51 3.06 4.49 0.47 1.02 1.03 1.27 1.97 1.29 2.79 2.23 0.41 0.81 4.49

0.10 0.02 0.04 0.06 0.07 0.01 0.02 0.02 0.03 0.04 0.02 0.04 0.11 0.01 0.02 0.12

Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden Iceland Liechtenstein Norway Switzerland

1.58 17.08 8.36 1.85 1.54 2.21 0.91 1.73 1.57 0.47 0.46 0.07 4.60 0.27 2.85

0.03 0.25 0.15 0.03 0.05 0.04 0.02 0.03 0.04 0.01 0.01 0.01 0.03 0.01 0.04

Source of data: Eurostat, own calculations.

84  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová

Figure 4.3 Development of agricultural and nonagricultural land types in the Czech Republic. Source of data: Český statistický úřad.

the long term, and it is not easy to distinguish in detail what types of arable land are changing. In addition to the decline in arable land, there is a visible decline in agricultural land in general. Over the last 20 years or so, there have been different dynamics of decline, where it can be assumed that arable land is changing to permanent grassland, which is showing an increasing trend. In particular, however, the area of nonagricultural land has been increasing in the long term. A significant part of this area is forestland, but the growth in its area is much less steep. The result is an increase in the area classified as “other”, which includes built-​up areas, roads and many other contributors to soil sealing. Only a fraction of the detailed information on arable land conversion is available. Between 2001 and 2006, 20,000 hectare (ha) of agricultural land was lost in the Czech Republic, that is, 11.2 ha/​day. In 2006, the loss of land for settlement and transport infrastructure was estimated at 16 ha/​day. In 2007, 5,226 ha was lost, and in 2008, 5,096 ha was lost –​14 ha/​day. The amount of covered area in the Czech Republic in 2006 was 243 m2 per capita, which is above the average of the values of the European Union countries (Ministry of Agriculture, 2012). In 2011, approximately 2,700 ha of arable

Solar Power for the European Transition to Renewable Energy  85 land was taken by construction. The development intensity occupies an area of approximately 7.5 ha per day. In 2011, approximately 126 ha of land was taken by road infrastructure, whereas in 2005–​2007, it was approximately 800 ha per year (Spilková & Šefrna, 2010). Among the factors that cause the taking of arable land, agrarian analyst Petr Havel (Vejvodová, 2014) includes the following: • Arable land represents so-​called free capital and can be monetised very quickly at a profit. • The price for arable land offered by developers to owners is often up to 40 times higher than the normal price, that is, the price derived by means of technical evaluation of the land. • Rents for lease of arable land in the Czech Republic are traditionally very low, often in the past realised in the form of rent in kind, partly due to custom and partly due to the poor economic situation of many agricultural entrepreneurs. • Old industrial sites, so-​ called brownfields, are often burdened with pollution, which is a barrier for developers. The Action Plan for Biomass in the Czech Republic for the period 2012–​ 2020 aims to link the identification and preservation of the potential of agricultural land to ensure 100% food self-​sufficiency of the country with the possibility of effective use of the remaining potential of agricultural land in the Czech Republic and forest dendromass for energy needs. According to the calculations of this material, at a 100% food self-​sufficiency rate for the Czech Republic, 680,000 ha of free arable land and 440,000 ha of free permanent grassland would be available for renewable energy sources (Ministry of Agriculture, 2012). Thus, the reduction of arable land is not an immediate danger for food availability (the Czech Republic is in many cases a net exporter), but the displacement of farmers from the best quality land (typically in flat areas, where it is also best to build –​both warehouses and SPPs) will have both ecological and socioeconomic negatives in the future. Given the location of the Czech Republic in the middle of Europe, there is a high potential for further land occupation for the construction of transit centres and warehouses. The rapid development of SPPs in 2009 and 2010 has certainly resulted in the loss of agricultural land, including arable land, but there is no clear contribution to the overall loss of arable land. It is also clear that there is not a pure soil sealing problem with SPPs, as the areas for SPPs are not covered by a continuous layer of impermeable material. On the other hand, solar panel parks are classified as buildings that increase the Soil Sealing Index of the European Environment Agency. A detailed analysis of the actual state of agricultural land acquisition in the Czech Republic since 1989 is lacking. Only information on the transfer of land from arable land to other land is available, and only since 2009. The case study below will

86  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová quantify the land taken and assess the severity of this land take by SPPs in the Czech Republic. Case Studies Soil Sealing and Solar Power Plants in the Czech Republic

The aim of this section will be to identify the area of arable land in the Czech Republic that was covered by photovoltaic panels during the solar boom and to determine how significant the soil sealing problem was. The key data used for this purpose consist of commonly accessible information collected from the internet. Photovoltaic power plants with installed outputs higher than 1 MW from all regions of the Czech Republic were included. The initial source of the information was the “Overview of data on licences granted by the Energy Regulatory Authority” on the website of Energetický regulační úřad (ERÚ). There is information about the licence holders, the date of the beginning of the licenced activity, the extent of the enterprising and technical parameters including the installed output (in MW) and the information about the individual power stations as the areas of delimitation (cadastral area, parcel number) built-​up by the solar panels. As it is not possible to select only SPPs with installed capacity over 1 MW using the ERÚ licence search engine (the overview also includes hydro, wind, steam … plants and can be filtered by region, district, municipality, licence number, name of the entity, subject of business and status of the licence application, which is not suitable for this survey), the list according to the website www.ele​ktra​rny.pro/​was used for the tabular arrangement of all SPPs with capacity over 1 MW (unfortunately, this web is actually out of order). Inaccurate or incomplete information on installations was found here; therefore, all data were compared and adjusted according to the individual licences of the ERÚ website. However, the website of the Energy Regulatory Office also states that “This listing” (meaning the overview of data on licences granted by the ERÚ) “is for information only. The data for its creation was obtained from the Internet computer network… .” This suggests that inaccuracies may occur here as well. The area occupied by the individual SPPs was determined using the land register, which can be accessed via the website of the Czech Office of Surveying and Cadastre. In addition to the parcel area, the land registry also identified the type of land (arable land, other land, etc.) and its use (landfill, greenery, handling area, etc.). At the same time, the website of the Czech Office of Surveying and Cadastre provides the possibility to verify the presence of photovoltaic power plants on the Marushka map server. Since in some cases the presence of installed photovoltaic panels has not been proven by the Marushka maps, the data were also compared with Google Maps and Google Street View data and with the map portal www.mapy.cz. This visual check can confirm the installation of an SPP; however, due to the different

Solar Power for the European Transition to Renewable Energy  87 (possibly unpublished) dates of the images, they cannot be taken as evidence that, for example, an SPP did not exist at the time of the subsidy award. By summing the area of individual parcels, the total area of photovoltaic parks with an installed capacity of over 1 MW in individual regions, the total area in the Czech Republic and the area of arable land developed with SPPs were obtained. Since 2009, the publications of the Czech Office of Surveying and Cadastre contain data on the loss of arable land and the area of “other areas” including SPPs in the regions of the Czech Republic. Figure 4.4 shows the relationship between the total area of SPPs and the area of SPPs built on arable land using a regression line. The largest arable land acquisitions were realised in the Jihomoravský region in all the years under study, which is justified in particular by the fact that this region has the highest long-​term aggregated sunshine periods in the Czech Republic. The Jihočeský region and the Středočeský region are above average in this respect in the Czech Republic. In 2010, the situation in the Plzeňský region stands out, where the arable land take is lower than would be expected. This is due to the construction of the SPP on approximately 38 ha of the former garrison training ground in Stříbro. In 2010, SPP construction in the Ústecký region took place mainly outside arable land, for example, in and near the city of Chomutov, and SPP construction took place on the roofs of an industrial complex and in the landscape in the close vicinity of settling tanks. In the Liberecký region, a significant amount of SPP has been built on various parts of the former military area of Ralsko. However, there is a certain distortion here, since, for example, the land on which the SPP near city Mimoň stands was ‘other land’ according to the land register, but visual inspection prior to the construction of the SPP indicates at least permanent grassland with the functional potential of arable land. The year 2011 is presented for illustrative purposes only, as the SPP construction in this year was significantly less than in 2009 and 2010, and no SPP construction took place in 2012. For the

Figure 4.4 Total area of built solar power plants (SPP) and area of SPP built on arable land in 2009, 2010 and 2011 in individual regions of the Czech Republic. Source of data: Czech Geodetic and Cadastral Office, own survey in the cadastre.

88  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová

Figure 4.5 The area of solar power plants (SPP) built on arable land and the total area of arable land in 2009, 2010 and 2011 in individual regions of the Czech Republic. Source of data: Czech Geodetic and Cadastral Office, own survey in the cadastre.

Czech Republic, it can be summarised that in 2009, 68% of SPP construction took place on arable land, while in 2010, it was 59%. A further insight is provided by a comparison of the construction of SPP on arable land and the total loss of arable land for the individual regions of the Czech Republic (see Figure 4.5). In 2009 and 2010, the regression trend was not followed by the Plzeňský region and the Jihočeský region, where arable land was largely transformed into permanent grassland: 78% and 67% in 2009 and 71% and 57% in 2010, respectively. The position of the Olomoucký region in 2009 is interesting. This region is traditionally an agricultural region, and people reflect this tradition in their relationship to land, with arable land losses being relatively small. Thus, in 2009, the construction of the SPP here meant an above-​average loss of arable land to nonagricultural land. A similar effect can be seen in 2010 for the Jihomoravský region, where, moreover, it can be said (assuming the accuracy of the analysed data) that virtually the entire area of arable land converted to nonagricultural land was used for the construction of the SPP. An overall view of arable land acquisitions in the Czech Republic is presented in Figure 4.6. Such detailed data are only available from 2009 onwards, but this does not matter for our purposes, as the significant amount of SPP construction occurred in that year. In 2009, the amount of arable land taken for SPP construction was 5% of the total arable land; in 2010, it was 15%; and in 2011, it was approximately 0.3%. The total amount of arable land lost between 2009 and 2012 was comparable, and the structure of what types of arable land were transformed into was also similar. In 2009 and especially in 2010, there is a visible decrease in arable land losses in favour of other nonagricultural land, which is mainly warehouses and production halls. It can be concluded that strongly motivated SPP developers overpaid

Solar Power for the European Transition to Renewable Energy  89

Figure 4.6 Structure of arable land acquisitions in the Czech Republic between 2009 and 2012. Source of data: Czech Geodetic and Cadastral Office, own survey in the cadastre.

those interested in building halls and warehouses or at least caused arable land purchases to temporarily increase in price. In 2011 and 2012, the situation probably normalised. Challenges for Solar Power Plants

The energy crisis triggered by the Russian aggression in Ukraine and the problems with the supply of natural gas from Russia are currently (year 2022) a major issue for European countries. The Czech Republic is one of the countries strongly affected due to its long-​term orientation towards imports of raw materials from Russia. One of the ways to face the energy crisis is to switch to electric appliances and domestic provision of electricity generation, including SPPs. As Brož (2022) reports, entrepreneurs in the Czech Republic have responded very pragmatically, and as of the end of October 2022, distribution companies have registered grid connection requests for SPPs with a total installed capacity of 14,715 MW. This is seven times more than the existing capacity of SPPs installed by the end of 2021. Taking into account

90  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová the availability of sunshine in the Czech Republic, it can be assumed that the newly connected SPPs will generate 14,715 GWh of electricity, which is approximately a quarter of the current electricity consumption of the Czech Republic. It cannot realistically be assumed that the entire required capacity will be connected to the grid. The distribution companies do not have grids in such a state that they can connect additional local energy sources (which is particularly true for the Jihomoravský region), and even worse, there is no information available on which locations and for which capacities the connection is possible. Therefore, investors are practically probing through applications where it makes sense to build an SPP at all. However, the current energy crisis is not the only factor influencing investors in SPPs in the Czech Republic; rather, it can be seen as a trigger and accelerator for the construction of new SPPs. As shown in Figure 4.7, over the years, the initially very expensive electricity generation by SPPs has become one of the cheapest ways of generating electricity. SPPs are thus competitive with traditional sources of electricity even without subsidies in any form. An important factor limiting the efficiency of electricity production in SPPs is the direct dependence on solar radiation. Traditional sources of

Figure 4.7  Comparison of the price of energy from new power plants in 2009 and 2019. Source of data: Žídek (2022).

Solar Power for the European Transition to Renewable Energy  91 electricity can be controlled to a large extent to match the immediate demand for electricity and its production. In the case of nuclear power plants in the Czech Republic, one can point to the Dukovany nuclear power plant, which was built together with the Dalešice dam, the Mohelno balancing reservoir, the Dalešice pumped storage plant and the Mohelno run-​of-​river hydroelectric power plant (CEZ GROUP, 2022). The constructed reservoirs are used both for cooling the Dukovany nuclear power plant and as a storage facility for the unused energy produced by the Dukovany nuclear power plant during off-​peak hours. Another desirable feature is the ability to quickly start electricity production at the Dalešice pumped storage plant in the event of a total blackout to enable electricity production at the Dukovany nuclear power plant and thus stabilise the grid. Innovative Options

A similar idea of energy storage is very desirable in the case of SPPs. Various energy storage options are increasingly being put into practice, and in particular, further developments are taking place in various directions. Grubb et al. (2021) conduct a systematic and interdisciplinary review of the empirical literature assessing evidence on induced innovation in energy and related technologies. Wehrle (2022) proposes a computational model for electricity storage costs based on real data on renewable electricity generation in Germany. The most important conclusion lies in the realisation that in a power supply based on wind power and solar power, it is not the generation of electricity that causes the greatest costs, but the storage. Taking into account the costs of the storage systems and the costs for the losses incurred, the resulting total costs are several times higher than the electricity generation itself, depending on the system configuration. (p. 39) Lukáč (2022) describes the intentions of a major real estate company, CPI Property Group, which illustrates well the current situation in the Czech Republic. The company is facing unprecedented increases in energy prices, in light of which it makes sense to invest in its own energy sources. Another reason is the expected introduction of emission allowances or a carbon tax for buildings, where the company’s interest is to declare the carbon neutrality of its buildings by covering consumption from renewable sources. It is also in the company’s interest to use hydrogen-​based technologies so that when the sun shines, the hydrogen unit produces hydrogen for storage using electricity and electrolysis. In turn, it can generate electricity from hydrogen and supply it to the grid for a fee or use it to heat hot water when needed. In addition, the company wants to invest in battery storage, which again can be used for its own use or for the grid.

92  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová Although it has been shown that even during the solar boom, SPPs did not take up significant areas of arable land, this should no longer be the case for new installations. The taking of good quality arable land is undesirable in the vast majority of cases, with the exception perhaps of grassing or afforestation of arable land in conditions unsuitable for modern agricultural production. While the placement of an SPP is not an irreversible process, it is possible to talk about soil conservation and often about improving the properties of fallow land, but it is nevertheless worth looking at the possibilities of simultaneous electricity production using SPPs and agricultural production. The concept of “agrivoltaics” is being developed in this direction; see, for example, Dinesh and Pearce (2016). One direction of agrivoltaics is the use of solar panels on taller structures under which, for example, cattle can graze freely or grass cutting can take place; the land area is minimally affected, and shading of the area can be positive. Another option may be the use of vertical double-​sided photovoltaic panels used as fencing or even placed in different formations inside the plot with the aim of minimal encroachment on agricultural land. In both cases, the efficiency of land use and the potential income from agricultural activities combined with electricity generation are increased. Vertical photovoltaic panels can also find application on existing noise walls, SPPs can be placed on large dumpsites … the principle should be to use primarily nonarable land for the construction of SPPs. According to Lukáč (2022), the aforementioned CPI Property Group plans to build SPPs coupled with the installation of charging facilities in parking lots. Here, cars will be protected from sun, ice and snow and, in the case of electric cars, can be directly charged. It can therefore be seen that the construction of SPPs in cities may not be impossible elsewhere other than on the roofs of houses. López et al. (2022) discuss another unconventional placement of SPPs, namely, on the water surface. The floating solar photovoltaic panel solution has several benefits: it avoids unwanted evaporation and thus drying of water surfaces, and the water cooling of photovoltaic panels increases their efficiency. Concluding Notes The development of SPPs in the Czech Republic was successfully launched by legislation adopted in 2005. However, the state has not been able to respond adequately to the decreasing costs of building SPPs, which resulted in the expansion of SPPs in the Czech Republic in 2009 and 2010. The costs were largely borne directly by households and businesses, resulting in considerable dissatisfaction and subsequent emergency state intervention. It can be said that in the Czech Republic, SPPs were discredited for a long time due to inappropriate parts of the legislation, inflexible reactions of the state and unfortunate statements of politicians at the time. One of the political tools to combat SPPs has been the pledge to protect agricultural land, particularly arable land. However, a factual analysis

Solar Power for the European Transition to Renewable Energy  93 of arable land encroachment between 2009 and 2012 shows that SPPs have taken up an insignificant percentage of arable land compared to other reasons for encroachment. The current situation of high energy prices, energy scarcity and reduced costs of generating energy with SPPs suggests that SPP capacity will have to be developed significantly, with complementary energy storage technologies being deployed and, in any case, attention must be paid to the protection of agricultural land. The EU is currently distributing record subsidies for green energy, including SPPs. The state should ensure their efficient and rapid distribution without unnecessary bureaucracy. Positive legislative changes are already taking place in the Czech Republic in this respect, where the need for a building permit for small photovoltaic systems up to 50 kW has been removed. In addition, the previously excluded possibility of sharing surplus energy production, for example, within the housing system, is being addressed, and the concept of community energetics is being developed. The state should also monitor the limits of the distribution network, plan and report on its development and push for strengthening the capacity of the distribution network where needed. Overall, we can state that despite the long (unjustifiably) bad reputation of SPPs in the Czech Republic, intensive construction of both large SPPs and small home photovoltaic systems has started. Proactive engagement of stakeholders through communication and good advocacy of support measures are key factors in gaining public support for the implementation of the EU Solar Energy Strategy. This public support, together with the development of distribution and storage of the energy produced, is crucial because energy generated by the sun will be able to replace a significant share of electricity produced not only by gas but also by other fossil sources. Acknowledgements This research was conducted under the financial support of the Bioeconomic Modelling Team at the Faculty of Business and Economics, Mendel University in Brno. References Bódis, K., Kougias, I., Jäger-​Waldau, A., Taylor, N., & Szabó, S. (2019). A high-​ resolution geospatial assessment of the rooftop solar photovoltaic potential in the European union. Renewable and Sustainable Energy Reviews, 114, 109309. Brož, J. (2022). Solárníci chtějí připojit tolik elektráren, že by pokryli čtvrtinu spotřeby Česka. Hospodářské noviny. Retrieved from https://​arc​hiv.hn.cz/​c1-​ 67136​350-​solarn​ici-​cht​eji-​pripo​jit-​tolik-​ele​ktra​ren-​ze-​by-​pokr​yli-​ctvrt​inu-​spotr​ eby-​ceska CEZ GROUP (2022). CEZ’s Hydroelectric Power Plants. CEZ GROUP. Retrieved from www.cez.cz/​en/​ene​rgy-​gen​erat​ion/​hydroe​lect​ric-​power-​pla​nts/​cez-​hydroe​lect​ ric-​power-​pla​nts

94  David Hampel, Gabriela Olšanská, Kamil Fuchs and Jitka Janová Dinesh, H., & Pearce, J. (2016). The potential of agrivoltaic systems. Renewable and Sustainable Energy Reviews, 54, 299–​308. Divišová, M. (2013). Jak to bylo a je s fotovoltaikou v Česku. peníze.cz. Retrieved from www.pen​ize.cz/​nak​upy/​275​131-​jak-​to-​bylo-​a-​je-​s-​fotovo​ltai​kou-​v-​cesku European Commission (2018). Directive (EU) 2018/​2001 on the Promotion of the use of Energy from Renewable Sources (Recast). Retrieved from https://​eur-​lex.eur​opa. eu/​legal-​cont​ent/​EN/​TXT/​?uri=​uris​erv:OJ.L_​.2018.328.01.0082.01.ENG European Commission (2020). Renewable Energy Progress Report. European Commission. Retrieved from https://​wayb​ack.arch​ive-​it.org/​12090/​202​2090​1071​ 300/​https:/​ene​rgy.ec.eur​opa.eu/​top​ics/​renewa​ble-​ene​rgy/​progr​ess-​rep​orts​_​en/​ Eurostat (2022). EU energy mix and import dependency. Eurostat. Retrieved from https://​data.eur​opa.eu/​data/​datas​ets/​57bxij​xrfe​9uan​aurb​rea?loc​ale=​en Grubb, M., Drummond, P., Poncia, A., McDowall, W., Popp, D., Samadi, S., Penasco, C., Gillingham K. T., Smulders, S., & Glachant, M. (2021). Induced innovation in energy technologies and systems: a review of evidence and potential implications for CO2 mitigation. Environmental Research Letters, 16(4), 043007. Huld, T., Bodis, K., Pinedo Pascua, I., Dunlop, E., Taylor, N., & Jäger-​Waldau, A. (2018). The rooftop potential for PV systems in the European union to deliver the Paris agreement. European Energy Innovation, Spring 2018, 12–​15. Jäger-​ Waldau, A. (2018). Snapshot of photovoltaics –​February 2018. EPJ Photovoltaics, 9(6). https://​doi.org/​10.1051/​epjpv/​2018​004 Janová, J., & Hampel, D. (2016) Optimal managing of forest structure using data simulated optimal control. Central European Journal of Operational Research, 24, 297. Janová, J., Hampel, D., Kadlec, J., & Vrška, T. (2022). Motivations behind the forest managers’ decision making about mixed forests in the Czech Republic. Forest Policy and Economics, 144, 102841. Kabát L., Hampel D., Issever Grochová L., Janová, J., & Střelec, L. (2014). Alternative approaches for assessing the European countries economic and social results. Procedia Economics and Finance, 12, 273–​282. Retrieved from https://​doi. org/​10.1016/​S2212-​5671(14)00345-​1 Kavlak, G., McNerney, J., Trancik, J. E. (2018). Evaluating the causes of cost reduction in photovoltaic modules. Energy Policy, 123, 700–​710, Retrieved from https://​ doi.org/​10.1016/​j.enpol.2018.08.015. Kougias, I., Taylor, N., Kakoulaki, G., & Jäger-​Waldau, A. (2021). The role of photovoltaics for the European Green Deal and the recovery plan. Renewable and Sustainable Energy Reviews, 144, 111017. Retrieved from https://​doi.org/​10.1016/​ j.rser.2021.111​017 López, M., Soto, F., & Hernández, Z. A. (2022). Assessment of the potential of floating solar photovoltaic panels in bodies of water in mainland Spain. Journal of Cleaner Production, 340, 130752. Retrieved from https://​doi.org/​10.1016/​j.jcle​ pro.2022.130​752 Lukáč, P. (2022). Vítkova CPI založila vlastní energetickou firmu, chce stavět elektrárny i zateplovat. Investuje miliardy. Hospodářské noviny. Retrieved from https://​arc​hiv.hn.cz/​c1-​67116​110-​vitk​ova-​cpi-​zaloz​ila-​vlas​tni-​energ​etic​kou-​firmu-​ chce-​sta​vet-​ele​ktra​rny-​i-​zat​eplo​vat-​invest​uje-​milia​rdy Ministry of Agriculture (2012). Situační a výhledová zpráva půda. Retrieved from http://​eagri.cz/​pub​lic/​web/​file/​181​775/​Zprava​_​Pud​a_​kn​iha_​web_​_​1_​.pdf

Solar Power for the European Transition to Renewable Energy  95 Pokorná, V. (2018) Renewable energy potential in the Czech Republic: Obstacles to achieve it. Policy Paper. Retrieved from https://​europ​eum.org/​data/​artic​les/​pct5.pdf Sálusová, D. (2018). České zemědělství očima statistiky 1918–​2017. Český statistický úřad. Retrieved from www.czso.cz/​csu/​czso/​ceske-​zeme​dels​tvi-​ocima-​sta​tist​ iky-​1918-​2017 SolarPower Europe (2020a). Global market outlook for solar power: 2020–​2024. SolarPower Europe. Retrieved from https://​resour​ces.solar​busi​ness​hub.com/​solar-​ indus​try-​repo​rts/​item/​glo​bal-​mar​ket-​outl​ook-​for-​solar-​power-​2020-​2024 SolarPower Europe (2020b). 100% Renewable Europe, how to make Europe’s Energy System Climate-​Neutral before 2050. SolarPower Europe. Retrieved from www. solar​powe​reur​ope.org/​insig​hts/​mar​ket-​outlo​oks/​100-​renewa​ble-​eur​ope-​study Spilková, J., & Šefrna, L. (2010). Uncoordinated new retail development and its impact on land use and soils: A pilot study on the urban fringe of Prague, Czech Republic. Landscape and Urban Planning, 94(2), 141–​148. Vejvodová, A. (2014). Místo obilí rostou na českých polích sklady, těch se ale nenajíme. Česká televize. Retrieved from www.ceskat​elev​ize.cz/​ct24/​ekonom​ika/​ 268​617-​misto-​obili-​ros​tou-​na-​cesk​ych-​pol​ich-​skl​ady-​tech-​se-​ale-​nenaj​ime/​ Wehrle, N. P. B. (2022). The cost of renewable electricity and energy storage in Germany. European Journal of Business Science and Technology, 8(1), 19–​41. Willockx, B., Lavaert C., & Cappelle, J. (2022). Geospatial assessment of elevated agrivoltaics on arable land in Europe to highlight the implications on design, land use and economic level. Energy Reports, 8, 8736–​8751. Žídek, B. (2022). Energetická revoluce by se významem měla vyrovnat průmyslové i digitální. Ekonom. Retrieved from https://​eko​nom.cz/​c1-​67062​420-​ener​geti​cka-​ revol​uce-​by-​se-​vyzna​mem-​mela-​vyrov​nat-​pru​mysl​ove-​i-​digita​lni

5 Scaling Renewable Energy Capacities for Sustainability in Africa Cases of Innovative Financing Options Sally Mingle Yorke, Philip Kofi Adom and Artie Ng Introduction Energy is considered the bedrock for economic development, as access to energy can have a rippling effect that directly impacts socioeconomic development. For instance, access to energy can lead to advancement in healthcare, education, life expectancy and economic opportunities (Nganga, 2016). Thus, access to affordable, reliable and sustainable energy (SDG 7) is crucial to achieving many of the Sustainable Development Goals (SDGs; Fuso-​Nerini et al., 2018). However, there are large discrepancies in access to energy across different countries, which could greatly impede the achievement of SDG 7 and its positive impacts on other goals. Although the proportion of the global population with access to electricity increased steadily, from 83 per cent in 2010 to 91 per cent in 2020, sub-​Saharan Africa is home to over 77 per cent of the global population without electricity (The Sustainable Development Goals Report (SDGR, 2022)). Specifically, 19 of the 20 countries with the lowest proportion of the population with access to clean cooking fuels and technologies were least developed countries in Africa. At present, Africa has more than 600 million people, constituting approximately 43 per cent of the population, who lack access to electricity according to the International Energy Agency. This suggests that to achieve the SDG target of universal access to electricity by 2030, African governments need to connect about 90 million people annually. High energy poverty exacerbates Africa’s socioeconomic inequalities and impedes far-​reaching access to basic health services, education, modern machinery and technology. This ultimately stifles opportunities for socioeconomic development. Moreover, access to affordable, reliable and sustainable energy and improvements in energy efficiency could accelerate the attainment of the UN SDG climate goal through reduction in greenhouse gas emissions, improvement in water supply and industrialization. As the most commodity-​dependent region in the world, Africa is most susceptible to the adverse effects of climate change. The impact of climate change on Africa’s economic and social developments thus far has been overwhelming despite the continent producing less than 4 per cent of the world’s carbon DOI: 10.4324/9781003288343-7

Scaling Renewable Energy Capacities for Sustainability in Africa  97 emissions. Average temperatures on the continent have risen faster than the global average, resulting in a series of tropical storms and flooding. The Mo Ibrahim Foundation (2022) has estimated that approximately 40 million people in Africa could be adversely affected owing to the ripple effects of climate change. Consequently, access to affordable energy through a power grid infrastructure by the people of Africa is crucial. It is noted that efforts made towards the development of Africa economically, socially and environmentally would not be effective without sufficient investments into infrastructures for power generation, power distribution and robust power transmission based on clean and renewable energy sources.1 Made within the right policy framework, investments in renewable off-​grid systems could provide a least-​cost path out of energy poverty by bringing electricity access to millions of Africans. Renewable energy has the potential to address many of the socioeconomic and climate challenges facing Africa. The International Renewable Energy Agency’s (IRENA) modelling (from 2021 through 2050) results showed and identified the mechanisms through which energy transition positively impacts Africa’s economies and people through increased gross domestic product (GDP), job creation and improvements in general welfare. Additionally, transitioning to renewable energy would reduce reliance on wood fuel and charcoal, especially in urban areas, with co-​benefits of reduced deforestation, desertification and fire risk and improved indoor air quality, local development and agricultural yield (Intergovernmental Panel on Climate Change [IPCC], 2019). Moreover, the adoption of clean cooking solutions can reduce health risks from household air pollution, support a green and healthy recovery and fuel economic growth (SDGR, 2022). Several recent empirical studies focusing on Africa show a positive relationship between increased consumption of renewable energy and sustainable development (Tiba and Belaid, 2021; Elum and Momodu, 2017; Schwerhoff and Sy, 2017). Thus, in the quest to develop Africa economically and socially there is the need to create the right legal and institutional environment as well as strong financial institutions for investments to come into the continent under the right conditions for renewable energy generation, distribution and robust renewable energy transmission. The International Energy Agency reports that global renewable energy capacity reached a new record in 2021 with the addition of 295 gigawatts of power and is expected to reach 320 gigawatts in 2022 (IEA 2022a, 2022b). However, Africa accounts for less than 3 per cent of the world’s installed renewable-​ based electricity generation capacity (IRENA, 2021). The irony of this is that Africa is in fact rich in minerals, including manganese, copper, lithium, cobalt, chromium and platinum, which are essential sources for renewable energy and low carbon technologies such as electric batteries and wind turbines (IRENA and AfDB, 2022). Moreover, Africa has approximately 90 per cent of its economically feasible hydropower potential (equal to a tenth of the world’s total) unexploited (European Investment Bank [EIB], 2016). Africa also accounts

98  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng for 60 per cent of the best global solar resources yet has only 1 per cent of the installed solar photovoltaic capacity. This strategically places Africa as the future hub for renewable energy projects. Significant progress is already being made in renewable energy development in Africa. There are several regional programmes and initiatives (such as the Africa Renewable Energy Initiative (AREI), the Africa Power Vision, the African Clean Energy Corridor and the African Single Electricity Market specifically tailored for the growth and development of renewables. Renewable energy potential has surged over 24 GW since 2013, and forecasted values suggest an extra renewable energy potential of 27.3 exajoules by 2050 according to the World Economic Forum (2022). Solar and wind capacity alone increased by 13 per cent and 11 per cent, respectively, in 2019/​2020 according to the World Economic Forum (2022). As of 2021, total renewable energy projects under construction totalled 33,086 MW according to the World Economic Forum (2022). West Africa has the fewest projects under construction of approximately 100 MW, with Central Africa topping the list with 15,201 MW renewable energy projects under construction. Currently, North Africa is leading in terms of renewable energy investments, but when all the projects under construction are completed, Central Africa will lead the race for renewable energy development. Key to the realization of these renewable energy projects is developing innovative financing models to support investments in renewable energy projects. Given that most traditional financing models target large energy projects and that the African energy problem is largely rural-​based, designing innovative financing models for small renewable energy technologies could play a key role in Africa’s quest to achieve the SDG universal energy access target by 2030. This chapter provides an overview of holistic financing options with reference to business cases based on their public disclosures on their respective renewable energy developments in Africa. Specifically, the role of regional development banks and multilateral agencies, multinational corporations, venture capital and microfinance institutions (MFIs) are articulated. The chapter highlights the need for harnessing private capital and public‒private partnerships. Leaders from business, government and civil society need to collaborate to accelerate economic growth and development through improved access to renewable energy. This is particularly essential in the face of increasing demand for energy in Africa, estimated to be at an annual rate of approximately 3 per cent (the highest among all continents) driven mainly by increasing population, urbanization and economic productivity. Literature Review Importance of the Energy Sector in Africa

The SDGs agreed upon at the United Nations General Assembly in 2015 consist of 17 interlinked goals designed as targets for all nations across the

Scaling Renewable Energy Capacities for Sustainability in Africa  99 globe to achieve a better and more sustainable future by 2030. One goal that is inextricably linked to the attainment of other SDGs is SDG 7, which is to ensure “access to affordable, reliable, sustainable and modern energy for all”. Energy supply has been recognized as a bedrock for economic and social advancement. Thus, it is believed that attaining SDG 7 is crucial to the attainment of the SDGs 2030. Based on this framework, several studies test and find a positive impact of energy consumption and infrastructure on economic growth (Aslan, 2016; Pablo-​Romero and Sánchez-​Braza, 2015; Baranzini et al., 2013; Stern and Enflo, 2013; Stern, 1993). Specifically, in Africa, energy and sustainable energy development can have critical influence on Africa’s climate challenges, poverty as well as its recovery from the COVID-​19 crisis. The African Union’s Agenda 2063 clearly establishes the links between energy and industrialization (AUC, 2015). Empirical evidence from Africa suggests a link between energy consumption and the GDP of selected countries (Bah and Azam, 2017; Ouedraogo, 2013; Akinlo, 2008). Access to clean, affordable, reliable and sustainable energy has a huge impact on key developmental areas such as education, health, agriculture and industry, all of which are key for economic and social development. For instance, in terms of education, electrification gives opportunities for children to study in the evenings (Daka and Ballet, 2011) and increases study times (Gustavsson, 2007; Wamukonya and Davis, 2001). It also provides opportunities for higher education institutions to perform core educational functions contributing to their overall quality. Empirically, Abdelkarim et al. (2014) found a positive effect of energy use on enrolment. Hence, Africa will benefit from a higher educated workforce and human capital. Attainment of SDG 7 is integral to attainment of SDG 3, which aims to promote healthy lives and well-​being for all people at all ages. Access to efficient and clean energy services is crucial for the provision of vital healthcare services, as it improves the quality and effectiveness of delivery of essential health services in Africa (Youssef et al., 2016; Adair-​Rohani et al., 2013). Improved health services will improve the well-​being, health and productivity of the populace in Africa (Youssef et al., 2016). As the most commodity-​dependent continent, agriculture is one of the most important sectors in Africa. The World Bank Group (2021) estimated that agriculture served as the source of livelihood for over 53 per cent of the population of sub-​Saharan Africa and accounted for approximately 17.2 per cent of the total GDP in sub-​Saharan Africa in 2021. Africa is the region with the third largest share of agricultural land, accounting for 24 per cent of the world’s arable lands (Food and Agriculture Organization [FAO], 2020). However, the region’s irrigation capacity is among the lowest (5 per cent). Most people employed in agriculture depend on rain to irrigate their crops, with less than 1 per cent of arable land equipped with irrigation. Meanwhile, one-​third of the world’s droughts occur in sub-​Saharan Africa, leaving the region highly susceptible to the detrimental impact of climate change. Climate change impacts are expected to slow economic growth, hinder poverty reduction, further erode

100  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng food security and prolong existing conditions while creating new poverty traps (IPCC, 2014). Sub-​ Saharan Africa remains the most food-​ insecure region in the world. Africa can make significant gains in agriculture, improve its food security, promote economic development and alleviate poverty if it could make investments in infrastructure that could significantly boost yields, reduce the negative impact of climate change, and help countries adapt. Development in the sustainable renewable energy sector is considered a vital component of these attempts to achieve these indicators (Baptista et al., 2022; FAO, 2011). However, prior studies suggest that the growth of economic activities and energy consumption is associated with increasing greenhouse gas emissions, thus increasing the risk of climate change with its attendant negative impacts (Gorus and Aydin, 2019; Esso and Keho, 2016; Khan et al., 2014; Apergis and Payne, 2009). Consequently, more attention has been drawn to the use of cleaner sources of energy in the quest to achieve sustainable development. Bhattacharya et al. (2016) found that the consumption of renewable energy had a significant positive impact on the economic output of more than half of their sampled countries. Comparing renewable and non-​renewable energy consumption, Ito (2017) found that while non-​renewable energy consumption had a negative impact on economic growth for developing countries, renewable energy consumption positively contributed to economic growth in the long run. IRENA’s recent model of the socioeconomic impacts of the energy transition in Africa from 2020 through 2050 predicts that under the appropriate policy basket, a systematic shift away from carbon-​intensive energy sources towards an energy system based on renewable energy could lead to 6.4 per cent higher GDP across Africa, a net balance of 3.5 per cent more jobs and a 25.4 per cent higher continent-​wide welfare index by 2050 (IRENA, 2020). Overall, the evidence suggests that, guided by the right policies, Africa could garner immense benefits from harnessing the potential contributions of its energy sector. Renewable Energy Investments for Social, Environmental and Economic Sustainability

With the reverse dependence existing between human activity and climate change, there is the need to shift swiftly to cleaner forms of energy if the world is to achieve sustainable development (i.e. environmental, energy, economic and social sustainability). This has motivated several studies to assess the impact of renewable energy investments on different aspects of sustainability (Cicea et al., 2014; Komar and Bazilian, 2005; del Rio and Burguillo, 2008, 2009; Liezmanska-​ Kopcewicz et al., 2020 inter alia). Different decision-​making techniques have been adopted in the literature (see Strantzali and Aravossis, 2016 for detailed literature on the various decision-​ making techniques adopted to evaluate the link between renewable energy

Scaling Renewable Energy Capacities for Sustainability in Africa  101 and sustainable development). They include cost‒benefit analysis (provides a monetary evaluation that makes it easy to compare to market mechanisms), the lifecycle approach (provides environmental implications for different technologies considering inputs and outputs), the multicriteria approach, and econometric techniques (assessing the causal relationship between renewable energy and sustainable development). The superiority of any of these techniques is strongly determined by the researcher’s objective even though each possesses some inherent property that might make it favourable in some instances. Policymakers and researchers have closely linked clean energy forms to the goal of sustainable development, but the debate still lingers on whether this is a reality or just a dream. According to Ambec and Lanoie (2008) and Porter and van der Linde (1995), the declining cost of renewable technologies helps provide a competitive advantage, as in the end, resource use is optimized efficiently. Additionally, renewable energy transition has been linked to declining greenhouse gas emissions (Cortez et al., 2022, European Commission, 2003, 2005a, 2005b). Dincer (2000) and De la Torre (2006) have emphasized that renewable energy investments make a significant contribution to poverty alleviation, environmental protection and energy security. According to the authors, promoting renewable energy helps decentralize energy options, which makes it easier to provide energy to previously difficult areas with no access to the national grid. This feature of renewable energy investments makes it a key candidate to promote local/​national development and sustainability. Reddy et al. (2006) assessed the impact of renewable energy investment on local sustainability. Their study revealed that renewable energy investment impacts various aspects of local sustainability, such as financial, natural, social, physical and human sustainability. In particular, they found that renewable energy investments help to reduce rural‒urban migration, as they contribute to employment creation and building local capacity. However, they found that the impact on income is modest. Others have confirmed the positive contribution of renewable energy investment to regional development (Faulin et al., 2006, Mı´guez et al., 2006, Lopez et al., 2007a, 2007b), regional income disparity (Komor and Bazilian, 2005), rural community development (El Bassam and Maegaard, 2004), and national development (Lyeonov et al., 2019). Liezmanska-​Kopcewicz et al. (2020) assessed renewable energy investments among industries and how they affect different aspects of firm sustainability. The results showed that investing in renewable energy positively impacts the market position of firms by helping promote brand image, equity and local innovation and create value in a sustainable enterprise. The social dimensions of sustainability as related to renewable energy investment have also been highlighted. Del Rio and Burguillo (2009) confirmed the contribution of renewable energy investment to the socioeconomic dimension of sustainable development but indicated that it could depend on the productive structure of the area, involvement of local actors

102  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng and stakeholder relationships that exist. Bergmann et al. (2006) interviewed 219 households on their perceived benefits of renewable energy investments. The respondents generally consent to the fact that the valuation of the socioeconomic attributes of renewable energy investment is less than that of the environmental attributes. Other studies have looked at the environmental and energy sustainability prospects of renewable energy investments. Generally, the story seems conclusive in that renewable energy investment promotes both environmental and energy sustainability. Lyeonov et al. (2019) found that renewable energy investment reduces greenhouse gas emissions by 3.08 per cent. Similarly, Zahan and Chuanmin (2021) confirmed that green investments reduce carbon dioxide emissions. Erdil and Erbiyik (2015), using SWOT analysis, assessed the energy and environmental implications of different renewable energy sources. They concluded that among the renewable energy sources, hydropower is considered the most effective in achieving sustainable electricity generation. However, they asserted that renewable energy investment is mostly preferred in satisfying energy goals rather than environmental goals. Similarly, Maxim (2014), using a multicriteria decision analysis, showed that large hydropower ranks higher in achieving sustainable development among other energy types. Razmjoo et al. (2021) also found that hybrid renewable energy technologies involving photovoltaics, wind turbines, diesel generators and batteries produce the best energy outcome situation with an energy cost of $0.15/​kWh. Furthermore, with a renewable energy share of 72 per cent, the preferred hybrid renewable technologies can reduce carbon dioxide emissions annually by 2,000 kg. Evans et al. (2009), however, revealed that wind power produces the lowest relative greenhouse gas emissions and social impacts among other energy types. The land requirement and initial capital cost might be higher instead. Financing Options for Renewable Energy

Even though the cost of renewable energy technology projects (RETs) has experienced a nosedive globally, in developing economies with weak currencies, the dollar cost of RETs is still high. This high initial investment cost remains one of the main constraints for developing RETs in developing countries. With RETs identified as the sustainable energy path for the future, local governments are using financing incentives such as tax rebates, subsidies and feed-​in tariffs to support the development of RETs (Hu et al., 2013; Wang and Chang, 2014; Zhao et al., 2016). While these measures are considered critical in developing RETs, they are inadequate, leaving a large financing gap for other players. Private capital and public‒private partnerships are the other two popular financing models for RETs. The latter is comparatively popular because of the project risk-​sharing opportunities and different types of debt/​equity structures it provides (Razavi, 1996). Private capital is topping public capital as the main source of funding for RET investment. According to global statistics provided by the IRENA (2020), between 2013 and 2018,

Scaling Renewable Energy Capacities for Sustainability in Africa  103 the private sector contributed, on average, 86 per cent of the total investment in RETs, equivalent to an annual commitment of US$257 billion, compared to an average of 14 per cent from public finance, equivalent to an annual commitment of US$44 billion. Irrespective of the financing model, there are generally two financing options used to finance RETs. They are debt and equity finance. The debt instruments have medium risk and medium return. In debt finance, the lender is first repaid before the shareholders holding equity receive their respective distribution (Mendis, 1997). These debt instruments include regional and national development bank loans, nonrecourse financing and microcredit loans. Nonrecourse Loans

Nonrecourse loans provide capital on a non recourse basis. Thus, in the advent of defaulting on the loan, the financing institution providing the nonrecourse loan can only make claims on the renewable energy project asset. They are mostly long-​term commercial contracts (with repayment over 20 to 30 years) that have indirect sovereign government guarantees. The long-​term nature of nonrecourse loans coupled with the high-​risk nature of RETs makes nonrecourse loans unsuitable candidates to finance future RETs. Although in Asia, nonrecourse loans have been used to finance large RET projects such as geothermal and fossil-​based power plants (Justice, 2009), they must be complemented with other resource risk mechanisms such as contingent repayment or resource accounts (deLucia and IFREE, 1995) to manage the high-​risk nature of RETs. In terms of financing smaller RETs, nonrecourse loans are not popular among financial institutions. What this suggests is that in the medium term, nonrecourse loans might not be the ideal financing option to fund RETs, particularly in rural communities in Africa. In the long term, however, when the operational cost is low and financial institutions can guarantee the reliability of RETs, RET developers would be able, using nonrecourse loans, to secure long-​term debt contracts for RET projects. Currently, with the lack of existing long-​term debt contracts for RETs in most developing economies, for economies interested in promoting the development and use of renewable energy, the ability to provide government guarantees may be critical in securing long-​term debt contracts for RETs. In this situation, a more pragmatic approach would be to aggregate smaller RET projects in the continent. Regional Development Banks

Regional development banks such as the African Development Bank (AfDB), Development Bank of Southern Africa and EIB also issue debt instruments to fund RETs. They mostly do this through co-​financing arrangements such as providing debt/​risk guarantees, grant loans and partial loans to cover part of the project costs and official development assistance. For example, the AfDB

104  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng through the Sustainable Energy Fund for Africa (SEFA) provides concessionary loans and technical assistance to support the development of RETs. In 2022, the AfDB through SEFA approved a US$1 million grant to support the clean energy transition of Botswana. Additionally, in 2018, AfDB from the SEFA approved a US$1.5 million grant to support Ghana’s renewable energy investment. In November 2022, the EIB and Development Bank of Southern Africa launched a US$400 million renewable energy investment initiative to promote the development of RETs in South Africa.2 Direct Investments by Multinational Corporations

Other multinational corporations such as the International Financial Corporation (IFC) of The World Bank and the International Monetary Fund provide direct private-​ sector funding on a nonconcessionary basis. This means that the project partners are responsible for the full project risk. For example, the IFC offers various debt instruments, such as loan guarantees, long-​term bonds at fixed or variable rates and standby finance (Asia-​Pacific Economic Cooperation [APEC], 1998). Most of the project funding provided by multinational corporations make use of international market rates and often does not allow government guarantees. The World Bank has been an active supporter of rural energy development in developing economies since the 1970s, but it was not until the 1980s that the institution considered renewable energy as an alternative energy source (APEC, 1998). Since 1980, The World Bank, with the support of the Global Environment Fund (GEF), has supported RETs in Africa. For example, the IFC in 2017 in collaboration with AfDB, the Asian Infrastructure Investment Bank, the Arab Bank of Bahrain, CDC of the United Kingdom, Europe Arab Bank, Green for Growth Fund, FinnFund, ICBC and OeEB of Austria provided US$653 million debt financing for solar power plant in Egypt.3 Financing Small RETs

Most of the traditional debt instruments, including those provided by multinational corporations, target large energy projects, which makes them not ideal financing options for small RETs in rural communities. An ideal financing option for small RETs in rural communities should offer a much more flexible repayment plan. The GEF is currently the lead provider of funding for small RETs. With an initial focus on India, Kenya and Morocco, the GEF has been extended to cover more countries in the developing part of the world. The GEF is an equity holder providing loans on commercial and subcommercial terms. The GEF provides equity finance to sellers and users of solar PV systems as well as loans and credit guarantees (GEF, 2005). The GEF has initiated the microfinance scheme to support investment in small RETs. Microcredit schemes such as revolving funds and microcredit corporations are becoming popular financing sources adopted by financial institutions

Scaling Renewable Energy Capacities for Sustainability in Africa  105 to support investment in small RETs in rural communities (Gregory et al., 1997). As the scheme starts as a grant, revolving funds do not require the borrower to repay, which literally reduces the operating costs. In cases that it starts as a loan, revolving funds require the borrower to repay the loan with interest expenses at an agreed period. The rate is normally set at the commercial rate level, largely to ensure covering the cost of capital and loan disbursement. Revolving funds have been deployed to finance small solar PV technologies. Microcredit schemes have the benefit of minimizing risk because of the group-​based nature of such schemes that ensures that peer pressure enforces a good repayment plan. Nonetheless, the success of these schemes critically depends on financial institutions’ ability to establish close liaisons in rural areas. Venture Capital

The other major financing option is equity financing. Unlike debt instruments, equity finance is a high-​risk financial instrument that promises higher investment returns. The return requirement is multiple times the initial investment (i.e. 50–​500 per cent IRR; Justice, 2009). Equity finance provides equity holders the opportunity to participate in the investment decision.4 Some of the types of equity finance are venture capital, equity investment funds, pension funds and joint venture partnerships. Venture capital raises capital from a variety of institutional and high net-​worth individual sources and normally have high-​risk profile and investment horizon of between four and seven years (Justice, 2009). It normally targets new technology or firms with substantial growth potentials. This, therefore, increases the risk of failure in every venture. Equity holders in venture capital normally reap their returns either through the offering of initial public offers or through sale to a potential larger firm with synergy in the technology. This implies that the use of venture capital finance requires a robust financial system, something that developing economies are unable to capitalize at the moment. On this note, a venture capital fund may not be an ideal financing tool for supporting renewable energy development, particularly in Africa. Notwithstanding, with the advancement in technological innovation, the application of venture capital to RET funding might be possible in the long term. Business Cases of Financing Options Regional Development Bank and Multilateral Agencies Case 1a: African Development Bank: Regional Development Bank for Africa

Founded in 1964, the AfDB has a significant role in financing sustainable economic development and social progress in its various regional member countries in Africa, contributing to poverty reduction. AfDB manages the

106  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng SEFA, which is considered a multidonor fund established in 2011 in collaboration with the Danish government supported by subsequent funding contributions from Germany, Italy, Norway, Spain, Sweden, the United Kingdom and the United States. As a specialized fund, SEFA provides financing to support investments in renewable energy and energy efficiency. In addition to financial support, SEFA offers technical assistance and concessional finance instruments to enhance market-​based solutions for developing a range of clean energy projects while optimizing their risk-​return profile. SEFA has an objective to enable universal access to “affordable, reliable, sustainable, and modern energy services” by peoples in Africa. Approach: Financing Green Infrastructures and Solutions

SEFA supports interventions across three strategic priorities: • Green baseload : Increasing the penetration of renewable energy in power systems, with a strong focus on power system stability, and delivering alternatives to fossil fuel baseload generation options. • Green mini-​grids: Accelerating electricity access to underserved populations through clean energy mini-​grid solutions. • Energy efficiency: Improving the efficiency of energy services delivered through a variety of technologies and business models, including clean cooking and pico-​solar technologies. SEFA has led the AfDB’s engagement in green mini-​grids through market development and country-​focused support to create an enabling investment environment. For instance, SEFA collaborates with AfDB to finance its first two large green energy programmes in the Democratic Republic of Congo and Burkina Faso. SEFA also develops a debt financing platform for small-​ scale renewables across the continent. It has a critical role in the preparation and financial closure of the Africa Renewable Energy Fund, which is a pan-​ African equity fund in the market as well. Case 1b: The Canada-​IFC Renewable Energy Program: Multilaterals for Africa

The Canada-​ IFC Renewable Energy Program for Africa is a partnership between the Government of Canada and IFC aiming to scale up private sector investments in renewable energy projects in sub-​Saharan Africa. Established in 2017, it has an objective to enhance access to affordable and sustainable energy services that play an important role in reducing poverty, reducing gender inequality and tackling climate change. Eligible projects are designed to be aligned with the principles by the AREI and Canada’s pledge of CA$155 million for the support of renewable energy generation in Africa under AREI. Canada has been an active member of The World Bank Group (WBG) for many years through its thought leadership and financial support. The

Scaling Renewable Energy Capacities for Sustainability in Africa  107 WBG-​Canada partnership has been instrumental in result-​oriented projects that improve lives in low-​and middle-​income countries, meeting the goals of moderating extreme poverty and augmenting shared prosperity. Canada is one of IFC’s largest development partners, supporting IFC’s investments and advisory services in different regions and sectors, with a focus on climate adaptation and mitigation, agribusiness, extractives and so on. Approach: Investing with an Advisory Component

The investment component of this programme provides CA$150 million of concessional capital in association with IFC’s own commercial capital to catalyze private sector investment in high-​impact renewable energy projects in sub-​Saharan Africa. It promotes a wide range of renewables, such as solar, wind, hydro, geothermal and marine, as well as energy transmission, distribution and storage, to address the needs of the local people. An advisory component (CA$5 million) of this programme is established to focus on three main activities: • Supporting IFC clients that receive financing from the Blended Finance Programme to close jobs and asset gaps between men and women in the energy sector • Providing “Off-​grid Technical Assistance” designed to stimulate a pipeline of off-​grid and distributed generation projects • Providing “beneficiaries’ assessment” and results for distributed generation projects undertaken at the individual distributed generation project level. A key part of the advisory component is Canada’s support for EnergytoEqual, an IFC-​ led initiative that aims to work with renewable energy companies to reduce gender gaps across leadership, employment, community engagement and entrepreneurship and to conduct research on the business case for women’s participation. EnergytoEqual undertakes a range of activities to support creating the next generation of female leaders in the clean energy sector, which create a peer-​learning platform where companies exchange best practices whereas female professionals can gain access to information, share experiences and explore mentorship opportunities. Direct Investments by Multinational Corporations Case 2a: Shell Foundation: A Traditional Energy Corporation

Shell Oil and Gas, as a traditional multinational corporation focusing on fossil fuels, has created its Shell Foundation (SF), aiming to provide scalable business solutions for renewable and clean energies. SF also addresses the challenges of poverty alleviation in developing countries by improving access to energy and sustainable mobility. Its core geographical focus is on Africa

108  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng and Asia. SF emphasizes its independence and ability to work across public and private sectors to deliver “charitable” objectives while leveraging the global group’s knowledge, experience and skills of its staff, financial funding, international networks and other value-​adding support as needed. Aligned with its mission and charitable independence, it draws on resources within the global organization in various ways to achieve large-​scale development outcomes. SF independence is maintained through the following: • A mixed board of trustees, including senior Shell leaders and leading figures from sectors relevant to international development with no previous link to Shell • Creation of an endowment, governed by the board of trustees, to fund operations • A set of business principles to which our staff, board and partners are held accountable, that includes a commitment to protect our independence and is supported by a robust control framework to ensure these principles are followed • Regular reporting to assess performance against predefined impact targets and milestones • Transparent protocols to govern how to leverage support from Shell in support of charitable goals Approach: Alleviating Energy Poverty and Mitigating Climate Change

SF supports innovators in exploring new technology and enterprise models to provide the energy and transport services that people living in low-​income communities need to improve their health, education and income. Once demand for a new product or service is proven, SF cocreates supply chain intermediaries with private funds and local non-​profit organizations to support replication and market growth. It deploys grant funding and non-​grant instruments, alongside extensive business support, and allocates a third of the budget to build an enabling environment for social enterprises in target countries. An investment fund was founded by SF in 2019 in collaboration with UK Aid and the Dutch Entrepreneurial Development Bank FMO. It extends financing in the form of debt or equity to businesses in the energy sector. This fund has an objective to enable inclusive energy transition that alleviates energy poverty and mitigates climate change. For instance, it has invested in Baobab+​and Yellow, both offering pay-​ to-​ own solar energy solutions, and Redavia, which designs and installs mobile solar farms for businesses. Redavia, which has clients in Ghana, Kenya and Tanzania, received $3.7 million mezzanine investment from the fund. In addition, Yellow, which maintains operations in Malawi and Uganda and allows households and small businesses to pay for solar systems through instalments, has received $4 million, while Baobab+​has received $2.3 million. So far, Baobab+​has

Scaling Renewable Energy Capacities for Sustainability in Africa  109 operations in Mali, Senegal, Madagascar and Côte d’Ivoire and is planning to enter Nigeria and the Democratic Republic of Congo markets. Case 2b: Sun King: An Emerging Corporation

Sun King, formerly known as Greenlight Planet, was founded in 2007 and is now one of the largest emerging solar companies focusing on Africa and Asia. In Africa, it has sold its products in over 40 countries, including Kenya, one of its first markets, where it is reported to have benefited 18 million people over its 10 years of operations. It has been growing rapidly in Zambia, Uganda, Tanzania and Nigeria. In 2022, Sun King raised series D funding to deliver off-​grid energy technologies to more people across the two continents. Sun King then allocated US$100 million to expand its “pay-​as-​you-​go” solutions and introduce larger setups that are capable of powering home appliances. Its current systems can power lights, mobile phones and small home appliances. It is estimated that the company has delivered solar energy and light to over 82 million people, enabling children to study for school, supporting entrepreneurs to run small businesses and allowing families to power their lives, without the risks and high cost of using kerosene lanterns. This landmark investment has continued scaling its technology, service and financing capabilities to meet the needs of the local energy consumers. Approach: Direct Investments in Distributed Home Energy Systems

Sun King has a strategy for a global transformation to provide electricity to consumers in Africa and Asia. Its solution is considered affordable for locals to power a home with a solar system rather than to extend the electrical grid. With a low-​cost strategy, it offers to install an entire solar energy system in-​ home. Sun King aims to scale up such a solution for the 1.8 billion population in Africa. While sub-​Saharan Africa accounts for 75 per cent of the world’s population with no access to renewable energy solutions and electricity, countries such as Burundi, Burkina Faso, Chad, Madagascar, Malawi, South Sudan and Tanzania are among the least electrified in the world and could benefit from clean energy technologies. Sun King has thus far distributed its home energy systems to over 82 million customers and is bridging this gap by deploying its “PAYGO” model, which eases the burden for poor families that may not afford the hefty lump sums often demanded for grid connections. Venture Capital (Financing for Innovation) Case 3a: Persistent Energy: A Specialized Venture Fund for Scaling Renewable Energy

Founded in 2012, Persistent Energy, as an expert and investor in the renewable energy sector in Africa, helps start-​ups to build businesses that can

110  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng “scale sustainably” from the early growth stage. It does this by investing capital and human resources –​where its team members work jointly with the management teams of portfolio companies. Persistent Energy has 20 partner companies across 17 countries in sub-​ Saharan Africa. Persistent Energy reportedly supports carbon-​neutral economic development in Africa as both leading experts and pioneering investors in the renewable sector. It builds commercially successful businesses that can allegedly scale sustainably with a mission to produce a positive climate and socioeconomic impact in underserved African markets. In 2022, Persistent Energy raised $10 million to expand its climate venture building business in Africa in a round led by Kyuden International Corporation, a subsidiary of the Japanese Kyushu Electric Power Group, and Financial Sector Deepening Africa Investments. This equity raising initiative was participated by new private investors, high-​net-​worth individuals, businesspersons and private equity funds. Approach: Building an Ecosystem of Ventures

Persistent Energy largely makes early-​stage investments in solar home systems, commercial and industrial solar projects, ecosystem enablers and e-​mobility players. It has also contributed to improving over 4 million lives, powering half a million households, avoiding over 1 million tons of CO2 emissions, and creating reportedly10,000 jobs. Persistent Energy’s portfolio companies provide domestic, commercial and industrial solar solutions and deliver e-​mobility solutions and ecosystem building. These companies include Solar Works, a decade-​old business focusing on home solar systems in Southern Africa, and Solar Taxi, an e-​mobility start-​up from Ghana, which designs, assembles and distributes vehicles for use in transportation and delivery services. Persistent Energy invests financial capital and human resources through a venture building model, focusing on ideation to the early growth stage. It seconds its development team members (venture builders) to work in operational roles jointly with the management teams of its portfolio companies. In alignment with the needs of portfolio companies, its team typically focuses on strategic and operational finance management, capital raising and structuring, business analytics and the development of a performance measurement and human resources management system. By leveraging partnerships, it intends to accelerate venture building investments, drive the transition to clean energy and promote innovative business models and technological developments across the continent. Case 3b: Breakthrough Energy: A Specialized Venture Capital for Net-​Zero Emission

Breakthrough Energy (BTE) was founded by Bill Gates in 2015, aiming to accelerate innovation in sustainable energy and in other technologies to

Scaling Renewable Energy Capacities for Sustainability in Africa  111 reduce greenhouse gas emissions so as to mitigate climate change. It invests in a variety of start-​up companies to commercialize new concepts for renewable and sustainable energies, such as nuclear fusion, large-​capacity batteries to store renewable energy and microbe-​generated biofuels. Its mission is for the planet Earth to reduce global greenhouse gas emissions from 51 billion tons a year to net-​zero by 2050 through unprecedented technological transformations across different sectors. Despite the progress of renewable technologies such as wind and solar for a zero-​carbon energy future, this venture fund aims to tackle the challenge of scaling on a global basis. BTE invests primarily in business ventures, although their risk of failure is considered high given an extended timeframe for return on investment of 20 years. While traditional venture capitalists normally anticipate a return on investment in five to seven years, such a timeframe is considered insufficient for the specific challenges of the energy sector. Expedition of this transformation process requires investing heavily in companies that turn innovative green initiatives into clean products and advocating for policies that speed innovation from R&D to market. Through its investment vehicles as well as complementary policy and advocacy efforts, BTE collaborates with a global network of private and public partners to accelerate such transformation. Approach: Leveraging Breakthrough Technologies for Emerging Economies

BTE envisions that a net-​zero emission solution should be offered to all countries as a sustainable path to economic development. Countries with abundant wind, sun, sustainable biomass and key minerals, such as those in Africa, are targeted to leverage the strategic advantages these resources offer to develop their economies, creating value, and jobs locally. BTE invests in technology-​based ventures in the emerging economies aiming at scaling the innovation applicable to various countries. For instance, BTEs have invested in Arnergy of Nigeria, which aims to solve the problems of power intermittency and grid unreliability in West Africa with modular, microgrid solar storage systems to power households and businesses across the region. BTE has also invested in MAX, a Nigerian company that spearheads the transition to EVs for delivery and ride-​hailing drivers in Africa. In addition, SparkMeter, an energy company, has been invested by BTE to offer access to clean, reliable and affordable electricity in underserved economic regions in Africa and Southeast Asia. Microfinance Instrument Case 4 PAMIGA Water and Renewable Energy: Microfinance

The participatory Microfinance Group for Africa (PAMIGA) was established in October 2005 under the French Law of 1 July 1901. The

112  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng core mandate of PAMIGA is to provide technical and financial assistance to MFIs. The PAMIGA network has 16 MFIs with approximately 1 million clients located in ten African countries. As part of efforts to help improve access to water and energy for micro-​and medium enterprises, villages, and rural households, PAMIGA developed the PAMIGA Water and Renewable Energy through the Microfinance programme. The programme has three primary areas of focus: promoting access to potable water, developing improved water irrigation systems for agriculture and promoting access to renewable energy in Africa. In the case of energy, the objective is to substitute traditional energy sources (i.e. kerosene) with solar energy sources for the rural communities. The target of this programme is to demonstrate that water and energy solution value chains are viable, sustainable and replicable in rural communities. Approach: Promoting Wide Adoption of Solar Energy

PAMIGA Water and Renewable Energy through Microfinance aims to provide affordable electricity access to rural households, villages as well as small and medium enterprises because energy matters for almost all the SDGs. In 2017, the OPEC Fund for International Development with co-​financiers such as the EIB, AfDB, UNCDF and the Government of Luxemburg supported PAMIGA with a grant to enable access to clean energy through MFIs in Benin, Cameroon and Kenya by offering local microloans. Its total project cost was approximately US$0.81 million, with the OPEC Fund providing US$0.4 million and the rest by the other co-​financiers. The fund embraced four main activities: (i) provide technical assistance to local partner financial institutions, (ii) build capacity for solar solution supply chain actors, (iii) build capacity for rural poor and (iv) track impact studies of how solar loans impact clients of financial institutions and share lessons learned through publication, conference, and workshops. The fund has made several noticeable contributions. First, the fund participated in building partnerships developed between 11 MFIs and seven solar solution providers in two sub-​Saharan African countries. Second, all through the partnership, approximately 18,000 solar powered products were distributed for consumption in lighting, phone charging, water-​heating and other productive purposes, such as irrigation system and water pumps. Third, about 90,000 low-​income people and entrepreneurs in rural areas now have access to clean energy. The PAMIGA Water and Renewable Energy through Microfinance has provided a test case for other high potential funding options such as the “pay-​as-​you-​go” (PAYG) and mini-​grid sites. The PAYG programme is the joint effort of the International Centre for Development and Research and PAMIGA with the support of ADEME and AfDB. Such microfinance solutions are offered to people in the rural communities of Benin, Cameroon, Ethiopia, Kenya and Senegal to improve access to clean energy. The International Centre for Development and Research and

Scaling Renewable Energy Capacities for Sustainability in Africa  113 PAMIGA act as the connection between for the two parties involved: the solar distributor and the clients. Under this scheme, the solar kit with meters is sold on credit, and then instalments are made for the solar energy systems. Thus, the PAYG has eliminated the problem in which clients have to make outright expenditures for their solar energy systems, which are capital intensive. Additionally, solar kit distributors benefit from MFI credit management skills. Such arrangement provides a win‒win solution for clients and solar kit distributors. Discussion The case studies suggest growing interest from financiers around the world to support the development of renewable energies in Africa. Such funding coming from both public and private sources would be complementary for the development of pertinent ventures and projects at various stages of their development. Venture capital funding can be instrumental for the early development of innovative renewable energy projects as well as ventures that deploy emerging renewable energy technologies by utilizing indigenous knowledge or transferring proven knowledge from various countries. Multinationals with operations on various continents could be catalysts for knowledge and technology transfer to Africa. First, their operational know-how can be valuable to ensure reliable and proven solutions are implemented for more renewable energy facilities. Second, these multinationals could also transfer the latest clean tech solutions that can be adopted to support the ongoing development of the local economies. For example, Shell identifies that hydrogen is going to play an important role in directing the world into reaching net zero emissions. It has announced plans to develop integrated hydrogen hubs for utilization by different industries, including the transport sector, including passenger vehicles, trucking, aviation and shipping. Intending to become a key player in a global hydrogen economy, Shell has disclosed its objective to achieve scale hydrogen supply by investing in the pertinent infrastructure of the hydrogen ecosystem and related supply chain around the world (https://​www.shell. com/​ene​rgy-​and-​inn​ovat​ion/​new-​energ​ies/​hydro​gen.html#shell-​hydro​gen-​ proje​cts). In addition to its current investment plans in developed economies, Shell could expedite such technology transfer into various developing economies of Africa. While regional development banks provide long-​term financing facilities for large-​scale renewable energy projects, they can be influential advocates in raising the standard of “green” energy projects aligned with the goal of reducing carbon emissions in a transparent and measurable manner. Through compliance and monitoring mechanisms, regional development banks have a role in safeguarding the interests of local stakeholders and project integrity while mitigating the risks of the investors engaged in these projects. The funding from these banks can be channelled into developing renewable energy infrastructures through co-​investment schemes with private operators.

114  Sally Mingle Yorke, Philip Kofi Adom and Artie Ng MFIs could be the catalyst for bridging the rural‒urban divide in terms of access to sustainable and affordable energy sources. As the rural energy problem deepens, MFIs would be key to promoting soft and flexible loan contracts to promote the use of small RETs in Africa. However, the success of these institutions depends on (i) the effectiveness of the financed projects in working out the implementation of their operations given the pieces in the jigsaw, (ii) whether robust financial institutions and systems can be developed to penetrate rural communities and (iii) whether the right institutional and legal environments necessary for the functioning of MFIs can be created. Conclusions The majority of Africa’s population without access to energy live in rural areas in sub-​Saharan Africa. Given the rural-​based nature of Africa’s energy problem, the traditional financing model for RETs might not be ideal for financing all types of clean energies, particularly small RETs. This chapter has shown that there is a large scope for other non-​traditional financing models to support the financing of small RETs. However, due to context heterogeneity, justification for scale-​ups of MFI products in one context might not apply in the other context. This suggests that while countries are free to easily adopt MFI products already designed, such adoption should be done taking into account the institutional and cultural context. With respect to other viable financing options for the future, Africa can look into the potential of issuing green bonds and climate bonds for scaling up developments of renewable energy and clean tech projects. Such developments can be enhanced by public‒private partnerships, as demonstrated in other regions of the world (Ng, 2018). For example, the AfDB Group has continued to leverage its AfDB Green Bond program to facilitate further green growth through the financing of eligible climate change projects. As a result, investors can request allocation of their investment into projects qualified under this programme. Qualified projects include Greenfield Renewable Energy Generation projects composed of solar, wind, geothermal and ocean power sources as well as demand-​side Brownfield and Greenfield Energy Efficiency projects. The World Bank (2022) notes that the Green, Social, and Sustainable bonds market is considered a new frontier for Africa that could drive more resources into the continent to develop “deeper, resilient, and sustainable financing”. While global sustainable bond issuance attained more than $1.1 trillion in 2021 and expectedly would exceed $1.5 trillion in 2022, there have been only a few sovereign issuers of Green, Social, and Sustainable bonds from Africa. In regard to implications for the sustainable development of industries in Africa, it is instrumental for the continent to nurture the development of more local ventures and enterprises in providing viable solutions within the supply chain of the evolving renewable energy sectors in Africa. Such organic

Scaling Renewable Energy Capacities for Sustainability in Africa  115 development would reinforce the development of an ecosystem that is closely harmonized with the use of natural resources in Africa with careful consideration of the environmental impacts and concerns of the habitants. The development of a self-​sufficient circular economy is also a critical consideration at the early stage of a renewable energy industry, such as the overall design and development of a hydrogen production system. Finally, such a large-​scale energy infrastructure development for the whole continent’s sustainability transformation requires substantial amounts of financial capital over an extended period of time. The ability to integrate traditional and non-​ traditional financing and investing methods as complementary modes is considered crucial to addressing the African energy problem in a scalable manner. Notes 1 The importance of sustainable and renewable energy for Africa’s future was echoed by the Chairman of the Board of Directors for NNPC Limited, Senator Margery Chuba Okadigbo. Okadigbo said that in response to a UN query, the number of people living on the African continent will be 2 billion by 2050. In addition, two out of five world children will be born there. According to Okadibgo, “Meeting their needs with sustainable sources of modern energy –​for consumption and production –​will be essential to social welfare and economic development”. 2 www.eib.org/​en/​press/​all/​2022-​479-​europ​ean-​inv​estm​ent-​bank-​and-​deve​lopm​ent-​ bank-​of-​south​ern-​afr​ica-​lau​nch-​eur-​400-​mill​ion-​south-​afr​ica-​renewa​ble-​ene​rgy-​ inv​estm​ent-​ini​tiat​ive 3 https://​pressr​oom.ifc.org/​all/​pages/​Pres​sDet​ail.aspx?ID=​17490 4 https://​docume​nts.worldb​ank.org/​en/​publ​icat​ion/​docume​nts-​repo​rts/​doc​umen​tdet​ ail/​196​0714​6833​1818​432/​financ​ing-​renewa​ble-​ene​rgy-​opti​ons-​for-​dev​elop​ing-​ financ​ing-​inst​rume​nts-​using-​pub​lic-​funds

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Part III

Cases in Asia-​Pacific

6 Sustainable Finance to Support Climate Action in Asia-​Pacific and Southeast Asia Brian Ho and Fredrik Andersen

Introduction Although it may not always seem like it, climate action has been on the global agenda for more than five decades. The 1972 United Nations Conference on the Environment in Stockholm became the first world conference to make the environment a major issue. At the conference, the participants placed environmental issues at the forefront of international concerns and marked the start of a dialogue between industrialised and developing countries on the link between economic growth and environmental impacts that is continuing today (United Nations, n.d.b). Two decades later in 1992, the UN Rio Summit, also known as the Earth Summit, was hosted. The Earth Summit marked an important milestone for sustainability, as it was where the United Nations Framework Convention on Climate Change was passed, a legally binding framework on climate change. The ultimate objective of the Convention was to stabilise greenhouse gas concentrations “at a level that would prevent dangerous anthropogenic interference with the climate system” (United Nations, n.d.a). It was also acknowledged at the Rio Summit that transforming private finance would be key to achieving sustainable development (UNEP, 2017). In response to this, the United Nations Environment Programme Finance Initiative was founded that same year as the first organisation to engage the finance sector in sustainability. For example, the United Nations Environment Programme Finance Initiative initiated the Principles for Responsible Investments (PRI), now the world’s leading proponent on responsible investments (UNEP, n.d.a). PRI, under which its investor signatories commit to voluntarily adopting and implementing principles for responsible investments (e.g. incorporating environmental, social, and governance (ESG) issues into investment decision making), had grown to nearly 5,000 signatories in 2022, representing assets under management estimated at more than US$121 trillion (PRI, n.d.). In 2008, the World Bank became the first institution globally to issue a green bond, raising funds from fixed-​income investors to support lending for eligible climate-​focused projects (World Bank Group, 2021). This was followed by the International Finance Corporation, which in 2010 issued DOI: 10.4324/9781003288343-9

124  Brian Ho and Fredrik Andersen its inaugural green bond in response to investors seeking climate-​considered investments. Since then, the sustainable finance market has grown rapidly, reaching US$2 trillion in green bond issuance by October 2022 (Basar, 2022). As we will discuss later, much of the momentum in the sustainable finance landscape emanates from the past few years alone and can be partially attributed to the increasingly ambitious emissions targets set by governments around the world in an effort to align with the goals of the Paris Agreement and limit global warming to well below 2 °C compared to preindustrial levels (UNFCCC, n.d.). Following the initial green bonds, momentum was relatively slow, as there were no recognised market standards providing guidance on how to define what qualified as a green bond. That changed in 2014 when the International Capital Markets Association (ICMA) published the Green Bond Principles to support issuers in financing more environmentally friendly projects (ICMA, 2021a). ICMA’s objective was to provide a global common language and principles to build trust and contribute to the further development of sustainable finance through capital markets (ICMA, 2022a). With the Green Bond Principles, ICMA provided a market standard to help determine what qualified as a green bond. Since then, they have published additional guidelines and principles for multiple sustainable debt instruments, such as social bonds, sustainability bonds, and sustainability-​linked bonds (SLBs). As the names suggest, ICMA’s focus was primarily on bonds, not loans. However, as the sustainable finance landscape started to gain traction, market standards for green loans were also published in 2018 by the Loan Market Associations (LMA) with support from ICMA. This was followed by additional standards for sustainability-​ linked loans (SLLs) the following year (LMA, 2022). Financial markets now have clear market standards for a range of sustainable finance instruments, resulting in a surge in green financing over the past few years. Sustainable finance is essentially financing practices that consider the ESG impacts of a company, project, and/​or activity (Bakken, 2021). Driving Forces for Sustainable Finance Regulators

Following the adoption of the Paris Agreement by nearly 200 countries in 2015, member states are required to periodically submit nationally determined contributions that communicate the actions they will take to reduce greenhouse gas emissions to reach the goals of the Paris Agreement. In the Asia-​Pacific (APAC), countries such as Singapore, China, Japan, India, and South Korea have all announced net-​zero emissions targets by or around mid-​century, and most policymakers consider green debt an important component in the policy mix to achieve the transition to a low carbon economy (Schmittmann & Chua, 2021). For example, in light of Singapore’s national target to achieve net-​zero emissions by 2050, the Monetary Authority of

Finance to Support Climate Action in Asia  125 Singapore (MAS) implemented the Green Finance Action Plan to facilitate the transition to a low carbon future and establish itself as a leading centre for sustainable finance in APAC and globally (MAS, 2022). This included new policies and initiatives to create a regulatory environment that encourages sustainable finance initiatives. In addition, the Singapore Stock Exchange, which already requires its listed companies to produce annual sustainability reports, initiated a three-​year phased approach in 2022 to introduce additional mandates on climate-​related financial disclosures in alignment with the recommendations by the Task force on Climate-​related Financial Disclosures, also known as the TCFD (SGX, 2022). The TCFD was founded in 2015 after the G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board “to convene public –​and private –​sector participants to review how the financial sector can take account of climate-​related issues” (FSB, 2015). Composed of investors, lenders, insurance underwriters, and other key stakeholders, the TCFD developed and released a set of disclosure recommendations in 2017 to help companies provide more consistent, comparable, and reliable climate-​related information to support capital allocation (TCFD, 2022a). Demonstrating the growing importance of climate-​related information for investment decision making, the TCFD recommended that disclosures be included in mainstream financial filings. According to a 2022 status report by the TCFD, over 70% of companies implementing TCFD recommendations are now disclosing climate-​related information within their financial filings, up from 45% in 2017 (TCFD, 2022b). Singapore is not alone. Regulators across APAC are also increasingly mandating, or planning to mandate, climate-​related disclosures. Countries such as New Zealand, Indonesia, and the Philippines have already mandated or outlined timelines for mandated disclosures on climate-​related issues. Capital Markets

Capital markets have also emerged as a key driving force for climate action. With the influence of new regulatory requirements and policies and the growing potential financial impacts of climate risks on business performance, investors are increasingly integrating ESG factors into investment decision making. Research by Deloitte in 2022 found that, at their current growth rate, ESG-​mandated assets are on track to represent half of all professionally managed assets globally by 2024 (Taylor & Collins, 2022). The potential financial impacts of climate-​related risks can no longer be ignored –​be it from acute physical climate events such as damaged assets or disrupted supply chains from increased severity of extreme weather events, or stranded assets from shifts in market demands and regulations. Capital market players are aware of this and increasingly considering companies’ exposure to climate-​related risks in their investment decision making. The abovementioned 2022 Status Report by the TCFD found that 90% of the

126  Brian Ho and Fredrik Andersen surveyed Asset Managers and Asset Owners reported using climate-​related financial information in making financial decisions. This growing demand for ESG data has led to an increased focus on climate-​related issues and transparency. According to the Governance & Accountability Institute, 92% of S&P 500 companies published a sustainability report in 2020, compared to only 20% in 2011 (G&A Institute, 2021). Sustainable Finance Instruments Supported by the development of market standards and guidelines for various sustainable finance instruments, regulatory support through policies and incentives, increased access to high-​quality ESG data, and strong market demand from investors, a range of sustainable finance products emerged in the past five to ten years. Recent years in particular have seen unprecedented momentum. Volumes of sustainable debt issuance surpassed US$1.6 trillion globally in 2021, more than doubling compared to the year prior and bringing the total market to over US$4 trillion (BloombergNEF, 2022). Green bonds contributed the largest portion of this, constituting 45% of the total sustainable debt issued in 2021. Of all regions, APAC experienced the strongest growth in green bond issuance, with 129% year-​on-​year growth (CBI, 2022c). Home to 60% of the world’s population, or more than 4.3 billion people, the APAC region is an economic powerhouse that has experienced immense growth over the past few decades (UNFPA, 2022). This strong growth has lifted approximately one billion people out of extreme poverty since the turn of the century (UNEP, n.d.b). However, it has not come without its costs. The rapid growth in population and industrialisation has resulted in unsustainable consumption of natural resources and a surge in greenhouse gas emissions. According to one estimate, APAC accounted for more than half (52%) of global CO2 emissions in 2021, producing 17.74 billion metric tons of carbon dioxide (Tiseo, 2022; see Figure 6.1). According to this estimate, China alone accounted for nearly one third of the global total.

Figure 6.1 Global total carbon dioxide emissions in 2021 by region. Source: https://www.statista.com/statistics/205966/world-carbon-dioxide-emissions-by-region/ (Statista, 2021).

Finance to Support Climate Action in Asia  127 Despite the growth, the Asian Development Bank (ADB) estimated that more than 200 million people in the region were still living on less than US$1.90 a day and that approximately one billion people were living on less than US$3.20 a day in 2017. The ADB also estimated that the COVID-​19 pandemic may have pushed as many as 78 million people in APAC back into extreme poverty and created approximately 162 million newly poor people (Asian Development Bank, 2020). Naturally, alleviating poverty will remain a key priority for governments across the region, and economic growth is a key lever for achieving this. It is therefore more important than ever that capital is allocated strategically through effective sustainable financial instruments to abate the adverse environmental impacts caused by economic growth in the region to date. The sustainable debt market in APAC reached US$229.2 billion in issuance in 2021, more than a fivefold increase from 2016 (Ammal et al., 2021). There is also momentum in the Association of Southeast Asian Nations, or ASEAN –​a diverse region within the APAC comprising ten countries with a combined population of 650 million and a growing economy of more than US$3 trillion (USAID ASEAN, 2022). ASEAN member countries include Brunei, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, which together make up the fifth largest economy in the world. While the ASEAN region is among the fastest growing economies in the world, it is also facing significant challenges in preserving its natural environment and resources. As with the wider region, sustainable finance will play a key role in ASEAN countries to ensure sustainable growth in the years to come. The good news is that the sustainable debt market in ASEAN maintained rapid growth in 2021, reaching US$51.5 billion in issuance throughout the year (CBI, 2022a). In the following section, we explore some of the most commonly used sustainable finance instruments and trends in the APAC and ASEAN, with a focus on green bonds and loans, SSLs and bonds, social bonds, and sustainability loans (see Figure 6.2). Green bonds are use-​of-​proceeds bond instruments for which proceeds are specifically set aside for the funding of environmentally friendly projects or activities (Larsen, 2019). In APAC, the most common allocation of proceeds is for renewable energy, clean transportation, and water management projects (see Figure 6.3). Since the first green bond was issued in 2008, it has remained the most popular sustainable finance instrument globally, especially among government-​backed entities, to support national development goals. As shown in Figure 6.2, green bonds constituted the largest portion of sustainable debt issued in 2021, with a 45% market share. In October 2022, the Climate Bonds Initiative (CBI; see Figure 6.4), a green debt tracker, announced that US$2 trillion in green bonds had been issued to date. Of this, more than US$620 billion was issued in 2021 alone (Murugiah, 2022). APAC became the second most prolific green bonds market globally in 2021, reaching a cumulative total of US$371.7 billion by year end. A third of

128  Brian Ho and Fredrik Andersen

Figure 6.2 Global annual sustainable debt issuance, 2013–​2021. Source: https://about.bnef.com/blog/sustainable-debt-issuance-breezed-past-1-6-trillion-in-2021/ #:~:text=In%20addition%20to%20sustainability%2Dlinked,billion%20in%20issuance%20 in%202021 (BloombergNEF, 2021).

the cumulative green bond issuance in the region was added in 2021 (US$129.5 billion) (CBI, 2022c). China led the region in terms of volume issued, followed by Japan and South Korea (Vejarano, 2022). Combined, these three countries accounted for 81.6% of the region’s total green bond market volume in 2021. The strong growth in recent years is, in part, driven by governments ramping up climate ambitions and announcing net-​zero emissions targets by or around mid-​century. In 2020, China announced two targets: for national emissions to peak by 2030 and to reach carbon neutrality by 2060. This is a tremendous challenge for the manufacturing powerhouse, and sustainable finance will play a key role in achieving these ambitions. According to CBI, China is now the fastest growing green bond market in the world, with a cumulative issuance estimated at US$200 billion. In 2021 alone, green bond issuance in China reached US$68.2 billion, up 186% from the year prior (CBI, 2022b). However, as shown in Figure 6.2, it is also worth noting that the global market share of green bonds has been declining in recent years relative to other sustainable debt instruments. Green Loans are similar to green bonds in that they are financial instruments where borrowers are required to use the proceeds exclusively for

Finance to Support Climate Action in Asia  129

Figure 6.3 Use of proceeds from green bonds in APAC (2020–​2022). Source: https://assets.website-files.com/5df9172583d7eec04960799a/62e7fa63858d1c0f2233e371_ BX14160_ESG%20Solutions_APAC%20Sustainable%20Bond_31Jul2022.pdf (Moody’s 2022).

funding projects that are linked to environmental objectives. However, the instruments differ in that green loans are typically smaller than bonds, are performed in a private operation, and have a lower transaction cost (World Bank Group, 2021). Green loans and bonds follow different but consistent principles under the ICMA guidelines. In 2021, green loans constituted 3% of the global sustainable debt market, with nearly two thirds (60%) of the volume originating from APAC (CBI, 2022c). Chinese companies are leading the way on green loans in APAC. In 2021, green loans issued in China soared 195% year-​on-​year to US$4.3 billion (Ammal et al., 2021). As with green bonds, the rapid growth in green loan issuance can partially be attributed to government efforts to support national climate targets. In ASEAN, the six largest economies reached a cumulative issuance of US$39.4 billion in green debt (loans and bonds combined) by the end of 2021, of which US$15.4 billion was issued during that year (CBI, 2022a). Supported by a favourable regulatory environment as previously discussed, Singapore is leading the way in ASEAN, with a total volume of US$12 billion issued during 2021. This was followed by Vietnam, Indonesia, Thailand, and the Philippines, which all issued US$0.5 to $1 billion during the same year. Although green loans and bonds still constitute the largest portion of the sustainable debt market in APAC and globally, their overall market share is

130  Brian Ho and Fredrik Andersen

Figure 6.4 Green debt issuance in the six largest ASEAN economies (2016–​2021). Source: https://www.climatebonds.net/files/reports/cbi_asean_sotm2022_final.pdf (Climate Bonds Initiative, 2022).

declining. Following the introduction of market standards for new types of sustainable finance instruments in recent years, capital markets have reacted. In particular, SSLs have gained noticeable traction since the LMA and ICMA introduced the SSL principles in 2019. Sustainability-​linked loans are loans that incentivise the borrower’s achievement of predetermined sustainability objectives. The borrower’s sustainability performance is assessed and measured using targets and key performance indicators (KPIs), such as ratings by external rating agencies and organisations (e.g. MSCI, Global Real Estate Sustainability Benchmark [GRESB], Sustainalytics, Dow Jones Sustainability Index [DJSI]). Unlike green bonds and green loans, the proceeds from SLLs are not required to go directly to specific ESG activities. In most instances, proceeds from SLLs will be used for general corporate purposes. Instead of determining specific uses of proceeds, SLLs look to improve the borrower’s overall sustainability profile by aligning loan terms to the borrower’s performance against the relevant predetermined targets and KPIs. This flexibility has allowed companies from industries not traditionally considered eligible for green projects to access the sustainable debt market and a larger pool of investors (Chase, 2021). Typically, if the borrower is able to achieve its predetermined sustainability goals, the borrower may be eligible for more favourable terms on the

Finance to Support Climate Action in Asia  131 loan’s agreement, such as lower interest rates (Larsen, 2019). However, the reverse is also true: if a company’s ESG performance worsens, the terms of the agreement may cause an increase in interest rates to the detriment of the borrower. With such terms, SLLs incentivise companies to improve their sustainability efforts, as it may impact their financials. Some critics have raised concerns about the reliance of SLLs on external ESG ratings, on which interest rates or terms may rely. Some ESG rating agencies may be opaque in their assessment and rating methodologies, making the assessment less transparent. Another concern is that although SLLs are useful in encouraging improved ESG performance among borrowers, their direct effect on sustainability issues may be more difficult to measure than that of other green instruments where funds are allocated to specific green projects. Despite these issues, SLLs have proven to be popular sustainable finance instruments among issuers and borrowers alike. In terms of sustainable debt issuance, SLLs and bonds were the fastest growing instruments globally in 2021. Combined, these saw more than US$530 billion issued during the year, approximately four times more than the year before (BloombergNEF, 2022; Figure 6.2). There are several reasons why SLLs are growing in popularity. For borrowers, SLL proceeds can be used for general purposes, allowing for greater agility and flexibility. As SLLs are typically tied to performance on various ESG ratings and indices, on which mature borrowers may have been included for many years already, it can also allow for easier implementation of the assessment methodology. For issuers, bonds can be expensive unless done at scale, whereas loans can typically be issued in lower values. In 2021, the average size of green bonds was US$250 million (CBI, 2022c). In APAC, SLL issuance surpassed green loans for the first time in 2021, with an impressive 332% growth to approximately US$21 billion compared to the year prior (Ammal et al., 2021). We will discuss SLLs further in a later case study. Sustainability-​linked bonds are similar to SLLs in several ways. SLBs are any type of bond instrument that is based on the borrower achieving predetermined sustainability-​ related objectives within a predefined timeline (ICMA, 2020). As with SLLs, the objectives are measured through predetermined KPIs and targets. SLBs and SLLs are also similar in that their proceeds are usually intended for general corporate purposes. If the borrower meets the predetermined sustainability objectives of the SLB, they will typically enjoy lower interest rates. If the borrower fails to achieve the objectives, the bond’s coupon rate may increase, or they may face a penalty when the bond matures (Chase, 2021). SLBs made their first appearance in Europe in 2019. By 2021, SLBs represented the fastest growing bonds market globally, reaching US$118.8 billion by the end of the year –​up from only US$11.4 billion the year prior (CBI, 2022c). In ASEAN, the combined volume of SLLs and SLBs reached US$27.5 billion in 2021, more than a threefold increase from the year before (CBI,

132  Brian Ho and Fredrik Andersen 2022a), far exceeding green bonds and loans during the same time (US$15.4 billion). By the end of 2021, Singapore was the largest source of SLLs and SLBs in the region, issuing 94 out of 129 deals with a cumulative volume of US$33.6 billion, accounting for 84.5% of the market. This was followed by Thailand, which issued a cumulative US$2.3 billion over 19 deals by the end of 2021. Indonesia and Malaysia also entered the SLL/​SLB market in 2021 after issuing approximately US$1 billion of volume across five and eight deals, respectively. Additionally, with SLLs and SLBs, Singapore’s leading position can partially be attributed to the Singaporean government’s effort to establish itself as the preferred sustainable finance hub in the region. For example, in 2021, the MAS launched the Green and Sustainability-​Linked Loan Grant Scheme to support corporations of all sizes in obtaining green and sustainable financing by defraying the expenses of engaging independent service providers to validate the green and sustainability credentials of loans (MAS, 2021). The grant also encourages banks to develop green and SLL frameworks to make such financing more accessible to small-​and medium-​sized enterprises, opening the door for more companies to be able to raise capital through sustainable finance instruments. Sustainability bonds are bond instruments where the proceeds or an equivalent amount will be applied exclusively to finance or refinance a combination of both green and social projects (ICMA, 2021b). This approach is applied since certain social projects may also have environmental cobenefits, and vice versa. APAC ex-​China was the third largest region in terms of sustainability bond issuance in 2021, totalling US$35.8 billion and approximately 19% of total global volumes (CBI, 2022c). With China being the largest source of green debt in the region and numerous sustainability bonds being issued in recent years, the actual sustainability bond market in APAC is likely to be significantly higher. In ASEAN, the cumulative volume of sustainability bonds reached US$14.4 billion by the end of 2021, of which US$8.5 billion was issued in 2021 alone. Thailand was the largest source of sustainability debt in ASEAN, having issued more than US$5 billion. This was followed by Malaysia and the Philippines, which both issued nearly US$3 billion in sustainability debt each. In Singapore, sustainability bonds accounted for just 3% of sustainable debt issuance in 2021, showcasing their preference on sustainability-​ linked instruments, which accounted for 57% of issuance that year (CBI, 2022a). Social bonds are use-​ of-​ proceeds bonds that raise funds for new and existing projects with positive social outcomes (ICMA, 2022b). Examples of the use of proceeds include access to infrastructure, food security, and affordable housing. Social bonds may also have environmental cobenefits (CBI, 2021). Government-​backed entities constitute the lion’s share of social bond issuance.

Finance to Support Climate Action in Asia  133

Figure 6.5 Breakdown of green, social, sustainability, and sustainability-​linked bonds in APAC by volume (2018 vs. 2021). Source: Moody’s (2022).

Following the COVID-​19 pandemic outbreak, there was a surge in social and sustainable bonds, driven by a growing need for financing inclusive and poverty alleviation projects (ACGF, 2021). Globally, Europe accounted for 60% of all social bond issuances in 2021 (CBI, 2022c). However, as most parts of the world have shifted to living with COVID-​19 by 2022, the trend appears to be fading. In 2021, the global social bond market size totalled US$223.2 billion, down 13% from the year prior. As shown in Figure 6.5, social bonds also experienced rapid growth in APAC in recent years. In 2021, they accounted for more than a quarter (27%) of all green, social, sustainability, and SLBs issued in the region, up from just 4.6% in 2018. In ASEAN, the total volume of social bonds reached US$0.61 billion –​ only 1% of the cumulative green, social, and sustainability bond and loan markets in the region (CBI, 2022a). Summary

As we have discussed, the sustainable debt markets in the APAC and ASEAN are growing rapidly, and with the emergence of new sustainable finance instruments in recent years, some trends are starting to change. Issuers and borrowers in the region are taking a keen interest in sustainability-​linked instruments in favour of more traditional and long-​standing green bonds and loans. In APAC, China is the largest issuer of green debt, followed by South Korea and Japan. In ASEAN, Singapore is leading the way in the sustainable finance marketplace, characterised by prominent growth in sustainability-​ linked instruments. This is driven by government support, highlighting the importance of policy to facilitate sustainable finance markets.

134  Brian Ho and Fredrik Andersen Case Study With the rapid growth of SLLs in the region and Singapore leading the way as a sustainable finance hub in ASEAN, the following case study explores how Singaporean global real estate investment manager, CapitaLand Investment Limited (CLI), has been leveraging the opportunities brought by sustainable finance in recent years. The case study is based on desktop research and interviews with CLI. Company Background

Headquartered and listed in Singapore, CLI is a leading global real estate investment manager with a strong foothold in APAC. CLI was listed on the Singapore Exchange in September 2021 following the restructuring of CapitaLand Limited into two distinct business entities –​CLI, the listed real estate investment management business, and CapitaLand Development, the privatised property development arm. As of September 2022, CLI had approximately S$130 billion (US$97.1 billion1) of real estate assets under management, approximately S$86 billion (US$64.2 billion) of real estate funds under management held via six listed Real Estate Investment Trusts (REITs) and business trusts, and approximately 30 private vehicles across APAC, Europe, and the United States. Its diversified real estate asset classes cover retail, office, lodging, business parks, industrial, logistics, and data centres. Environmental, Social, and Governance (ESG) Track Record

Over the years, CLI has placed a strong emphasis on sustainability and has committed to achieving net-​zero for their scope 1 and 2 emissions by 2050. To support this long-​term target, the company has also set an ambitious short-​term target to reduce its absolute scope 1 and 2 emissions 46% by 2030 from a 2019 base year. In accordance with best practices, CLI had the target reviewed by the Science-​Based Targets initiative, who validated it as being aligned to the 1.5 °C pathway outlined in the goals of the Paris Agreement. As a multinational corporation with a presence in more than 30 countries, CLI has also aligned its efforts and objectives with national-​level goals in the markets in which it operates. To achieve these targets, CLI is investing in research and development to foster innovation and partnerships, as well as exploring emerging technologies to raise the bar on environmental stewardship and accelerate its transition to net-​ zero emissions. For example, the company is exploring ways to improve energy efficiency at its properties while increasing the proportion of renewable energy usage at the same time. In 2021, CLI expanded its use of renewable energy at 21 properties across Singapore, China, India, Australia, Belgium, and the United Kingdom, mitigating approximately 28,960 tonnes of carbon emissions.

Finance to Support Climate Action in Asia  135 In 2020, CapitaLand launched its 2030 Sustainability Master Plan, a strategic blueprint outlining the company’s ESG goals and how to achieve them (CapitaLand, 2020b). For example, under the pillar of ‘Accelerate Sustainability Innovation and Collaboration’ in the 2030 Sustainability Master Plan, CapitaLand initiated the ‘CapitaLand Sustainability X Challenge’ (CSXC), inviting ideas for innovations to make buildings more climate-​resilient and resource-​efficient. Following its inaugural challenge in 2021, the company is now piloting six innovations in Singapore and the United States with the aim of scaling successful pilots across its portfolio. The second CSXC in 2022 attracted more than 340 entries across 50 countries (CapitaLand, 2022). Through the challenge, CLI aims to accelerate its progress to meet the 2030 Sustainability Master Plan targets, with decarbonisation being a key pillar. To support and complement the CSXC, CapitaLand also launched the S$50 million (US$37.3 million) CapitaLand Innovation Fund with a strong focus on identifying and test-​bedding new and innovative sustainability solutions. At least half of the fund is set aside for sustainability innovations. Furthermore, to support its decarbonisation targets, CLI set a target to raise S$6 billion (US$4.5 billion) through sustainable finance by 2030. As of 31 December 2022, CLI and its listed REITs and business trusts successfully raised S$11.6 billion (US$8.66 billion) through such instruments. CLI and Sustainable Finance

Sustainable finance is part of CLI’s overall ESG efforts and has several benefits in addition to generating financial returns. As of 31 December 2022, CLI and its listed REITs and business trusts had partnered with 17 financial institutions to secure a total of S$11.6 billion (US$8.66 billion) in sustainable finance comprising SLLs, SLBs, green loans, green bonds and green perpetual securities. In 2018, CapitaLand secured its first SLL from DBS Bank Ltd. (DBS), raising S$300 million (US$224 million) and making it the largest SLL in Asia’s real estate sector at the time (CapitaLand, 2018). The following year, CapitaLand became the first company in Asia to partner with Société Générale for an SLL and became the first real estate partner in the region for Crédit Agricole Corporate and Investment Bank (CACIB) and Natixis for SLLs. By May 2020, CapitaLand and its REITs had raised over S$2.42 billion (US$1.81 billion), and CapitaLand had achieved interest savings on its existing SLLs (CapitaLand, 2020a). As of 31 December 2022, the list of banks that CLI and its listed REITs and business trusts have partnered with for sustainable financing include Australia and New Zealand Banking Group Limited, Bank of China Limited, CIMB Bank Berhad, CACIB, DBS, JPMorgan Chase Bank, Malayan Banking Berhad, Mizuho Bank, Ltd., MUFG Bank, Ltd. (MUFG), Natixis, Oversea-​Chinese Banking Corporation Limited (OCBC), Shanghai Pudong

136  Brian Ho and Fredrik Andersen

Figure 6.6 Breakdown of sustainable finance raised by CLI and its listed REITs and business trusts by instrument type as of 31 December 2022. Source: https://ir.capitalandinvest.com/newsroom/20221013_071025_9CI_KBVMOAGSL7 GZULP9.2.pdf

Development Bank, Société Générale, The Bank of East Asia (BEA), The Bank of Nova Scotia, The Hongkong and Shanghai Banking Corporation Limited, and United Overseas Bank Limited (UOB). In alignment with the emerging global trend, CLI’s sustainable finance instrument of choice has been SLLs. Of the S$11.6 billion (US$8.66 billion) raised by CLI and its listed REITs and business trusts through various sustainable finance instruments by the end of 2022, 51% were attributable to SLLs (see Figure 6.6; Capital Land Investment, 2022). As discussed previously, SLLs are loans that are tied to the borrower’s achievement of predetermined sustainability performance objectives. The borrower’s sustainability performance is assessed and measured using KPIs and often by external rating organisations, such as the DJSI or GRESB) Unlike green loans, the use of proceeds from SLLs is not required to be allocated to specific ESG activities and can be used for general corporate purposes. GRESB assesses and benchmarks the ESG performance of real estate companies and funds, providing standardised and validated data to capital providers in the property sector. CapitaLand has been a long-​ time participant in the annual GRESB assessment and achieving a high rating. In 2022, CLI maintained the highest five-​star rating, placing it in the top 20% of the benchmark globally.

Finance to Support Climate Action in Asia  137 DJSI tracks the performance of the world’s leading companies on their ESG efforts. CapitaLand has maintained its listing on both the Dow Jones Sustainability World Index and the Dow Jones Sustainability Asia-​Pacific Index for several consecutive years, reinforcing its reputation and creating more favourable terms for sustainable financing.

Benefits

For SLLs that are pegged to CLI’s performances on such indices, CLI noted several key benefits, including flexibility, efficiency, and financial benefits. • Flexibility: SLLs allow CLI to use the funds raised for general corporate purposes, whereas proceeds from green loans must be used to fund eligible green projects. This allows for greater flexibility and for CLI to prioritise its sustainability efforts in a dynamic manner. • Efficiency: Most of CLI’s SLLs are pegged to annual sustainability assessments such as the DJSI and GRESB. Since these are accepted by the relevant financial institutions that CLI partners with within the sustainable finance landscape, CLI was not required to hire additional assessors to review its performance. • Financial benefits: CLI can leverage emerging opportunities in the sustainable finance landscape to reap additional financial outcomes from the successful and early integration of sustainability initiatives into its business. By maintaining or improving its rating/​scoring on the relevant ESG benchmarks, CLI will typically obtain interest savings on the SLLs. In addition to the abovementioned benefits, CLI also noted several other benefits from its broader experience with sustainable finance. First, CLI’s involvement in the sustainable finance marketplace has increased its diversity and options in financing partners and opportunities across geographies. Sustainable finance also allows for nonfinancial value creation, such as increased awareness of the company’s sustainability efforts. For example, depending on the type of sustainable finance instruments, such initiatives often require an undertaking by the borrower to maintain or improve its ESG performance or use the proceeds for ESG activities, which demonstrates the company’s sustainability commitments and maturity, not only to its shareholders but also to wider stakeholder groups. With growing public expectations and a greater focus on sustainability, embracing sustainable finance initiatives enables CLI to communicate its efforts while also having direct benefits on their bottom line. For some of the initiatives, interest rate savings are channelled back into CLI decarbonisation efforts. Finally, integrating CLI ESG performance with financial metrics ensures alignment with their long-​term focus on sustainability and responsible growth across business units and geographies.

138  Brian Ho and Fredrik Andersen CLI and SLLs

Throughout 2022, CLI and its listed REITs and business trusts secured S$4.7 billion (US$3.51 billion) in sustainable financing through 22 sustainable financing instruments. Of this, S$1.25 billion (US$0.93 billion) came from seven SLLs pegged to GRESB. CLI’s inclusion in the DJSI is also tied to the interest rates across four of CLI’s existing SLLs totalling S$600 million (US$448 million). By maintaining its listing on the DJSI, along with the achievement of other ESG indicators, CLI will enjoy savings from reduced interest rates on these SLLs (see Table 6.1). Ruben Langbroek, GRESB’s Head of APAC, said, We would like to commend CLI and its listed trusts for consistently achieving top ratings in the GRESB assessments. CapitaLand has been an early participant in the GRESB assessments since 2011, and it has continued to demonstrate leadership in sustainability in the real estate

Table 6.1 Examples of SLLs secured by CLI and its listed REITs and business trusts Year

Details

Assessment method

2018

DBS issued a S$300 million (US$224 million) multicurrency SLL to CapitaLand where the five-​year term loan and revolving credit facility was the first and largest SLL in Asia’s real estate sector, as well as Singapore’s largest sustainability-​linked financing provided by a sole lender at that time. UOB issued a four-​year S$500 million (US$373 million) SLL to CapitaLand, which is the largest sustainability-​linked bilateral loan in Singapore’s real estate sector. OCBC and CapitaLand signed Singapore’s first loan facility agreement referencing Singapore Overnight Rate Average (SORA). The S$150 million (US$112 million) SORA-​based loan is part of a S$300 million (US$224 million) SLL extended by OCBC to CapitaLand. MUFG issued a S$400 million (US$299 million) SLL to CLI, making it CLI’s first SLL issued by MUFG’s Singapore branch. BEA issued a US$36 million SLL to CapitaLand Ascott Trust (CLAS).

CLI’s listing on the DJSI and performance measured against the ESG indicators of the S&P Global Corporate Sustainability Assessment.

2020

2020

2021

2022

CLI’s performance on GRESB.

CLI’s performance on GRESB.

CLI’s performance on GRESB. CLAS’ performance on GRESB.

Finance to Support Climate Action in Asia  139 sector. By pegging their SLLs to their GRESB rankings, CLI and its listed trusts have shown their commitment to delivering tangible results to investors. We encourage more organisations to adopt GRESB for their sustainable financing as we progress towards a climate-​resilient future. Managing Sustainable Finance Within CLI

Internally, the key stakeholders overseeing CLI’s sustainable finance initiatives include Group Sustainability and Group Treasury. They report to the Group Chief Operating Officer and the Group Chief Financial Officer (CapitaLand Investment, 2022) and are responsible for meeting CLI’s objective to raise S$6 billion (US$4.5 billion) through sustainable financing by 2030 in alignment with CapitaLand’s 2030 Sustainability Master Plan (CapitaLand, 2020b). To identify and pursue new sustainable finance opportunities for CLI, Group Treasury is tasked with identifying relevant financial institutions and negotiating financing arrangements. Cross-​team coordination between Group Treasury and Group Sustainability is also important to ensure that the sustainability indicators identified for CLI’s sustainable finance instruments are appropriate and aligned to the 2030 Sustainability Master Plan. When a sustainable finance instrument is secured, CLI will ensure its effective operation by working closely with its external partners from financial institutions to ensure ongoing alignment. As mentioned, with SLLs, communication and coordination is usually made easier for all involved stakeholders due to the inclusion of credible and impartial third-​party indices such as DJSI and GRESB, on which CLI performance objectives can be clearly agreed upon and assessed. Ruben Langbroek, Head of APAC at GRESB, said, GRESB assesses and benchmarks the ESG performance of real estate companies and funds, providing standardised and validated data to the most sophisticated capital providers in the property sector. CapitaLand has been a long-​time participant in the annual GRESB assessment and has shown a strong track record of adhering to best practices on material ESG issues. It is great to see their ongoing commitment to further enhance their ESG performance demonstrated by this latest SLL secured based on their GRESB performance. As the number of green financing instruments grows around the world, this is benefitting real estate companies and funds with a strong ESG performance and provides important incentives for the industry to transition to a low-​carbon, safe and resilient future. To ensure that CLI performs against its overall ESG targets and objectives, the company has been leveraging technology to track key metrics such as energy and water usage, waste generation, and carbon emissions of its properties via the online CapitaLand Environmental Tracking System (CL ETS) since 2008. The CL ETS includes CLI’s global portfolio of integrated developments, retail, office, lodging, business parks, industrial, logistics, and

140  Brian Ho and Fredrik Andersen data centres. The CL ETS also tracks the energy and paper consumption of CLI corporate offices in Singapore and overseas. CLI can use the platform to survey various initiatives implemented at its properties globally, allowing monitoring of ESG performance across businesses and geographies in a timely manner, as well as ensuring alignment and progress towards its overarching goals and objectives. As the demand for high-​quality ESG data has spiked in recent years, digital data solutions are rapidly evolving and improving. CLI is also taking advantage of this and migrated its CL ETS to a new cloud-​based platform in 2019. This further improved the ETS by enhancing data tracking and accuracies. The software allows each property to conduct analysis against set targets and past trends to understand consumption patterns and identify areas for improvement. The consolidated data are also analysed at the business unit and CLI levels against its overarching ESG targets. This allows for a better understanding of consumption patterns and identification of areas for eco-​efficiency improvements across its global portfolio. In 2021, the ETS was further improved to enable assessments of its properties’ performance against their 2030 Sustainability Master Plan targets. To ensure data completeness and accuracy, CLI also conducts regular manual desktop audits. All performances are publicly disclosed in CLI Group’s Global Sustainability Report, which is externally assured to the AA1000 Assurance Standard. By utilising a comprehensive and digitalised ESG monitoring system, CLI ensures progress against its KPIs and alignment with its commitments to SLLs and other sustainable finance initiatives. Insights

When CLI first started pursuing sustainable finance initiatives, it faced the challenge of being an early mover in a region that was relatively new to sustainable debt. There were few peers in the region to learn from, and there were even fewer financial institutions with active sustainable finance opportunities to pursue. However, CLI was learning by doing. They found that securing an SLL requires a strong track record on ESG, as well as a clear roadmap that outlines the company’s future commitments to enhanced sustainability performance. Companies that are interested in raising capital through sustainable finance instruments also need to be transparent in their ESG performance in a credible manner, such as allowing for the assessment of their ESG efforts by reliable and trustworthy third-​party organisations. A proven track record of ESG performance, credible and ambitious commitments that align with best practice (e.g. setting science-​based emissions reduction targets that are aligned with the goals of the Paris Agreement), and transparency can position a company to be able to attract and raise capital through sustainable finance instruments. For certain types of sustainable finance instruments, such as SLLs, it is also crucial to demonstrate progress against ESG commitments to maintain the loan throughout its tenor. For

Finance to Support Climate Action in Asia  141 this type of loan, a continued emphasis on maintaining and improving the organisation’s overall sustainability performance will often allow the borrower to gain financial benefits through more favourable interest rates on a tiered basis. CapitaLand started its sustainability journey a decade ago and has consistently performed well in its ESG initiatives. For dedicated companies such as CLI, their sustainability commitments have created new opportunities with a range of benefits. The ESG landscape is constantly evolving, and by maintaining an ongoing commitment to its sustainability, CLI is better positioned to reap the benefits of new and emerging opportunities in the sustainable finance marketplace. Concluding Notes Based on the trends and long-​term climate objectives that we have discussed in this chapter, it is clear that corporate climate action will remain a key focus moving forwards. From governments and regulators, compliance requirements will force companies to take action to align with existing and emerging regulations. Currently, climate-​related regulations in the APAC and ASEAN often focus on reporting and transparency. However, more stringent regulations to drive emissions reductions to support nationally determined contributions are on the horizon. Within capital markets, companies must also increasingly disclose their climate-​related performance and demonstrate targets to be able to raise capital. As we have discussed, the sustainable debt markets in the APAC and ASEAN are growing rapidly and present significant opportunities for companies to attract and raise capital with more favourable terms. With the emergence of new financial instruments in recent years, sustainable finance is now also available to all industries and regions. For companies that have yet to implement any ESG initiatives, it is important to recognise that climate action is a journey and not something that can be achieved overnight. The first step is therefore to get started. This journey often starts with board and senior management buy-​in to ensure that the organisation is aligned and supportive across business units and departments. This is crucial for the effective and meaningful implementation of climate-​related initiatives and to ensure high-​quality data collection and monitoring of performance and progress. As we have seen throughout the chapter, data disclosure is a key pillar, not only for being eligible for sustainable finance but also for regulatory compliance. Once a company has secured top-​down support and established mechanisms for collecting and reporting relevant data metrics, a strategy can be developed that includes goals and targets. With the focus on climate action across industries and jurisdictions in recent years, there are ample resources available in the public domain to help companies understand what options are available and what best practice looks like. There are also consultancies, NGOs, and other organisations that companies can leverage to develop and implement their climate strategies.

142  Brian Ho and Fredrik Andersen By taking a step-​by-​step approach to corporate climate action, companies without prior experience can get started without being overwhelmed. Since this is a journey, the key point is to get started –​even if an organisation is currently not seeking sustainable finance, it makes sound business sense to have this door open for potential future opportunities. We therefore encourage organisations to take stock of their current ESG position and get started on their journey. Acknowledgements We would like to extend our sincere gratitude to Peng Er Foo (Vice President, Group Sustainability) and Lynn Le (Assistant Vice President, Group Sustainability) at CapitaLand for their dedicated support and input throughout the project for the case study contribution. We would also like to thank our colleagues Lydia Lam, Ryan Tan, and Phoebe Liu at Deloitte for their extensive support in developing this chapter through research and report development. Finally, we would like to thank Dr. Artie Ng from the International Business University for the support and opportunity to contribute to the important topic of climate action and sustainable finance. Note 1 The conversion from SGD to USD equivalent amounts are based on Bloomberg’s exchange rate (USD/​SGD: 1.3395) as of 30 December 2022.

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144  Brian Ho and Fredrik Andersen ICMA. (2022b, June). Social bond principles (SBP). The International Capital Market Association. Retrieved from www.icmagr​oup.org/​sust​aina​ble-​fina​nce/​the-​pri​ncip​ les-​gui​deli​nes-​and-​handbo​oks/​soc​ial-​bond-​pri​ncip​les-​sbp/​ Larsen, M. L. (2019, November 22). A growing toolbox of sustainable finance instruments. Green Finance & Development Center. Retrieved from https://​green​ fdc.org/​a-​grow​ing-​tool​box-​of-​sust​aina​ble-​fina​nce-​inst​rume​nts/​ LMA. (2022). Loan Market Association. Retrieved from www.lma.eu.com/​ MAS. (2021, January 19). Green and sustainability-​ linked loans grant scheme. Monetary Authority of Singapore. Retrieved from www.mas.gov.sg/​sche​mes-​and-​ init​iati​ves/​green-​and-​sus​tain​abil​ity-​lin​ked-​loans-​grant MAS. (2022). Sustainability Report 2021/​2022 . Monetary Authority of Singapore. Retrieved from www.mas.gov.sg/​-​/​media/​MAS-​Media-​Libr​ary/​publi​cati​ons/​sus​tain​ abil​ity-​rep​ort/​2022/​MAS-​Sus​tain​abil​ity-​Rep​ort-​2021_​2​022.pdf Moody’s. (2022, August 2). Green and transition financing in APAC resilient despite market headwinds. Moody’s ESG. Retrieved from https://​ass​ets.webs​ite-​files.com/​ 5df91​7258​3d7e​ec04​9607​99a/​62e7fa638​58d1​c0f2​233e​371_​BX14​160_​ESG%20 Sol​utio​ns_​A​PAC%20Sust​aina​ble%20Bon​d_​31​Jul2​022.pdf Murugiah, S. (2022, January 13). Sustainable debt issuance breezed past US$1.6 trillion in 2021, says research firm. The Edge Markets. Retrieved from www.the​ edge​mark​ets.com/​arti​cle/​sust​aina​ble-​debt-​issua​nce-​bree​zed-​past-​us16-​trill​ion-​ 2021-​says-​resea​rch-​firm PRI. (n.d.). PRI Home. Principles for Responsible Investment. Retrieved from www. unpri.org/​ Schmittmann, J., & Chua, H. T. (2021). How green are green debt issuers? IMF Working Papers, 2021(194). https://​doi.org/​10.5089/​978151​3592​992.001 SGX. (2022). Sustainability Reporting. Singapore Exchange (SGX). Retrieved from www.sgx.com/​reg​ulat​ion/​sus​tain​abil​ity-​report​ing Taylor, T. L., & Collins, S. (2022, April 5). Ingraining sustainability in the next era of ESG investing. Deloitte Insights. Retrieved from www2.deloi​tte.com/​us/​en/​insig​ hts/​indus​try/​financ​ial-​servi​ces/​esg-​invest​ing-​and-​sus​tain​abil​ity.html TCFD. (2022a). About: Task force on climate-​related financial disclosures (TCFD). Task Force on Climate-​Related Financial Disclosures. Retrieved from www.fsb-​ tcfd.org/​about TCFD. (2022b). 2022 Status Report. Task Force on Climate-​ Related Financial Disclosures. Retrieved from https://​ass​ets.bbhub.io/​comp​any/​sites/​60/​2022/​10/​ 2022-​TCFD-​Sta​tus-​Rep​ort.pdf Tiseo, I. (2022, July 5). World energy carbon dioxide emissions by region 2021. Statista. Retrieved from www.stati​sta.com/​sta​tist​ics/​205​966/​world-​car​bon-​diox​ ide-​emissi​ons-​by-​reg​ion/​ United Nations. (n.d.a). United Nations Conference on Environment and Development, Rio de Janeiro, Brazil, 3–​14 June 1992. United Nations. Retrieved from www.un.org/​en/​conf​eren​ces/​envi​ronm​ent/​rio1​992 United Nations. (n.d.b). United Nations Conference on the human environment, 5–​16 June 1972, Stockholm. United Nations. Retrieved from www.un.org/​en/​conf​ eren​ces/​envi​ronm​ent/​stockh​olm1​972 UNEP. (2017, June 6). The evolution of sustainable finance. United Nations Environment Programme–​Finance Initiative. Retrieved from www.une​pfi.org/​news/​ timel​ine/​

Finance to Support Climate Action in Asia  145 UNEP. (n.d.a). About Us. United Nations Environment Programme–​Finance Initiative. Retrieved from www.une​pfi.org/​about/​ UNEP. (n.d.b). Our impact in Asia Pacific. United Nations Environment Programme. Retrieved from www.unep.org/​regi​ons/​asia-​and-​paci​fic/​our-​imp​act-​asia-​paci​fic UNFCCC. (n.d.). The Paris Agreement. United Nations Framework Convention on Climate Change. Retrieved from https://​unf​ccc.int/​proc​ess-​and-​meeti​ngs/​the-​paris-​ agreem​ent/​the-​paris-​agreem​ent UNFPA. (2022). Population trends. UNFPA Asia and the Pacific. Retrieved from https://​asia​paci​fic.unfpa.org/​en/​popul​atio​ntre​nds USAID ASEAN. (2022). USAID ASEAN. U.S. Mission to ASEAN. Retrieved from https://​asean.usmiss​ion.gov/​usa​idas​ean/​ Vejarano, G. B. (2022, August 1). Time for the asia-​pacific green bond market to step up to the challenge. Robeco.com. Retrieved from www.rob​eco.com/​en/​insig​ hts/​2022/​08/​time-​for-​the-​asia-​paci​fic-​green-​bond-​mar​ket-​to-​step-​up-​to-​the-​challe​ nge.html World Bank Group. (2021, December 8). Climate Explainer: Green bonds. World Bank. Retrieved from www.worldb​ank.org/​en/​news/​feat​ure/​2021/​12/​08/​ what-​you-​need-​to-​know-​about-​ifc-​s-​green-​bonds World Bank Group. (2021, October 4). What You Need to Know About Green Loans. World Bank. Retrieved from www.worldb​ank.org/​en/​news/​feat​ure/​2021/​ 10/​04/​what-​you-​need-​to-​know-​about-​green-​loans

7 Turning an ESG Agenda into Action through New Product Development The Roles of Sustainability Management Control Systems in a Japanese Manufacturer Asako Kimura, Hiroyuki Selmes-​Suzuki and Norio Sawabe

7.1 Introduction Environment, social, and governance (ESG) commitments of Japanese companies are becoming part of their key management activities. In accord with global trends, Japanese regulators have developed regulations to include ESG reporting in their financial reporting systems and institutional investors have signed up to the Principles for Responsible Investment. The Tokyo Stock Exchange has published a Japanese version of its Corporate Governance Code, which requires companies to address governance and other sustainability matters, such as the placement of two outside directors and the submission of a corporate governance report. Securities reports, which the Financial Instruments and Exchange Act requires listed companies to disclose, are now required to include sustainability indicators, such as the ratio of female managers, the percentage of male employees taking parental leave, and the gender pay gap under certain conditions (Cabinet Office 2023). The Government Pension Investment Fund, the world’s largest pension organisation, has signed up to the Principles for Responsible Investment and has made a clear commitment to requiring companies to respond to demands for addressing ESG issues by annually selecting and publishing a list of Japanese companies that have made appropriate disclosures for the Task Force on Climate-​related Financial Disclosures requirements and issued excellent integrated reports. These changes in the business environment have forced Japanese companies to respond to demands for ESG disclosures. Consequently, the number of companies issuing integrated reports has increased from one company in 2004 to 884 companies in 2022, with some companies putting substantial effort into disclosing such reports. Kitada and Kimura (2021) analysed the top messages in integrated reports and other documents issued by the companies that make up the Nikkei 225 between DOI: 10.4324/9781003288343-10

Turning an ESG Agenda into Action  147 2009 and 2018 and showed a trend of time-​series changes in the topics claimed by the top management of Japanese companies.1 They indicate that the distinctiveness of the topics mentioned by the top management of the companies has decreased, while the number of topics related to ESG and Sustainable Development Goals (SDGs) has increased rapidly since 2016. Their study points to the possibility that what each company used to talk about its own environmental considerations and women’s workability considerations in production processes and new product development (NPD), respectively, have converged into standard topics in conjunction with the growing awareness of ESG and SDGs in Japan. In other words, the companies that make up the Nikkei 225 may be trying to strengthen their commitment to ESG that can be visible to external stakeholders through their reports. As ESG becomes increasingly important for organisations’ mainstream management, there is a greater need for companies to add a sustainability perspective to their management control system (MCS). MCS can be useful in controlling social and environmental issues in addition to financial issues (Riccaboni and Luisa Leone, 2010). However, care must be taken in the construction and operation of sustainability management control system (SMCS), since environmental and social focus can undermine economic efficiency. Since the MCS and SMCS of companies are developed separately, or since the SMCS is rarely operationalised in management, the SMCS must be useful for planning and implementing management control by integrating environmental and social perspectives into strategy (Battaglia et al., 2016; Ditillo and Lisi, 2016; Gond et al., 2012; Henri and Journeault, 2010). In addition, the definition and categorisation of the individual controls that comprise the SMCS varies across prior literature, and therefore there are different arguments as to their roles and impacts (Arjaliès and Mundy, 2013; Crutzen et al., 2017; Ghosh et al., 2019; Journeault, 2016). As discussed below, relative to other countries, Japan has been motivated to address the environmental aspects of ESG, due at least partly to its social background. Therefore, this chapter selects and examines a Japanese parent company and its subsidiaries, which are strategically committed to environmental management among ESG. By examining how the company-​wide SMCS established by the parent company was deployed in the NPD processes of each subsidiary, the case study explicitly shows that SMCS helped the case organisation to materialise their ESG agenda through the development and provision of sustainable products to customers. In so doing, the case study presented in this chapter sheds lights on stakeholders as an important contextual factor implicated in the difference in how SMCS was developed and used in each subsidiary. The remainder of this chapter first presents the business environment of Japanese companies by outlining the evolution of ESG in Japan, then reviews previous literature on SMCS. The SMCS and sustainable product development processes of Japanese companies are then discussed.

148  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe 7.2  ESG in Japan 7.2.1  ESG Background and Regulations

In 2013, the “JAPAN is BACK” strategy, announced by then Prime Minister Abe, identified the implementation of a growth strategy to stimulate private investment as one of the policies. Corporate governance reform was positioned at the core of this growth strategy, and in 2014 the Financial Services Agency formulated the “Seven Principles for Responsible Institutional Investors (Japanese version of the Stewardship Code)” to promote sustainable growth of companies through investment and dialogue. In these principles, the stewardship responsibilities of institutional investors were clearly stated, and they were required to select investee companies with sustainability in mind. Subsequently, in 2015, the Tokyo Stock Exchange published a Corporate Governance Code. The Corporate Governance Code clarified corporate governance requirements, such as the requirement to have at least two independent outside directors. Moreover, the Code included a number of sustainability-​related details. For example, it states that appropriate measures should be taken to address social, environmental, and other sustainability issues; that companies should promote diversity inside the organisation, including the promotion and utilisation of women’s activities; and that the companies should strive to increase its corporate value over the medium term while managing its operations with consideration of the creation of value for its various stakeholders. The Tokyo Stock Exchange also states that the companies should improve its corporate value over the medium term while taking into account the creation of value for various stakeholders; and that the companies should formulate a management philosophy that will form the basis for such activities. The Tokyo Stock Exchange established a Corporate Governance Code in conjunction with the revision of its listing rules. In so doing, it has adopted a “comply-​or-​explain” principle: companies that do not accept the Corporate Governance Code are held accountable. The impact of Corporate Governance Code on companies has been significant. Additionally in 2015, the Government Pension Investment Fund, one of the largest pension schemes in the world, signed up to the Principles for Responsible Investment. Even before that, the Government Pension Investment Fund had stated in one of its investment principles that it would invest in equities in a way that fulfilled its stewardship responsibilities. However, by signing the Principles for Responsible Investment, the Government Pension Investment Fund demonstrated to the outside world that it would become stronger in its engagement activities with the companies in which it invests. Subsequently, the Government Pension Investment Fund adopted ESG indices and invested approximately JPY 1 trillion in 2017, with its assets under management reaching approximately JPY 10.6 trillion by 2021. In addition, according to Japan Sustainable Investment Forum’s (JSIF)

Turning an ESG Agenda into Action  149 survey of institutional investors based in Japan, the change in the balance of sustainable investments is shown in Table 7.1.2 As seen in Table 7.1, other institutional investors have also been increasing their sustainable investments, and the percentage of their total assets is also increasing. Thus, ESG investment in Japan is flourishing, and the increase in ESG investment can be attributed not only to the overarching regulations discussed in this section, but also to the social context of individual environmental, social, and governance issues. In the 1960s, the central government and local governments also started regulating companies to lead them to reduce their environmental impact, which is an indication of Japan’s profound accumulation of experience in this area. This section outlines the environment-​related regulations and context specifically addressed in this chapter.3 7.2.2  Environmental Background and Regulations

As industrialisation progressed in Japan after World War II, problems related to air and water pollution became severe: four pollution-​related diseases occurred in the 1950s and 1960s, which led to the enactment of the Basic Act on Pollution Control in 1967 from the perspective of pollution prevention. This law clarified the responsibilities of businesses, the Government, and local authorities in relation to pollution control. Subsequently, the global issue of climate change, as seen in the 1992 Earth Summit in Rio de Janeiro and the 1995 Kyoto Protocol agreement, affected the Japanese manufacturing industry. The Basic Pollution Law was repealed, and the new Basic Environment Law was enacted in 1993. The Basic Environmental Law consists of provisions setting out the direction of measures, while specific measures are implemented by individual subordinate laws, such as the Home Appliance Recycling Law (1998), the Basic Law on the Promotion of Establishing a Recycling-​oriented Society (2000), and the Law on the Promotion of Effective Utilisation of Resources (2001). In the private sector, ISO 14001, issued by International Organisation for Standardisation in 1996, had a considerable impact on Japanese companies. Since then, a number of companies have obtained this status, and in 2020 there were 20,842 certifications (Japan Accreditation Board) in Japan, which is the second highest number of certifications in the world. To maintain ISO 14001 certification, the companies continued to reduce energy consumption and waste and strictly control chemical substances. ISO 14001 also led to the development of unique Japanese standards, as the Ministry of the Environment created a certification system called Eco Action 21 for small-​and medium-​sized enterprises that had difficulty obtaining ISO 14001 certification. The then Environment Agency, the predecessor of the Ministry of the Environment, issued the Environmental Reporting Guidelines in 1997 as a set of guidelines for disclosing corporate activities to reduce their environmental

newgenrtpdf

Total sustainable investment balance* Percentage of total assets under management Number of institutions

Dec-​2015

Mar-​2016

Mar-​2017

Mar-​2018

Mar-​2019

Mar-​2020

Mar-​2021

26,687,256

56,256,632

136,595,941

231,952,250

336,039,620

310,039,275

514,052,801

11.4%

16.8%

35.0%

41.7%

55.9%

51.6%

61.5%

24

31

32

42

43

47

52

*Amounts in millions of yen Source: https://​japan​sif.com/​sur​vey (retrieved on 2023/​03/​01).

150  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe

Table 7.1 Trends in sustainable investment

Turning an ESG Agenda into Action  151 impact. These guidelines stated that it is the responsibility of companies to disclose environment-​related information to build a sustainable and environmentally friendly society, and the guidelines thus encouraged the voluntary disclosure. The first companies to disclose voluntary environmental reports in relation to these guidelines were electrical equipment companies. The Electrical Appliance Recycling Law required all companies to recycle televisions, refrigerators, washing machines and air conditioners, and also required consumers to pay a fee for recycling. At the time, there was a high level of consumer interest in electrical equipment companies, due at least partly to media reports on the impact of greenhouse gases produced by electrical equipment on the depletion of the ozone layer. With those national backgrounds and under a number of regulations, some Japanese companies devised SMCS to address ESG issues. In advance of examining a specific example of SMCS, the next section reviews literature on SMCS. 7.3  Literature Review: SMCS It has been noted that corporate attention to issues such as the environment and society is important from a risk management perspective, and that those issues can also provide a business opportunity at the same time (Porter and Kramer, 2006; Schaltegger and Burritt, 2010). Arjaliès and Mundy (2013) suggest that MCS may play an important role in helping managers identify and manage potential threats and opportunities related to sustainable development. However, it has also been noted that SMCS is decoupled from existing MCS and is not always used in the management of organisations (Gond et al., 2012). Gond et al. (2012) identified a configuration for the contribution of control systems to integrate sustainable development into strategy. However, some researchers have argued that environmental strategies influence the utilisation of SMCS. For example, Pondeville et al. (2013) examined data obtained from 286 manufacturing companies and found that stakeholder demands and corporate environmental proactivity strategy positively influenced SMCS utilisation. Additionally, Journeault et al. (2016) showed that proactive environmental strategies comprising eco-​efficiency and eco-​ branding positively influence SMCS utilisation. Henri and Journeault (2010) indicated that the specific utilisation of SMCS also depends on the company’s situation. They found that the effects of the utilisation of SMCS on corporate economic performance through enhancing corporate environmental performance are contingent upon factors such as high environmental exposure, high public visibility, high corporate concerns for environmental issues, and a large corporate size. Journeault (2016) and Journeault et al. (2016) also found that contextual factors such as environmental exposure, public visibility, and stakeholder demands positively influence SMCS utilisation.

152  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe As Journeault (2016) and Journeault et al. (2016) reported, the impact of stakeholder presence on the sustainable development of companies is not trivial. In this regard, Henri and Journeault (2010) also suggested that companies design their SMCS to deliver the results expected by stakeholders. In addition, Wood et al. (2018) argued that stakeholder identification and prioritisation are important in implementing management that contributes to sustainability. However, their priorities vary depending on the company’s business environment and industry segment. Subsequent studies have pointed out various aspects of stakeholder identification and priorities (Chen et al., 2023; Serna et al., 2022; Surucu-​Balci and Tuna, 2022). In summary, whilst the extant literature identifies stakeholders as an important contextual factor affecting the utilisation of SMCS, how differences in stakeholders as a context are implicated in the development and use of SMCS remains relatively underexplored. Thus, in this chapter, we provide empirical evidence to examine the development and use of SMCS in different organisational contexts in terms of stakeholders to promote their ESG agenda. 7.4 Methods To examine the transformation of internal business processes in response to demands for pursuing an ESG agenda, a Japanese electronics company (hereafter referred to as “T-​electronics”) was selected as the case site. As outlined in Section 7.2, Japan’s electronics industry has been a focus of public attention domestically because of its significant influence on global warming. Due to this public interest, the Japanese government developed environmental legislation from an early stage. Companies have responded to emerging environmental laws and regulations in an ad-​hoc manner by creating and disbanding organisational subunits in charge of environmental and sustainability issues. Thus, the industry has a long track record of taking actions regarding environmental issues. Among other companies, T-​ electronics established a sustainability division in 1988. This division started publishing environmental reports in 1998, and thus its efforts to build ties with the external environment can be objectively examined through publicly disclosed data from 1998. T-​electronics was ranked first in the sustainability management rankings in Japan in 2015. Accordingly, in the present study, T-​electronics was selected as a representative case to exemplify pioneering actions. Data were collected from several sources, such as reports in which the company disclosed sustainability management targets and efforts; in-​house newsletters and data on internal rules and environmental exhibitions; and semi-​ structured interviews. Seven semi-​ structured interviews were conducted between December 2014 and February 2018 using the following steps: (1)  sending out questionnaire forms based on the collected data, (2) retrieving the completed forms, and (3) asking further questions

Turning an ESG Agenda into Action  153 about the questionnaire responses in the interviews. The interviews had a combined duration of approximately 27 hours. The interviewees were the senior manager and manager of the head-​office Environment Management Office (head-​office SMO), which is in charge of sustainability management throughout the T-​electronics Group; the environmental officer and senior manager in the Home Appliance (HA) Engineering Planning Department in the in-​house electric HA company (i.e. subsidiary); the group manager in the Washing Machine Design Department in HA Ltd.; and the general manager in the Environment Management Department of the in-​house Medical Equipment (ME) company (i.e., another subsidiary). Specifically, the sustainability division’s Senior Manager, as of 2016, joined the company in 1997. Therefore, individual accounts for the company’s ESG initiatives from 1997 to 2016 were obtained through interviews with him. 7.5 Case 7.5.1  Corporate overview, ESG agenda, and performance targets disclosed in the external reports

T-​electronics4 was founded in 1875 as an electronics company. The company adopted a divisional structure on the basis of product fields, and, as mentioned in Section 7.4, in 1988, the company created a division dedicated to environmental issues under the corporate head office. This division was then renamed several times as a result of company-​wide reorganisations, and the head-​office SMO has been in place since 2013. In addition to the work transferred from previous organisations devoted to environmental issues, one of the objectives of the head-​office SMO is to plan and promote environmental management within the group. Meanwhile, the company introduced an in-​house company structure in 1999 to bolster the responsibilities and authority in each business area and have each business remain financially independent. Under the in-​house company system, each company had a high degree of independence, such as having its own internal personnel systems, which included the authority to recruit staff members in charge of environmental affairs at each company. In 2007, T-​ electronics formulated a new corporate vision, named Environmental Vision Alpha, described by the company as “a corporate vision that envisages affluent lifestyles in harmony with the Earth as an ideal situation for mankind in 2050”. Central to Environmental Vision Alpha was the notion of Environmental Efficiency, denoted as created value divided by environmental impacts. Environmental Vision Alpha used Environmental Efficiency as an assessment indicator and set a goal of making Environmental Efficiency ten times greater by 2050 compared with that in 2000. This goal, referred to as “Factor 10”, was discussed by senior management during Board of Directors meetings, and each in-​house company was assigned tasks to achieve Factor 10 through its respective business.

154  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe Factor 10 was then used to assess the performance of each in-​house company. It was decided in the Board of Directors meeting to set different targets for each in-​house company. Here, the head-​office SMO played a role in determining reduction rates for carbon dioxide (CO2) emissions and other items in coordination with the environmental officers at each company. Subsequently, the head-​office SMO announced the aggregate data in the medium-​term environmental plan. This plan is an environmental equivalent of the medium-​ term management plan. Medium-​term management plans generally cover a period of five years. In Japan, at least some of these plans are often disclosed to external parties as part of investor relations activities, and the disclosed parts include targets such as return on investment and profits. The medium-​term environmental plans at T-​electronics were prepared in a manner that maintained consistency with the medium-​term management plans. To this end, the head-​office SMO prepared a draft of medium-​term environmental plans by obtaining information from the environmental officers at each company. Moreover, an executive environmental conference was held, in which matters including the target for created value were deliberated and determined. The environmental officers at each company gave the head-​ office SMO monthly reports on the progress towards the determined targets. Information about this progress was also shared and assessed through environmental management auditing. Consequently, the fifth medium-​ term environmental plan (2012–​2016) focused on the target of making environmental efficiency three times greater by fiscal year 2015 compared with that in fiscal year 2000, which was eventually achieved. Concurrent with the announcement of Environmental Vision Alpha in 2007, T-​electronics initiated its own system of environmental certification under the title Excellent Environmentally Conscious Products (EECPs). EECPs refer to products that deliver superior environmental performance compared with other products available at the time of their release into the market. The goal of the certification system was to increase environmental efficiency, and the head-​office SMO developed a process to facilitate the creation of EECPs. The process began at the stages of business strategy formulation and product planning, wherein benchmarks were established on the basis of products of other companies. A level of environmental performance higher than that of competing products was defined as the eco target and incorporated into the product specifications. The next step was seen at the stage of product development and design, and this step consisted of an environmental assessment. In the assessment, the environmental quality of each product was checked against relevant laws and regulations to see if it complied with those laws and regulations whilst satisfying the Environmentally Conscious Products Standards (ECP standards) at the same time. Finally, at the stage of product approval, the degree of eco target attainment and compliance with ECP standards was assessed. Products that were estimated to deliver the top environmental performance on the markets at the time of their

Turning an ESG Agenda into Action  155 release were then certified as EECPs. The head-​office SMO requested that each company develop EECPs through this process. The process for EECP creation added a new environmental perspective to the conventional process of NPD. NPD at T-​electronics had originally been characterised as highly oriented towards customers. For example, the software used as part of NPD was created to understand the actual demands and needs of customers and consumers, and the software converted those demands and customers into development targets. However, if the customer needs do include an environmental perspective under this system, the environmental perspective does not necessarily become part of the development targets. In contrast, by adding an environmental perspective, the process for EECP creation ensured that environmentally oriented development targets were included. Corresponding to the introduction of EECP, the fourth medium-​ term environmental plan formulated in 2007 called for an increase in the number of EECPs. As a result, a total of 29 products were certified as EECPs as of fiscal year 2011, which was the final year of the fourth plan. Subsequently, in preparation for the fifth medium-​term environmental plan in 2012, EECPs were discussed alongside Environmental Vision Alpha in board meetings at T-​electronics. The board eventually set two goals: (1) attaining Factor 10 by 2050, and (2) making at least half of all company sales from products certified as EECPs by 2015. Specifically, the target for the fiscal year 2015 in the fifth action plan was JPY 1.8 trillion, whereas the actual result for that year was JPY 2.75 trillion. It should also be noted here that EECPs were linked to the evaluation of corporate performance. For example, the head-​office SMO gave companies awards and bonuses for exceeding sales targets for products certified as EECPs. Consequently, the number of EECPs increased to 143 by 2014. In summary, T-​electronics developed an ESG agenda as a proactive environmental strategy at its head office, which articulated a sustainable NPD process and set financial and non-​financial targets. The next section examines how this agenda led to the transformation of the NPD processes of the two subsidiaries or in-​ house companies in different organisational context in terms of stakeholders. 7.5.2  HA Ltd.: The development of a SNPD tool called eco proposal 7.5.2.1  Outline of HA Ltd.

The in-​house company HA Ltd. developed and manufactured electric home appliances such as washing machines, refrigerators, and vacuum cleaners. It sold these products to retailers at wholesale prices. The company regarded consumers, defined as those customers who used the appliances, as their main stakeholders and set development targets in line with their needs. Because many consumers were concerned about energy conservation, the development

156  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe team incorporated energy conservation into their development targets. For example, in the development of washing machines, they set targets for power and water consumption. 7.5.2.2  SNPD process in HA Ltd.

Electric home appliance manufacturers have been heavily influenced by legislation. The passing of the Home Appliance Recycling Law in 1998 made it mandatory for businesses to recycle products under certain categories at the end of their service life, including TV sets, refrigerators, washing machines, and air conditioners. This was followed by the passing of the Law for the Promotion of Effective Utilization of Resources in 2001. In 2011, a ministerial ordinance stipulated that action be taken by businesses in connection with the “three Rs”: reduction, reuse, and recycling. As a result of these laws and regulations, electric home appliances are typically subject to product assessment with reference to the external environment. The electronic home appliances industry acted both proactively and reactively against emerging laws and regulations. In 1991, the Association for Electric Home Appliances (AEHA) published a product assessment manual for the first time. This manual was partly developed in response to public criticism about appliances using chlorofluorocarbon gas. The manual was repeatedly revised to conform to subsequent legislation, including the Basic Act for Establishing a Sound Material-​Cycle Society in 2000, and the Law for the Promotion of Effective Utilization of Resources in 2001. The AEHA in 2015 stated that product assessment was: a procedure to be executed at the stage of product design, in order to check the particulars of environmental burden reduction based on environment conscious design throughout the product life cycle, and to assess the degree of improvement in the same, for the purpose of reducing environmental burden. (AEHA, 2015, 1) HA Ltd. introduced a process for product assessment in 1991, the same year as the publication of the first edition of the assessment manual by the AEHA. The company pursued the development of ECPs by conducting product assessments during product development. The items assessed were the ease of disassembly, the “three Rs”, chemical substance regulations, packaging rationalisation, and information provision. After the release of Environmental Vision Alpha and the launch of the EECPs certification system in 2007, the format of product assessment was modified to an ecology proposal in 2008. In accordance with the ecology proposal, conventional product assessment was performed through the sequence of steps including design examination and prototyping approval. However, the proposal figures were used to set specific development targets together

Turning an ESG Agenda into Action  157 with the other units involved, including the product planning department, design centre, leading development department, laundry technology department, production department, and quality control department. In each step of the development, the technology department checked compliance with ECP standards, performed calculations for lifecycle assessment and the environmental efficiency factor, and drew comparisons with targeted and actual levels. In taking these steps, HA Ltd.’s sustainability division provided environmental information required for formulation of the ecology proposal. Moreover, the calculation of lifecycle assessment data was conducted with the cooperation of the head-​office SMO. 7.5.3  ME Ltd.: The development of an SNPD tool called radar chart 7.5.3.1  Outline of ME Ltd.

As one of the in-​house companies of T-​electronics, ME Ltd. developed and manufactured medical equipment, such as magnetic resonance imaging (MRI) systems and computed tomography (CT) scanning systems. Those systems were sold directly to hospitals and research institutes. The products were large and produced only on special order. In 2010, ME Ltd. developed the independent department of sustainability management. 7.5.3.2  SNPD process in the ME Ltd.

Patients, physicians, and hospital managers were the main stakeholders for the company’s medical equipment. Patients received examinations using the medical equipment, and physicians used the data collected through the equipment to make diagnoses. Hospital managers made decisions about the purchase of the medical equipment. Among these stakeholders, ME Ltd. paid particular attention to the physicians who operated the medical equipment. Unlike home appliance consumers, physicians tended to be more concerned with the quality of images for more accurate clinical examinations than with lower running costs (e.g., lower electrical bills for MRI systems) and less environmental burden. For this reason, the ME’s development team placed its developmental emphasis on higher quality image processing and ways to improve operability by increasing the memory capacity. The data on customer requirements used in product development software were based on interviews with sales personnel. The team had little opportunity for acquiring data on the concerns of patients and hospital managers, whose perspectives were consequently less apt to be reflected than those of physicians. Since neither patients nor hospital managers but only physicians were concerned to a limited extent about environmental performance, the product development team at the company rarely incorporated environmental goals into the list of development targets.

158  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe The ME’s sustainability department, however, had historically paid considerable attention to environmental performance in the light of chemical substance management. To sell its products in countries around the world, it was vital, in terms of risk management, for the company to stay apprised of regulations on hazardous chemical substances. It was also vital to stay apprised of substances of high concern in each country, along with analytical methods for these substances. Accordingly, the head-​office SMO compiled information on these items and provided it to each in-​house company. Apart from Vision Alpha and EECP provided by the head-​office SMO, ME Ltd. initiated another project, called Cost Half Project, under the direct control of ME president. The aim of the project was to increase profitability, and all departments such as procurement, manufacturing, and sales were required to reduce costs by half. The NPD team was also required to develop a new product at half the cost of the existing one. At the same time, the sustainability management department of the ME Ltd. was required to follow the Vision Alpha and EECP process as a commitment to the stakeholder. Consequently, they used the results of cost analysis to explain the importance of Vision Alpha to the NPD team. The integration of cost concerns and environmental concerns was exemplified by the company’s development of MRI systems. These systems were high-​ performance and large-​ sized. Their installation usually required the demolition of walls. Wall demolition resulted in debris, and wall reconstruction after installation required extra materials. Therefore, installation imposed a burden on the environment. MRI systems that were smaller and lighter would be easier to transport and bring into the facility, eliminated the need for demolition, and alleviated the environmental burden. Furthermore, the cost to the customer was lower. Construction cost was included in the company’s sales proceeds, but had little influence on profit, since the construction itself was outsourced. In other words, even with elimination of the need for construction, there would be little impact on the company’s earnings. By explaining this situation, the sustainability management department proposed reduction of MRI system size and weight to the development team. To develop a proposal for the development team, the ME department of sustainable management examined historical sales of MRI systems and indicated that wall construction costs accounted for 10% to 30% of the total sales. It also anticipated an increase in sales volume if there was no need for construction of walls. This was because first-​time installation of large-​sized MRI systems usually took 2–​3 weeks, and some hospitals decided against purchase because the long wait would impede diagnosis and treatment activities. If the team could develop a medium-​sized MRI system retaining the same specifications as the large-​sized ones, the company believed it could win new customers among hospitals desiring to upgrade their existing large-​ sized or even medium-​sized MRI systems. Downsizing a large MRI was an

Turning an ESG Agenda into Action  159 extremely difficult task, as it required a fundamental reconsideration of the previously used technology and completely new innovations. Nevertheless, the development team decided to accept the ME department’s recommendations and develop a smaller MRI. The new MRI system that resulted from the development offered reductions of 29% in installation area and 5.9% in weight. Furthermore, the length of time required for first-​time installation was reduced from 2–​3 weeks to as low as 5 days. Consequently, ME Ltd. increased sales of its new small MRI and won an award overseas for products with a low environmental impact. When the Sustainability Management Department explained the importance of small MRI development to the NPD team, the radar chart they developed to assess environmental performance was used along with the results of the cost analysis. This radar chart evaluates four impacts: environmental impact, installation impact, patient impact, and energy-​ saving performance. The environmental impact was defined as the weight of toxic chemicals used and waste to be landfilled; the installation impact was defined as the floor space and weight of the MRI and the capacity of power supply facilities; the patient impact was defined as radiation dose and noise; and the energy-​saving performance was defined as power consumption during standby and use. Using this radar chart, the NPD team was presented with figures for existing products and the target values that new products should achieve to receive EECP certification. The radar chart was then adopted as one of the standard templates for NPD meetings, and this evaluation method was shared from the engineers to the CEO. The use of the radar chart thus became pervasive in organisations, whilst its usage for NPD continues even to date. 7.6 Discussion The previous section described how the environmental strategy developed by the SMO at head office and the NPD system developed to implement the strategy have influenced the development process of environmental products in the two subsidiaries. Based on company-​wide meetings and discussions with the environmental departments of each subsidiary, T-​electronics defined a process for the development of environmental products and announced internally and externally an environmental strategy to increase the sales of such products to at least half of all sales. The company required subsidiaries to implement the strategy and expressed its commitment to the strategy to stakeholders by describing the target figures in their report. T-​electronics’ strategy is proactive towards the environment, and they have changed the design of their MCS to achieve this. They have created a system to certify products with the best environmental performance compared with other companies’ products as EECPs. The company has also institutionalised a process for developing products with high environmental performance and has performed ex-​ post environmental audits. In short, T-​ electronics has

160  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe realised its proactive strategy by redesigning its MCS as an SMCS, rather than allowing its environmental strategy to influence its use of the MCS (Pondeville et al., 2013; Journeault et al., 2016). The subsidiary HA Ltd.’s products are of substantial interest to stakeholders because they are appliances that are used directly by consumers in their daily lives. HA Ltd. has a high level of environmental exposure, public visibility, demand from stakeholders for environmental considerations, and is a large company. The current findings are consistent with the claims of Henri and Journeault (2010), Journeault (2016), and Journeault et al. (2016), and others, in that the company achieved good performance using SMCS. In contrast, ME Ltd.’s products are medical devices and do not have high demands regarding environmental exposure, public visibility, and environmental considerations from stakeholders. Their development of environmental products and good performance under these circumstances has yet resulted from the proper functioning of the redesigned SMCS. In addition to the goal of cost reduction, which was also set in the previous MCS, the visualisation of potential stakeholder demands in a radar chart assessing environmental performance enabled the NDP team to understand the non-​financial value including environmental impacts. Consideration of MRI footprint, weight and power equipment capacity, as indicated by installation impact, reduces environmental impact and meets hospital managers’ requirements. The radiation dose and noise reduction targets shown in the patient impact indicate a reduced burden on patients, with whom engineers had not previously interacted. In other words, although stakeholders have not directly demanded a reduction in environmental impact, the visualisation of their potential demands makes it easier for the organisational members to understand the importance of developing a smaller MRI. This enabled the product to meet the visible demands of managers who have decision-​making authority over MRI purchases, and those of patients, who are among the users. Thus, SMCS was effective in motivating the managers to achieve difficult development goals. Environmental impact and energy-​saving performance are also targets to be achieved to obtain the EECP certification required by the head office. Obtaining EECP certification is also a prerequisite for achieving the target values that are their performance indicators. Linking targets for reducing environmental impact to performance indicators also helped to focus the organisation’s attention on the development of environmental products. The SMCS redesigned by the SMO of T-​electronics was effective in terms of guiding the organisational members of the subsidiaries towards environmentally friendly decision-​making. HA Ltd. has been under external pressure to reduce its environmental footprint since Japan’s industrialisation through regulations that require reductions in pollution and carbon dioxide emissions. Reducing a product’s water and electrical consumption is also a concern for consumers. Within the established system, HA Ltd. had previously designed their MCS to meet the

Turning an ESG Agenda into Action  161 environmental requirements of their customers; in accordance with the new SMCS by the SMO, they have made minor changes to enable the company to be EECP-​certified and to improve eco-​efficiency. ME Ltd. undertook the NPD process to develop an MRI that could capture highly accurate images for patient diagnosis, as well as enhancing the ease of use of the equipment by the primary stakeholder, the doctor. They followed the new MCS provided by the SMO and incorporated an environmental perspective into their MCS, resulting in a redefinition of stakeholder benefits and building the SMCS. Stakeholders were not only doctors, but also hospital managers and patients, and their benefits were included in the SMCS as non-​financial indicators. As a result, ME Ltd. introduced the perspective of environmental considerations into the NPD process without direct external pressure, environmental exposure, or public visibility. The reason for the companies’ acceptance of the SMCS provided by the SMO and the redesign of their own MCS can be attributed to frequent communication with the SMO and personnel, in addition to the performance appraisal system. Each company’s environmental officer reports monthly on environmental indicator performance to the SMO, which provides weekly reports to the subsidiaries on regulatory developments regarding chemicals in Europe and the US, as well as on environmental topics in Japan. The subsidiaries, in turn, request additional information from the SMO when the report content is relevant to their business. This type of communication was the basis for the head office to exchange information with the subsidiaries from the stage of designing the SMCS. The subsidiaries knew that the SMO was designing a new SMCS and this is believed to have made its acceptance easier. Last but not least, T-​electronics has recruitment personnel in each subsidiary, and promotion is also carried out in each subsidiary. The SMO is in charge of the secretariat of the executive environmental conference chaired by the president of the group company and has the authority to select the agenda and the information to be disclosed. The development of each subsidiary’s environmental products and the extent to which their sales have affected the company-​wide improvement in eco-​efficiency are shared at these conferences. The top management of each subsidiary is also interested in the environment and looks at the specifications and development of environmentally friendly products within their subsidiary. 7.7 Conclusions This chapter has described how a redesigned SMCS to implement an environmentally friendly strategy can be effective in subsidiaries with different business models and in different contexts in terms of stakeholders and examined how SMCSs are operationalised. Companies that cannot avoid environmental impacts in terms of manufacturing their products have already established MCS to pursue profit. We suggest that, for these companies to carry out environmental management, it is more appropriate to restructure

162  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe the MCS and turn them into SMCS, such as a performance evaluation system with environmental indicators and the institutionalisation of processes to develop environmental products, rather than to change the way the MCS is utilised. In this restructuring, it is considered effective to give target values and processes as a general framework and then create individual SMCSs that match the business model. In addition, this chapter has shown that the SMCS can work well not only for companies with business models that have a high direct environmental impact and social concern, but also for business models that are considered to have a relatively small environmental impact, and positively influence business performance. These findings contribute to previous studies that suggest that MCS is decoupled from environmental strategies and that SMCS only partially works. These conclusions also have practical implications for organisations that see addressing environmental impacts as detrimental to their profits. The fact that SMCS can be rationally designed to incorporate environmental considerations into traditional values such as cost reduction and increased profitability could be useful for corporate management. The study presented in this chapter involved several limitations that should be considered. The case study discussion was based on a typically more stable business environment in 2019 (prior to the advent of COVID-​ 19) and does not examine how the control systems functions under the recent fast-​paced conditions of large-​scale change. It is also necessary to examine its practical implications in the current business environment. In addition, ESG investment has increased rapidly over the past few years, investors’ interest in society has grown, and companies are rapidly addressing sustainability issues other than environmental issues, as indicated in the enactment of the new gender law in Japan in 2010. Sustainability issues other than the environmental ones are of increasing importance for companies. There is also a scope to examine the role of SMCS in these matters. The way in which SMCSs are designed and how they influence decision-​ making and behaviour should continue to be a central subject of discussions in future studies. Acknowledgements This work was supported by JSPS (Japan Society for the Promotion of Science) KAKENHI grant numbers 20K02056 and Joint Usage/​Research of Research Institute of Socionetwork Strategies at Kansai University in 2020 and 2021. Notes 1 The Nikkei225 is one of the Japanese stock market indices calculated and disclosed by Nikkei Inc. It comprises 225 stocks of companies listed on the Prime Market of the Tokyo Stock Exchange.

Turning an ESG Agenda into Action  163 2 JSIF is an organisation whose main sponsors are audit firms and insurance companies and has been conducting a sustainable investment balance survey since 2015, as well as publishing the Japan Sustainable Investment White Paper. 3 Although the aspects of Social and Governance in ESG are beyond the scope of this chapter, the following example might indicate the current state of Japan in these aspects. As of 2015, Japan’s ranking in the Gender Gap Index (GGI) was 101 out of 145 countries. In 2015, to overcome the low level with regard to gender, the Law for the Promotion of Women’s Activities came into force. This requires companies to put in place systems that allow women to continue working even after life events such as marriage and childbirth, rather than systems that are established by adapting the way women work in a traditionally male-​oriented working society. This law is a time-​limited legislation for a period of ten years, but under current projection, it is estimated that the goals of the policy will not be achieved by 2025, and it is certain to be extended. As of 2022, Japan’s GGI ranks 116th out of 146 countries. 4 T-​electronics is not its real name. In this chapter, proper names are given different names in order to conceal the name of T-​electronics.

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164  Asako Kimura, Hiroyuki Selmes-Suzuki and Norio Sawabe Henri, J. F., & Journeault, M. (2010). Eco-​control: The influence of management control systems on environmental and economic performance. Accounting, Organizations and Society, 35(1), 63–​80. Journeault, M. (2016), The influence of the eco-​control package on environmental and economic performance: A natural resource-​ based approach. Journal of Management Accounting Research, 28(2), 149–​178. Journeault, M., Rongé, D. Y., & Henri, J-​F. (2016). Levers of eco-​control and competitive environmental strategy. The British Accounting Review, 48, 316–​340. Kitada, H., & Kimura, A.(2021). Trend analysis of sustainability disclosures using topic modelling. Interim Report of the Study Group of the Japanese Accounting Association, 77–​108. Pondeville, S., Swaen, V., & Rongé, Y. D. (2013). Environmental management control systems: The role of contextual and strategic factors. Management Accounting Research, 24(4), 317–​332. Porter, M. E., & Kramer, M. R. (2006). The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78–​92. Riccaboni, A., & Luisa Leone, E. (2010). Implementing strategies through management control systems: The case of sustainability. International Journal of Productivity and Performance Management, 59(2), 130–​144. Schaltegger, S., & Burritt, R. L. (2010). Sustainability accounting for companies: Catchphrase or decision support for business leaders? Journal of World Business, 45(4), 375–​384. Serna, L. R., Nakandala, D. & Bowyer, D. (2022). Stakeholder identification and prioritization: The attribute of dependency. Journal of Business Research, 148, 444–​455. Statista. (2021). Carbon dioxide emissions from energy worldwide from 1965 to 2022, by region. Retrieved from https://www.statista.com/statistics/205966/world-carbondioxide-emissions-by-region/ Surucu-​Balci, E., & Tuna, O. (2022). The role of collaboration in tackling food loss and waste: Salient stakeholder perspective, Journal of Cleaner Production, 367, 133126 (1–​11). Wood, D. J., Mitchell, R. K., Agle, B. R., & Bryan, L. M. (2018). Stakeholder identification and salience after 20 years: Progress, problems, and prospects. Business and Society, 60(1), 196–​245.

8 Environmental, Social and Governance (ESG) Initiatives and Developments in Taiwan Yi-​Hua Lin, Cheng-​Hsun Lee and Shun-​Yi Fang Introduction Most firms in Taiwan are small and medium firms (SMEs). In the past, most firms did not pay attention to environmental protection, thinking that environmental protection was only a cost. However, environmental protection can increase firm value. With the rise of international environmental protection awareness, Taiwanese firms are not only required by law to save energy to reduce costs but also required by large manufacturers and customers to disclose more detailed environmental protection information. In the current corporate reporting environment, firms’ business performance and results are no longer limited to financial and operational aspects. Firms need to know how to fulfil their corporate social responsibility (CSR), commit to sustainable development, and report on these performances to keep up with the current financial reporting requirements. Due to the rapid disasters brought about by rising global temperatures, such as heat waves and floods, the frequency and intensity of occurrences are increasing, and many European countries (such as Germany) are facing unprecedented challenges and threats from climate change. The United Nations Intergovernmental Panel on Climate Change warned in August 2021 that human-​caused industrial pollution increases the likelihood of extreme events, such as heat waves, heavy rains, droughts, and tropical storms (Greenpeace, 2022a; HBR, 2022). Greenhouse gases (GHGs) emitted by global economic activities are the core cause of climate change. Atmospheric carbon dioxide levels are already 50% higher than preindustrial levels. In response to the challenges and threats of climate change, an increasing number of countries have announced the goal of achieving carbon neutrality or net-​zero carbon emissions by 2050 (LTN, 2020). In other words, the current economic development has moved from the destruction of the environment and the plunder of ecological resources to the sustainable development of the environment and ecology. At the same time, various corporate stakeholders began to pay attention to carbon emission reporting. They recognize that ESG performance should be integrated into the firm’s core strategy. DOI: 10.4324/9781003288343-11

166  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang Because Taiwan has always played an important role in the world supply chain, Taiwanese firms are required by large manufacturers and customers to disclose more detailed environmental protection information. For Taiwan’s sustainable development and economic growth, the Taiwan government mainly implements relevant measures from two aspects. On the one hand, the Taiwan government has proposed a “net-​zero carbon emission by 2050” path and strategy to guide Taiwanese firms to follow the world’s net-​zero trend and maintain Taiwan’s important role in the international supply chain. On the other hand, the Taiwan government regulates the ESG disclosure of listed firms in the capital market. The Financial Supervisory Commission (FSC) proposes a blueprint for corporate governance 3.0-​sustainable development, which will drive the participation and interaction of firms, investors and relevant stakeholders to create a transparent ESG disclosure environment and make Taiwan’s capital market more attractive to foreign investors. Especially in improving information transparency, listed firms in 2022 should follow the frameworks of climate change-​related financial disclosures (TCFD) or the Sustainability Accounting Standards Board (SASB) to disclose their sustainability reports (Sustaihub, 2022). Moreover, the Taiwan Stock Exchange Corporation (TWSE) issued disclosure guidelines on November 30, 2021, guiding firms to disclose more important environmental and social issues in terms of the environment and quantitative information such as carbon emissions, water consumption, and waste (China Times, 2021); in terms of social information, such as occupational accident data, gender equality. The TWSE also stipulates that firms disclose ESG risk assessments and management strategies related to operations, including potential risks of climate change, response measures, and GHG inventory. Mandatory ESG disclosure will contribute to the transparency of financial reporting. Furthermore, the FSC also guides funds to support green and sustainable development industries through the Green Finance Action Plan, guides firms and investors to pay attention to ESG performance and disclosure, and promotes a virtuous circle in which the industry pursues green and sustainable development. Literature Review Before ESG became an international trend, governments and capital market regulators actively mandated regulations requiring firms to fulfil CSR. Therefore, many successful multinational firms have incorporated CSR into their business activities, forming a core strategy for sustainable development (Kuo et al., 2021). CSR aims to promote the sustainable development of economic prosperity, social welfare, and environmental protection and to address social issues such as human rights, labor rights, resource allocation, corruption and bribery, and other economic and environmental issues. In 2015, the United Nations adopted the 2030 Agenda for Sustainable Development. The agenda comprises 17 Sustainable Development Goals (SDGs). In response, the Taiwan government incorporated the SDGs

Environmental, Social and Governance (ESG) Initiatives in Taiwan  167 into national development planning and international cooperation plans (NCSD, 2022). The Taiwanese government published a voluntary national assessment in 2017, illustrating Taiwan’s sustainable development policies and goals (EYROC, 2017). In 2018, stakeholders from different sectors, such as firms, government departments, academic research institutions, and nongovernmental organizations (NGOs), jointly established the “Sustainable Development Goals Alliance” to build a reporting system for exchanging sustainable development information and resources (TAISE, 2023).Thanks to the joint efforts of the government, industry, research institutes, and NGOs and the government’s active promotion, Taiwan has gained international recognition regarding CSR and sustainable development. Taiwan ranks seventh among the 25 important economies surveyed by the Bloomberg ESG Disclosure Score (Kuo et al., 2021). Including some Taiwanese firms in the Dow Jones Sustainability Index (DJSI) in 2017 made Taiwan the highest-​ ranked emerging market by weighted market capitalization. As an export-​oriented country, Taiwan’s total export value will reach US$446.3 billion in 2021, accounting for approximately 57% of its gross domestic product (GDP) (NDC, 2022a). Therefore, Taiwan must follow the mainstream international trend to maintain economic growth. Since 136 countries around the world have successively proposed the “2050 Net-​Zero Emissions” declaration and action, in response to the net-​zero global trend, Taiwan President Tsai Ing-​wen announced on April 22, 2021, on World Earth Day that the “2050 Net-​Zero Transition” is Taiwan’s goal (NDC, 2022b). The International Energy Agency (IEA) predicts that by 2050, nearly 70% of the world’s electricity will come from solar and wind energy to achieve the goal of net-​zero carbon emissions (Info Times, 2022). Taiwan refers to the IEA net-​zero path for planning. The plan for the future net-​zero transition is expected to divide into the following two phases: Phase 1: Short–​to medium-​term (~2030) Assess whether the current carbon reduction measures can achieve the low-​ carbon goal by 2030. Through energy transition, facilitate the development of green energy (such as wind and solar power), increase natural gas use, and continue developing ocean energy and geothermal-​related technologies. Phase 2: Long-​term (~2050) To achieve the goal of zero carbon emissions, improve developing technologies of net-​zero carbon emissions, adjust the industrial structure, and build renewable energy on a large scale. Through technologies related to hydrogen power generation, carbon sequestration, and carbon capture and reuse, build a zero-​carbon power system in Taiwan. All sectors are required to reduce carbon emissions. Through these two phases, Taiwan plans a preliminary blueprint for net-​zero carbon emissions by 2050. It plans renewable energy to account

168  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang

Figure 8.1 Measures and action paths for net-​zero by 2050. Source: www.ndc.gov.tw/​Conte​nt_​L​ist.aspx?n=​DEE68​AAD8​B38B​D76.

for 60% to 70% of the total electricity, plus 9% to 12% hydrogen energy and 20% to 27% thermal power generation with carbon capture. Then, the future overall power is expected to achieve decarbonization of the power supply. Moreover, Taiwan is actively planning forest conservation to achieve the long-​term goal of net-​zero carbon emissions by 2050. In March 2022, Taiwan officially published “Taiwan’s Pathway to Net-​ Zero Emissions in 2050,” providing an action path to achieve “2050 Net-​ Zero Emissions” (see Figure 8.1) (NDC, 2022b). According to the Paris Agreement of December 2015, the average global temperature in this century will not increase by more than 2 degrees Celsius compared with the preindustrial revolution. The current Greenhouse Gas Reduction and Management Act indicates that Taiwan’s long-​term reduction goal is that the global average temperature increase will not exceed 2 degrees. Amendments to the Greenhouse Gas Reduction and Management Act’s “net-​zero emissions by 2050” target set the global average temperature increase to no more than 1.5 degrees. The Taiwan government has formulated four major strategies of “Energy Transition,” “Industrial Transition,” “Lifestyle Transition,” and “Social Transition” and two governance foundations of “Technology Research and Development” and “Climate Legislation” to drive the transition of Taiwan’s economic structure and achieve the goal of net-​zero carbon emissions with a designated budget (Figures 8.2–​8.4) (NDC, 2022b).

Environmental, Social and Governance (ESG) Initiatives in Taiwan  169

Figure 8.2 Taiwan’s 2050 net-​zero transition.

Figure 8.3 2050 net-​zero transition.

170  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang

Figure 8.4 A budget of nearly NT$900 billion by 2030.

Taiwan’s Net-​Zero Transition by 2050 contains four major strategies and two key governance foundations as follows. Strategy 1. Energy Transition

Create a net-​zero carbon emission energy (renewable energy such as solar photovoltaic, thermal power generation) system, give priority to the expansion of renewable energy grid infrastructure, and generate a green energy industry ecosystem. Strategy 2. Industrial Transition

Foster industrial transition in various sectors: i Manufacturing sector Cement, paper, steel, petrochemical, textile industry process improvement: equipment replacement, smart energy savings ii Commercial sector Use low-​carbon energy iii Construction sector One hundred percent of new buildings and 85% of existing buildings must be near-​net-​zero carbon-​emitting buildings by 2050 iv Transportation sector In 2040, the number of newly sold electric vehicles and motorcycles must reach 100%.

Environmental, Social and Governance (ESG) Initiatives in Taiwan  171 Strategy 3. Lifestyle Transition

Empower everyone a common goal and action on net-​zero carbon emissions. Strategy 4. Social Transition

In addition to traditional taxes and regulations, incentives for green finance can be introduced. Foundation 1. Technology Research and Development (R&D)

Plan the next phase of sustainable energy technology, promote energy reuse, and low-​carbon industrial processes. Foundation 2. Climate Legislation

Amend the current Greenhouse Gas Reduction and Management Act to the Climate Change Response Act; promote carbon fees and carbon trading mechanisms in response to international carbon tariff trends. According to the Global Sustainable Investment Alliance report (GSIA, 2021), the total sustainable investment is US$35.3 trillion, accounting for over one-​third of all assets in the world’s five largest markets. Although ESG reporting is still flexible internationally and has no uniform format and regulation, according to the KPMG Global Corporate Responsibility Report Survey, the top 250 firms in the world that publish corporate responsibility reports have grown from ten years ago at 66% to 96% in 2022, and all of the top 100 US firms provide ESG disclosures. According to the report of “Taiwan and Asia-​Pacific Sustainability Report Status and Trends,” which releases the current situation analysis of sustainability reports in Taiwan, including: 680 Taiwan’s sustainability report, and 36.8% of Taiwanese firms refer to TCFD and 18.3% refer to the SASB framework in ESG reports (CSRone, 2022). The importance of ESG plays a crucial role in the capital market, and every participant has gradually realized that financial reports cannot fully reflect the firm’s current operating conditions in the current financial reporting environment (Deloitte, 2022). Over the past few years, as the intensity of natural disasters continues to increase and COVID-​19 events have brought income and healthcare inequalities into focus, investors and stakeholders have become increasingly concerned about firms’ ESG performance and their efforts in CSR. According to statistics from Morningstar, in the first quarter of 2020, funds that adopted ESG as their main investment strategy had a total net inflow of US$45.7 billion, while non-​ESG funds had a net outflow of US$430.4 billion at the same time (Legislative Yuan, 2021). Global sustainability-​linked funds continued to attract capital inflows in the second quarter, with a net inflow of US$71.1 billion and a net inflow of US$80.5 billion in the third quarter.

172  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang During the same period, the scale of commodity assets and sustainability-​ linked exchange-traded fund rolled out successfully. For Taiwanese firms that publish sustainability reports, their earnings per share and returns on equity have outperformed the broader market for seven consecutive years (CSRone, 2022). From the capital flow and risk management perspective, the capital market increasingly recognizes and favors ESG firms (Berkman et al., 2021; Sautner et al., 2020). Overview of the Current Status of Listed Firms’ ESG Information Disclosure In response to international sustainable development trends, the FSC rolled out the “Sustainable Development Roadmap (2022)” (CGC, 2022). The National Development Council released “Taiwan’s Pathway to Net-​Zero Emissions in 2050” (TWSE, 2022). The State Environmental Protection Administration issued the “Greenhouse Gas Emissions Reduction and Management Act.” These policies encourage firms to disclose their sustainability performance. In line with Taiwan’s path to achieving net-​zero carbon emissions by 2050, the FSC published the “Sustainable Development Roadmap” (see Figure 8.5) in March 2022, requiring listed firms to disclose GHG data in phases. Firms should comply with and be encouraged to set carbon reduction targets proactively. The scope of the GHG inventory includes Scope 1 GHG emissions (direct emissions) and Scope 2 GHG emissions (indirect emissions). In 2029, all listed firms must disclose the GHG data of the combined firm and obtain third-​party verification. From 2021, the FSC strengthened ESG disclosure. ESG disclosures include carbon emissions data, targets and policies, water management data

Figure 8.5 Sustainable development roadmap for greenhouse gas emission disclosure.

Environmental, Social and Governance (ESG) Initiatives in Taiwan  173 and policies, waste management data and policies, labor safety, and workplace diversity and equality to encourage firms to disclose information on a “comply or explain” basis (TWSE, 2022). The TWSE plans to establish a reporting system for ESG information disclosure, classifying ESG disclosure into three aspects: environment, society, and corporate governance. The TWSE encourages the diversified development of ESG commodities and promotes the sustainable development and transition of investment products (Yahoo, 2022a). The TWSE will start promoting the capital market ESG ecosystem and ESG talent cultivation in 2022 and cooperate with some NGO foundations in Taiwan, such as the Taiwan Sustainable Energy Research Foundation and some universities, in providing ESG sustainability courses to cultivate talent and educate practitioners. These participants can then assist firms in achieving SDGs of GHG management in line with international trends toward the net-​zero emission goal (Yahoo, 2022b). The following highlights the main dimensions driving ESG momentum in Taiwan. Dimension 1: Sustainability Report

As the international community pays increasing attention to CSR, countries have stipulated CSR disclosure. To meet international standards, the FSC issued the “Sustainable Development Best Practices Principles for TWSE/​ TPEx Listed Firms” on February 6, 2010, to encourage CSR information disclosure (LSRS, 2021). At this time, these kinds of disclosures are voluntary. In 2014, the incident of inferior oil products and the Kaohsiung gas explosion occurred in Taiwan. Coupled with the increasing international concern on issues related to climate change, environmental protection, industrial safety, employee welfare, and human rights, the TWSE on November 26, 2014, required industrial, chemical, and financial insurance firms, as well as firms whose catering income accounted for more than 50% of their total sales revenues and firms with a paid-​in capital of more than 10 billion New Taiwan dollars to prepare CSR reports. On January 4, 2019, the regulations required firms with a paid-​in capital of more than 5 billion New Taiwan dollars to disclose CSR information (Han & Fang, 2022). On December 7, 2021, the mandatory disclosure regulations were revised to reduce the capital amount to 2 billion New Taiwan dollars, which will be applicable in 2023. Moreover, those in the food, chemical, financial, and insurance industries should obtain an opinion letter from an accountant following the standards of the Accounting Research and Development Foundation of Taiwan. Furthermore, the relevant regulations require firms to disclose information about climate-​related risks and opportunities and rename the CSR report to the sustainability report. With the expansion of the mandatory compliance scope, the number of firms with mandatory disclosure gradually increased.

174  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang Table 8.1 summarizes the compliance disclosure status of sustainability reporting from 2014 to 2021. In 2014, due to the mandatory disclosure required by law and regulations, the number of listed firms disclosed increased from 164 in 2013 to 361, of which 205 were mandatory disclosures. Due to the revision of the regulations, the number of firms whose share capital reached the prescribed threshold increased from 86 in 2015 to 169 in 2016 and to 203 in 2021. Moreover, voluntary disclosures increased from 156 in 2014 to 392 in 2021. Dimension 2: Carbon Emission Reporting

According to the statistics of the Environmental Protection Agency’s (EPA) “Mandatory Greenhouse Gas Emissions Reporting System,” in 2020 (MGGRS, 2020), there are a total of 287 public and private establishments listed as the first batch of emission sources in Taiwan, all of which have completed inventory and registration operations, and the direct GHG emissions of firms totaled 222.77 million (tons of CO2e). Among them, the electricity industry accounted for the highest 54.97% (approximately 122.45 million metric tons of CO2e), followed by the iron and steel industry at 13.04%, the primary chemical material manufacturing industry at 10.94%, the oil refining industry at 7.78%, the cement industry at 4.11%, and the semiconductor industry at 1.81% (Zhou, 2022). Moreover, shareholders can search for carbon emission information and relevant sustainable development disclosure on firms’ sustainability reports, annual reports, and Market Observation Post System (MOPS). As of August 15, 2022, 672 firms have disclosed carbon emission information through sustainability reports, and other firms have disclosed carbon emission information in the annual report and MOPS, as shown in Table 8.2. Dimension 3: Green Finance 3.0

As the world moves toward sustainable development, Taiwan needs to keep up and actively initiate relevant fiscal measures. In 2017, the “Green Finance Action Plan 1.0” was promoted, which mainly focused on encouraging financial institutions to invest in and finance the green energy industry to support its development with funds. Three years after its implementation, in 2020, the FSC formulated the “Green Finance Action Plan 2.0,” expanding from the original “green” to “ESG.” The “Green Finance Action Plan 2.0” has added CSR and corporate governance elements, hoping to promote sustainable development through financial institutions rather than just focusing on “green.” This act encourages financial institutions to expand to investment and financing for green and sustainable development industries, urges firms to take ESG-​related initiatives, and further builds a sound sustainable financial ecosystem (EYROC, 2021). For example, in line with Taiwan government policy, ESun Bank develops responsible banking. It prohibits issuing

newgenrtpdf

Fiscal year

Number of firms

Voluntary disclosures

Mandatory disclosures Food industry

Chemical industry

Financial industry

Catering income reaches the 50% revenue threshold

Share capital reaches the prescribed threshold

2014 2015 2016 2017 2018 2019 2020 2021

361 406 477 504 539 564 625 782

156 199 185 205 225 248 308 392

26 27 26 27 28 29 29 30

40 41 43 43 46 46 43 42

35 39 39 40 42 43 44 91

12 14 15 18 18 19 22 24

92 86 169 171 180 179 179 203

Environmental, Social and Governance (ESG) Initiatives in Taiwan  175

Table 8.1 Compliance disclosure status of sustainability reports from 2014 to 2021

176  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang Table 8.2 Carbon emission disclosure channels Carbon emission disclosure channels

Number of firms disclosed sustainability reports in 2022

Sustainability report Annual report MOPS

672 598 248

Source: Compiled by TEJ.

credits to firms that harm endangered wild animals and plants, illegally felled trees, coal-​fired thermal power generation, coal mining, harmful and endangered wild animals and plants, weapons, and pornography. At the same time, ESun Bank encourages firms to invest in environmentally friendly projects such as water resource management, circular economy, and forest restoration through sustainable credit extension (ESun, 2023). ESun Bank has supported the Forestry Bureau’s afforestation work for four consecutive years and planted more than 40,000 trees. Green Finance Action Plan 2.0

In addition to the National Development Council’s release of “Taiwan’s Pathway to Net-​Zero Emissions in 2050,” the FSC has also improved the measures of the “Green Finance Action Plan 2.0” in 2022 and launched the “Green Finance Action Plan 3.0,” hoping to leverage the power of capital through the financial industry to help achieve the “net-​zero emissions by 2050” target (TEJ, 2022). The “Green Finance Action Plan 3.0” has added the “climate” consideration due to firms’ insufficient awareness of it and heightened climate risks. The “Green Finance Action Plan 3.0” can be classified into five aspects. Aspect 1: Deployment

To improve the deficiencies of the financial industry itself. Examples include the planning and inspection of carbon inventory in scope 3, the formulation of medium–​and long-​term carbon reduction strategies, and the stress testing of climate change for individual financial institutions. Aspect 2: Funding

Invest funds in green and sustainable industries. For example, the issuance of guidelines for identifying sustainable economic activities to assist firms in carbon reduction and transition and to facilitate investment and financing activities in the financial industry.

Environmental, Social and Governance (ESG) Initiatives in Taiwan  177 Aspect 3: Data

Integrate and optimize climate change and ESG-​related information for the benefit of the financial industry. Examples include establishing a reporting system for ESG information disclosure, a database related to climate change, and a “sustainable finance website” to collect relevant information and comments. Aspect 4: Empowerment

Root the concept of sustainable finance in financial institutions from top to bottom. Examples include strengthening sustainable finance-​related training and planning sustainable finance-​related certificates. Aspect 5: Ecosystem

Promote cooperation among financial institutions and encourage financial institutions to actively examine climate change and ESG-​ related risks. Examples include the establishment of sustainable finance-​ related organizations or alliances, planning to expand corporate governance assessments to “sustainable finance assessments,” and holding “green financial technology” themed promotional activities. In addition, there are “Guidelines on Financial Disclosure of Climate Risks in Domestic Banking Industry” and “Guidelines on Financial Disclosures of Climate-​related Risks in Insurance Industry.” Since 2015, governments worldwide have begun to develop climate risk-​related regulatory regimes and established many multinational institutions to establish consistent regulatory standards. Currently, the European Union, the United Kingdom, Australia, Hong Kong, mainland China, and other regions are promoting climate risk stress tests and have even completed the first stress test and issued a report on the results. Therefore, in November 2021, the FSC decided to implement the “Guidelines for Financial Disclosure of Climate Risks in the Domestic Banking Industry” and “Guidelines for Financial Disclosures of Climate-​ related Risks in the Insurance Industry” in 2022. From 2023, the domestic banking and insurance industries should conduct financial disclosures related to climate risks in the previous year before the end of June each year (FSC, 2022a). The FSC stated that it hopes to improve the quality and transparency of ESG information disclosure by the domestic banking and insurance industries, strengthen climate-​related information disclosure, drive the banking and insurance industries to examine their own risks and capabilities in response to climate change, and enhance operational resilience. Carbon-​Sensitive Industry Cases Taiwan is an export-​oriented economy deeply influenced by international trends and norms. The financial industry or firms may only retain international

178  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang markets if they comply with international trends (TDIT, 2018). In addition to being committed to addressing the risks of climate change, firms should proactively think about how to transition to carbon reduction, which is the way to sustainable development. In particular, Taiwan is an important link in the international industrial supply chain. Moreover, approximately 40% of Taiwan’s stock market is held by foreign investors. Foreign investors consider ESG issues in their decision-​making based on the principle of responsible investment. Moreover, in recent years, consumers’ sense of responsibility for environmental and social issues has also led society to pay more attention to sustainable development. Therefore, under the promotion of many parties, such as large manufacturers, consumers, and investors, to obtain investment and maintain their position in the supply chain, firms must pay attention to sustainable development and ESG issues and improve their resilience in response to climate risks to be able to seek business opportunities in the movement toward sustainable investing (FSC, 2022b). In response to the global net-​zero carbon emission initiative, Taiwanese firms began to have some large firms such as Taiwan Semiconductor Manufacturing Firm (TSMC), Hon Hai, Taiwan Cement, Sinosteel, Chunghwa Telecom, Zhongding, ASE, ESun Financial Holdings, Asia Cement, Xinyi Housing, and Taixin in 2021. Thirteen firms, including Financial Holdings, Cathay Financial Holdings, Shin Kong Financial Holdings, and the Taiwan Institute for Sustainable Energy Research (TAISE), established the “Taiwan Net-​ Zero Action Alliance” to strive to achieve the “net-​zero emission by 2050” target (EIC, 2021). According to statistics from the Taiwan Sustainable Energy Research Foundation, the total net revenues of these 13 firms in 2020 accounted for 45% of Taiwan’s GDP, and their total GHG emissions in 2019 accounted for 19% of Taiwan’s total GHG emissions. The Taiwan Net-​Zero Action Alliance will invite more firms to join in consolidation for net-​zero carbon emission actions. The following examples illustrate the ESG actions of some firms in Taiwan. TSMC

In 2020, TSMC’s energy consumption will account for approximately 6% of Taiwan’s overall energy consumption, which is expected to account for 12.5% in 2025. From an environmental perspective, TSMC currently proposes more than 300 energy-​saving action plans, of which more than 100 energy-​ saving solutions have been verified and applied to more than 100 advanced process machines of 5 nm and future 3 nm. A variety of energy-​consuming components, high-​efficiency components, and energy-​saving designs have been introduced into the project, successfully saving 400 million kWh of annual electricity consumption (TSMC, 2021). From the social aspect, TSMC will allocate NT$4.26 billion in epidemic prevention assistance in 2021, including donating vaccines and funding universities for epidemic prevention research. The TSMC Charity Foundation plans medical resources, rural education,

Environmental, Social and Governance (ESG) Initiatives in Taiwan  179 and care for the disadvantaged. Through the “TSMC Education and Culture Foundation” and “TSMC Charity Foundation” (TSMC ECF, 2023), TSMC has participated in caring for the disadvantaged, paying attention to youth education, improving art and culture, and giving back to society (TSMC, 2022). In the governance aspect, the latest major analysis was completed by the end of 2021. A total of more than 200 TSMC executives, colleagues, and thousands of stakeholders participated in the identification, prioritization, and validation of material issues and related analysis processes and finally summarized 23 ESG issues as the basis for investigation. Hon Hai Precision

In 2019, Hon Hai was ranked 25th among the world’s top 100 digital firms by Forbes and 143rd in the “Global Best Employers List” (HHP, 2022). From an environmental perspective, Hon Hai’s 2021 energy saving target is 5%, while the actual energy saving rate is 5.56%, successfully meeting Hon Hai’s annual energy saving target (HHP, 2021). In the social aspect, the Hon Hai Scholarship committed to distributing 40 million New Taiwan dollars in scholarships to 760 students to assist in their studies. Hon Hai provides Taiwan employees with a subsidy project of “firm care from 0 to 6 years old,” which increases the willingness of employees to have children, and the retention rate after childbirth is as high as 90% (Yahoo, 2022e). In the governance aspect, Hon Hai nominated more than half of the five independent directors and increased the number of female directors from one to two. Hon Hai promoted and guided 47 suppliers to improve on environmental violations and 124 high-​impact suppliers to report and disclose pollutant discharge transfer data (PRTR). In the future, Hon Hai will track suppliers’ performance in green products, environmental protection, adoption of green electricity, carbon management, zero waste to landfill, and other CSR performance. Taiwan Cement

Taiwan cement, which started as a high-​energy-​consuming cement industry, is moving faster than others in the energy transition. It not only improves the high energy consumption efficiency but also actively deploys green energy, from solar and wind power to energy storage. Today’s Taiwan Cement is no longer a traditional industry but a high-​tech energy firm. From an environmental perspective, Taiwan Cement has reduced carbon emissions by 4,212,458 metric tons, equivalent to the annual carbon absorption of 10,828 DaAn Forest Parks (TCC, 2021). From the social aspect, public welfare and charity expenditures have accumulated more than NT$328 million from 2016 to 2021. Taiwan Cement is the first open cycle factory (combining ecology, knowledge, culture, and recreation), providing a place for residents to communicate and conveying the concept of symbiosis between industry and the environment. Regarding governance, TCC’s board of directors has

180  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang five independent directors, four of whom have professional backgrounds in accounting and law. There are three women among the independent directors. Delta Electric

Delta has been included in the DJSI “World Index” (DJSI World) for 12 consecutive years and “DJSI-​Emerging Markets” for 10 consecutive years; Times, 2022). Bruce Cheng, the founder of Delta Electronics, was once honored as “Taiwan’s No. 1 Minister of Environmental Protection” (TWSE, 2015). Delta is also committed to driving the supply chain to become more international, coaching, educating, and training suppliers, and gradually strengthening the resilience and ability of the supply chain to respond to climate change risks. Delta also calculates the carbon footprint of the manufacturing phase for customers and supports energy-​ saving technologies to reduce GHG emissions at each phase. In 2021, eight major technology firms in Taiwan, including Delta, jointly launched the “Taiwan Climate Partnership” to assist in the low-​carbon transition of the supply chain and enhance competitiveness (Delta, 2021). From an environmental perspective, 15 certified Delta green buildings and five donated green buildings will reduce carbon emissions by 11,142 metric tons in 2021. In the social aspect, the proportion of women in supervisory positions is 32%, and the incidence of occupational accidents recorded by employees is less than 1%. In the governance aspect, the board of directors has ten independent directors, including four independent directors. Of these, three were female. Recent Developments The Climate Change Response Act

On January 10, 2023, the Legislative Yuan passed the third reading of the “Greenhouse Gas Reduction and Management Act” and amended it to the “Climate Change Response Act.” The main points are as follows: i Statutory “net-​ zero emissions by 2050” target and the National Sustainable Development Committee of the Executive Yuan are responsible The “Climate Change Response Act” stipulates that the goal of national long-​ term GHG reduction is to achieve net-​ zero GHG emissions by 2050. In the follow-​ up, Taiwan will follow international practice and gradually implement phased control objectives every five years. Moreover, at the level of climate governance, the EPA was the competent authority for Greenhouse Gas Reduction and Management Act in the past, but it failed to effectively integrate the carbon reduction measures proposed by various ministries and commissions. The revision of the law stipulates that the “National Sustainable Development Committee of the

Environmental, Social and Governance (ESG) Initiatives in Taiwan  181 Executive Yuan” will coordinate and integrate the relevant decisions of interministerial committees. ii Collect carbon fees in phases and allocate them to the temperature management fund for emission reduction The carbon fees are to be collected in phases. In the first phase, there will be approximately 287 “big carbon emitters” with an annual emission of more than 25,000 metric tons of carbon dioxide equivalent (CO2e), such as steel, semiconductors, and cement, which account for the largest carbon emissions in Taiwan (Business Next, 2023). The “carbon fee preferential rate” will be available for successful carbon emitters. Large carbon emitters can propose plans and apply for preferential rates if they adopt specific GHG reduction measures. The carbon fee revenue will be mainly used as a “greenhouse gas management fund,” which is earmarked for implementing GHG reduction and climate change adaptation. The Act stipulates that the use of the fund must be given priority to the Justice Transition. The remaining funds can subsidize competent authorities, reward firms to invest in GHG reduction technologies, apply to research and develop reduction technologies, etc. iii Incorporate Justice Transition, add an Adaptation Special Chapter, and strengthen governance capabilities based on science. The bill incorporates the concept of “Justice Transition,” requiring that when formulating any climate change plan, it must respect human rights and dignified labor based on the principle of Justice Transition and assist all communities affected by climate change transition or climate policy to make a stable transition. A justice transition must empower all people, from indigenous peoples, poor urban communities, and young people to marginalized, disadvantaged groups, and eliminate existing forms of discrimination. To mitigate the impact or damage caused by climate change, the revised regulation adds a new “Climate Change Adaptation Special Chapter,” which stipulates that the government must build adaptation capabilities on the scientific bases, assess climate risks, strengthen governance capabilities to enhance resilience, build green finance and adapt technologies, fund R&D and education, etc., and formulate a national climate-​change adaptation action plan. In response to the focus of discussion at the 2022 United Nations Climate Change Conference (COP27), the bill stipulates that the government should conduct scientific research and impact adaptation research, formulate climate change scientific reports, and plan early warning and system monitoring. Construct of an ESG Ecosystem

The construction of the ESG ecosystem proposed by the TWSE meets the supply and demand of stakeholders so that all listed firms and Taiwanese

182  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang people can become ESG citizens of the world. The current planning of the ecosystem includes six key points: (1) building an ESG reporting system, (2) planning and implementing ESG assessment, (3) promoting diversified products, (4) assisting firms in carbon inventory, (5) education and training, and (6) sustainable development transition (Yahoo, 2022c; ESG, 2022). More than 1 million SMEs in Taiwan lack ESG carbon reduction management ability, but they are in the supply chain of listed firms in Taiwan and may be in the supply chain of international brands. Taiwan should use the big-​leading-​the-​small model and encourage large listed firms, using its own business as an ecosystem to assist Taiwan’s SMEs in their transition. In future evaluation indicators, such issues should also be integrated into the performance of listed firms, which can incentivize listed firms to control ESG risks in their supply chains. Conclusions Climate change is a challenge that the world must face together. More than 130 countries and the European Union have declared to achieve the net-​zero carbon emission target by 2050, among which Japan, Germany, South Korea, and the United Kingdom have incorporated reduction goals into their policies (Deloitte, 2021). Taiwan is one of the few countries worldwide incorporating long-​term national reduction goals into the Act. Due to increasingly difficult situations of global climate change and demands for carbon reduction from large domestic and foreign manufacturers, to accelerate the effectiveness of reducing carbon emissions and empower firms to adapt to climate change, the Taiwan government has set a net-​zero carbon emission by 2050 target and passed the Climate Change Response Act to promote energy and industrial transition and international cooperation (CSR, 2022). In addition to clarifying the net-​zero rights and responsibilities of the competent authorities and collecting carbon fees, this Act also involves the participation of the public, groups, and businesses. It encourages the government, the public, groups, and businesses to reduce GHGs jointly. This Act also encourages energy-​saving and carbon-​reduction technologies and research and regularly publishes scientific reports as the basis for the government to promote climate change adaptation. The central government is responsible for integrating action strategies and formulating future reduction plans. Local governments are responsible for setting up climate-​change response promotion committees and assisting in dealing with climate change-​related affairs. Moving toward net-​zero carbon emissions is associated with improving energy efficiency (CSR, 2022). The Taiwan government has made legislation to establish a management mechanism for emissions from the construction, manufacturing, and transportation sectors to reduce emissions and increase energy efficiency. At the same time, it also regulates pollution sources to adopt the best energy-​saving and carbon-​reducing technologies to increase production efficiency and effectiveness. The Taiwan government also

Environmental, Social and Governance (ESG) Initiatives in Taiwan  183 encourages governments or firms at all levels to propose self-​reduction plans and provides economic incentives to achieve carbon emission reductions effectively. The carbon trading system can effectively reduce carbon emissions and is currently an internationally recognized management tool that can reduce GHG emissions (Greenpeace, 2022b). To improve Taiwan’s carbon trading system, the Taiwan government will legislate to levy carbon fees on emission sources in 2024 and invest earmarked revenues in emission reduction and GHG reduction technologies. To implement Taiwan’s low-​carbon emission policy, the Taiwan government will set up a carbon trading system in the future and encourage firms to reduce carbon by themselves to obtain reduction credits. Firms can trade reduction credits to obtain funds to help accelerate the transition. Moreover, the Taiwan government will promote the Carbon Border Adjustment Mechanism, which provides carbon-​ reduction incentives. In the future, it will formulate carbon identification methods and carbon content calculations for some products and follow international trends to impose carbon fees on imported products with high carbon content. Most SMEs have just realized the importance of net-​zero carbon emissions and are still in the early planning phases, which will take some time to cultivate (Yahoo, 2022d). However, with the industry leaders’ release of the carbon reduction blueprint, the carbon emission reduction progress has begun. Taiwan’s state-​owned firms and firms will start to lead the SMEs, driving the pace of net-​zero carbon emissions in the supply chain. SMEs will actively participate in the transition to raise funds and make money. The Ministry of Economic Affairs provides reporting systems, tools, and related resources to assist SMEs in participating in the transition by adopting the big-​leading-​the-​small model and support with lectures and training sessions, help establish a carbon inventory calculator, provide carbon inventory guidance, and match experts to introduce technology carbon reduction. These initiatives gradually assist SMEs in gradually building carbon reduction capabilities (SME, 2022). In line with the FSC’s policy, the TWSE and the Taiwan Sustainable Energy Research Foundation combined resources to start a series of courses on “ESG Talent Cultivation in the ESG Ecosystem of the Capital Market” in 2022 to support NGOs and schools in sustainable development, actively cultivate talent and encourage-​related research and development, hoping that ESG will become a niche for Taiwanese firms to compete internationally (Yahoo, 2022b). Harvard Management Magazine (HBR) proposed ten years ago that ESG can increase the substantial competitiveness of firms. Serafeim (2022), a professor at Harvard Business School, published Purpose and Profit: How Business Can Lift Up the World. ESG allows firms to develop differentiated ESG operation strategies, considering both purpose and profit. Professor Serafeim’s analysis indicates that ESG highly correlates with corporate

184  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang financial returns. The ESG ecosystem should enhance firms’ transition competitiveness. Many firms in Taiwan have used ESG initiatives to empower supply chains, innovate products and services, create new business models, and enhance firm value. Moreover, the TWSE proposed constructing an ESG ecosystem to meet the markets’ supply and demand and provide necessary resources and feasible solutions for all participants in the ESG movement. Listed firms, suppliers, bankers, investors, and stakeholders can deploy such an ecosystem to improve Taiwan’s ESG performance and through which all participants can become ESG citizens worldwide. In this way, Taiwan can become the light of the world through its unique ESG ecosystem. Practice real: Taiwan can help share its experience. References Berkman, H., Jona, J., & Soderstrom, N. S. (2021). Firm-​specific climate risk and market valuation. Available at SSRN 2775552. Business Next (2023). 287 large carbon emitters should pay attention. www.bnext. com.tw/​arti​cle/​73734/​clim​ate-​cha​nge-​law-​highli​ght. Access date: February 9, 2023. Corporate Governance Center (CGC) (2022). ESG Introduction. https://​cgc.twse. com.tw/​fron​tEN/​res​pons​ibil​ity. Access date: February 10, 2023. China Times (2021). TCFD、SASB Information Disclosure. www.chi​nati​mes.com/​ new​spap​ers/​202​1122​3000​167-​260​202?chdtv. Access date: January 16, 2023. CSR (2022). Taiwan’s Net-​ Zero Emissions Pathway. https://​csr.cw.com.tw/​arti​cle/​ 42465. Access date: January 16, 2023. CSRone (2022). Sustainability Think Tank Annual Report. https://​csr​one.com/​top​ics/​ 7304. Access date: January 16, 2023. Deloitte (2021). Introduction to the Draft Climate Change Response Law and Business Opportunities for Firm Transition. www2.deloi​tte.com/​tw/​tc/​pages/​sus​tain​abil​ity-​ servi​ces-​group/​artic​les/​ssg-​upd​ate-​2112-​3.html. Access date: January 13, 2023. Deloitte (2022). ESG, the key DNA of Corporate Sustainable Development. www2. deloi​tte.com/​tw/​tc/​pages/​sus​tain​abil​ity-​servi​ces-​group/​artic​les/​ssg-​upd​ate-​2108. html. Access date: January 16, 2023. Delta (2021). 2021 Sustainability Report. https://​esg.delt​aww.com/​CSR-​Repo​rts. Access date: January 16, 2023. Environmental Information Center (EIC) (2021). World Environment Day. https://​ e-​info.org.tw/​node/​231​365. Access date: January 13, 2023. ESG (2022). Construct the ESG ecosystem of the capital market. https://​esg.gvm.com. tw/​arti​cle/​17106. Access date: January 16, 2023. ESun Bank (2023). ESun Financial Holdings released a climate and natural environment report. reurl.cc/​eDo5XR. Access date: January 16, 2023. Executive Yuan, Republic of China (Taiwan) (EYROC) (2017). Taiwan’s Voluntary National Review. www.roc-​tai​wan.org/​uplo​ads/​sites/​104/​2017/​09/​Tai​wan-​VNR. pdf. Access date: January 13, 2023. Executive Yuan, Republic of China (Taiwan) (EYROC) (2021). Green Finance Action Plan 2.0. www.ey.gov.tw/​Page/​5A8A0​CB5B​41DA​11E/​64019​e85-​2385-​4224-​ 8466-​1592b​cac7​785. Access date: January 13, 2023.

Environmental, Social and Governance (ESG) Initiatives in Taiwan  185 Financial Supervisory Commission R.O.C. (Taiwan) (FSC) (2021). The Financial Supervisory Commission issued the “Guidelines for Domestic Banks’ Financial Disclosure of Climate Risks”. www.fsc.gov.tw/​ch/​home.jsp?id=​96&par​entp​ath=​ 0,2&mcu​stom​ize=​news_​v​iew.jsp&datase​rno=​20211​1300​008&dta​ble=​News. Access date: February 9, 2023. Financial Supervisory Commission R.O.C. (Taiwan) (FSC) (2022a). FSC launches “Green Finance Action Plan 3.0”. www.fsc.gov.tw/​ch/​home.jsp?id=​96&par​entp​ ath=​0,2&mcu​stom​ize=​news_​v​iew.jsp&datase​rno=​20220​9260​001&dta​ble=​News. Access date: January 13, 2023. Financial Supervisory Commission R.O.C. (Taiwan) (FSC) (2022b). Green Finance Action Plan 3.0. reurl.cc/​N0oayq. Access date: January 16, 2023. Global Sustainable Investment Alliance (GSIA) (2021). Global Sustainable Investment Review. www.gsi-​allia​nce.org/​wp-​cont​ent/​uplo​ads/​2021/​08/​GSIR-​20201.pdf. Access date: February 13, 2023. Greenpeace (2022a). United Nations IPCC. reurl.cc/​y7ay6l. Access date: January 13, 2023. Greenpeace (2022b). What are carbon rights, carbon fees, and carbon taxes? reurl.cc/​ 11WQG9. Access date: January 16, 2023. Han, Zheng-​Yu, & Fang, Shun-​Yi (2022). Willingness to Disclose in Sustainability Report. https://​eshop.tej.com.tw/​E-​Shop/​jou​rnal​_​det​ail?jou​rnal​_​id=​202​2070​504. Access date: January 16, 2023. Harvard Business Review (HBR) (2022). How Firms Calculate Carbon Emissions Actuarially. www.hbrtai​wan.com/​podc​ast/​21404/​hbr-​arti​cle. Access date: January 16, 2023. Hon Hai Precision (HHP) (2021). 2021 Sustainability Report. www.hon​hai.com/​s3/​ repo​rts/​CSR/​CN/​2021/​Hon​Hai_​2021​_​Sus​tain​abil​ity%20Re​port​_​CN.pdf. Access date: January 13, 2023. Hon Hai Precision (HHP) (2022). Group Profile. www.hon​hai.com/​zh-​tw/​about/​ group-​prof​i le. Access date: January 13, 2023. Info Times (2022). Diversified power has great potential. reurl.cc/​XEbXqD. Access date: January 13, 2023. Kuo, L., Kuo, P. W., & Chen, C. C. (2021). Mandatory CSR disclosure, CSR assurance, and the cost of debt capital: Evidence from Taiwan. Sustainability, 13(4), 1768. Law Source Retrieving System of Stock Exchange and Futures Trading (2021). Sustainable Development Best Practices Principles for TWSE/​TPEx Listed Firms. http://​eng.selaw.com.tw/​Law​Arti​cle.aspx?LawID=​FL052​368&Mod​ifyD​ate=​1101​ 207. Access date: February 13, 2023. Legislative Yuan (2021). Research and analysis on related issues of environmental, social and corporate governance (ESG) information disclosure. www.ly.gov.tw/​ Pages/​Det​ail.aspx?nod​eid=​6590&pid=​210​289. Access date: January 13, 2023. Liberty Times Net (LTN) (2020). Japan and South Korea announced to achieve carbon neutrality by 2050. https://​news.ltn.com.tw/​news/​life/​break​ingn​ews/​3334​ 910. Access date: January 16, 2023. Mandatory Greenhouse Gas Emissions Reporting System (MGGRS) (2020). GHG Emission Reporting. https://​ghgr​egis​try.epa.gov.tw/​epa_​ghg/​Def​ault​_​en.aspx. Access date: February 13, 2023. National Council for Sustainable development (NCSD) (2022). About SDG. https://​ ncsd.ndc.gov.tw/​Fore/​About​SDG. Access date: January 13, 2023.

186  Yi-Hua Lin, Cheng-Hsun Lee and Shun-Yi Fang National Development Council (NDC) (2022a). 2050 Net-​Zero Emissions. reurl.cc/​ RzodWz. Access date: January 13, 2023. National Development Council (NDC) (2022b). Taiwan’s 2050 net-​zero emission path and strategy general description. www.ndc.gov.tw/​Conte​nt_​L​ist.aspx?n=​ DEE68​AAD8​B38B​D76. Access date: January 13, 2023. Sautner, Z., Van Lent, L., Vilkov, G., & Zhang, R. (2023). Firm-​level climate change exposure. The Journal of Finance, 78(3), 1449–​1498. Serafeim, G. (2022). Purpose +​Profit: How Business Can Lift Up the World. New York: HarperCollins Leadership. Small and Medium Firm Office (SME) (2022). Industrial Bureau launches carbon inventory calculator. https://​080​0056​476.sme.gov.tw/​news2​_​det​ail.php?gid=​4574. Access date: February 10, 2023. Sustaihub (2022). What is an ESG sustainability report? www.sustai​hub.com/​artic​ les/​blog/​esg%E6%B0%B8%E7%BA%8C%E5%A0%B1%E5%91%8A%E6%9 B%B8/​. Access date: January 13, 2023. Taiwan Cement Company (TCC) (2021). 2021 Sustainability Report. https://​www. taiwa​ncem​ent.com/​tw/​esgRep​ort.html. Access date: January 13, 2023. Taiwan Economic Journal (TEJ) (2022). Green Finance Action Plan 3.0. www.tej. com.tw/​news/​282. Access date: February 9, 2023. Taiwan Institute for Sustainable Energy (TAISE) (2023). https://​taise.org.tw/​about. php?sn=​15. Access date: July 27, 2023. Taiwan Semiconductor Manufacturing Firm (TSMC) (2021). 2021 Sustainability Report. https://​esg.tsmc.com/​downl​oad/​file/​2021_​s​usta​inab​ilit​yRep​ort/​chin​ese/​c-​ all.pdf. Access date: January 13, 2023. Taiwan Semiconductor Manufacturing Firm (TSMC) (2022). ESG. https://​esg.tsmc. com/​ch/​focus/​Power​toCh​ange​Soci​ety.html. Access date: January 16, 2023. Taiwan Semiconductor Manufacturing Firm Charity Foundation (TSMC CF) (2023). Introduction. https://​esg.tsmc.com/​en/​focus/​soci​alPa​rtic​ipat​ion/​TSMC​_​Fou​ndat​ ion_​char​ity.html. Access date: February 13, 2023. Taiwan Semiconductor Manufacturing Firm Education and Culture Foundation (TSMC ECF) (2023). Introduction. https://​esg.tsmc.com/​en/​focus/​soci​alPa​rtic​ipat​ ion/​TSMC​_​Fou​ndat​ion.html. Access date: February 13, 2023. Taiwan Stock Exchange (TWSE) (2015). In the evaluation of the five aspects of corporate governance, Delta ranked among the best. https://​cgc.twse.com.tw/​lat​estN​ ews/​promo​teNe​wsAr​ticl​eCh/​914. Access date: January 16, 2023. Taiwan Stock Exchange (TWSE) (2022). ESG Introduction. https://​cgc.twse.com.tw/​ fron​tEN/​res​pons​ibil​ity. Access date: January 16, 2023. The development of international trade (TDIT) (2018). Overview of the development of international trade. www.roc-​tai​wan.org/​uplo​ads/​sites/​147/​2017/​12/​ THE-​DEVE​LOPM​ENT-​OF-​INTERN​ATIO​NAL-​TRADE-​OF-​ROC-​TAI​WAN.pdf. Access date: January 16, 2023. Yahoo News (2022a). The Stock Exchange announced the 2024 evaluation. reurl.cc/​ lDOLgl. Access date: January 16, 2023. Yahoo News (2022b). ESG talent cultivation. reurl.cc/​8jVlvM. Access date: January 13, 2023. Yahoo News (2022c). ESG ecosystem. reurl.cc/​ 2LO4z9. Access date: January 13, 2023.

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9 Financing Technological Infrastructure and Knowledge Transfer for Green Innovation in the Greater Bay Area of China Tiffany Cheng Han Leung and Ying Guo

9.1 Introduction It is important to improve sustainability in densely populated cities. Due to the attraction of economic activities, the population gradually migrates to cities, which is a reflection of the urbanisation process (Shen et al., 2017). However, urbanisation and population growth pose wide-​ranging challenges to the sustainable development of cities. From an environmental perspective, rapidly developing cities are accompanied by the negative impacts of high energy consumption and high pollution levels, which may reduce environmental quality (Liang et al., 2019). From economic and social perspectives, employment opportunities, urban infrastructure, and community services in cities may not be capable of meeting the requirements of rapid population expansion (Anarfi et al., 2020). Strong infrastructure can make cities more sustainable (Kim & Kim, 2019; Kong et al., 2021). For example, evidence indicates that economies with strong infrastructure suffered less damage and were able to recover more easily from the impacts of COVID-​19 (United Nations, 2022). Infrastructure includes various industries, such as transportation, energy, and telecommunication services (Thacker et al., 2019). The opening of high-​speed railways can improve urban green productivity (Kong et al., 2021). The application of sustainable power sources, including solar energy, could increase adjusted net savings (ANS), an indicator to measure the level of sustainable development (Güney, 2022). ANS is calculated by adding net savings and education expenditure and subtracting energy depletion, mineral depletion, net forest depletion, and carbon dioxide (CO2) and particulate emissions damage (Güney, 2022). Furthermore, Kim and Kim (2019) concluded that Internet of Things (IoT) services and technologies provided by the telecommunications industry can monitor and measure greenhouse gas (GHG) emissions from factories or buildings. The United Nations clarified the role of infrastructure in supporting sustainable development in SDG 9. SDG 9 requires contributing to DOI: 10.4324/9781003288343-12

Financing Technological Infrastructure for Green Innovation  189 infrastructure, sustainable industrialisation, and innovation. However, it is becoming increasingly difficult to achieve SDG 9. First, from a global perspective, many countries and regions in the world have moved away from SDG 9 (Saieed et al., 2021). A comprehensive SDG 9 progress indicator was created by Saieed et al. (2021) that takes into account manufacturing value added (MVA) as a share of gross domestic product (GDP), MVA per capita, manufacturing employment as a share of total employment, carbon dioxide emissions per unit of MVA, and the share of medium-​and high-​tech sectors in MVA. In the 124 countries and regions tested, 58 were moving towards SDG 9, but the remaining 66 were deviating away from SDG 9 in the period between 2000 and 2016 (Saieed et al., 2021). Amidst the COVID-​19 pandemic, prolonged lockdowns and travel bans have severely restricted the movement of people. For example, the total number of air passengers travelling internationally in 2020 was 1.8 billion, down 60% from 2019, and financial losses for the airline industry totalled $370 billion in 2020 (United Nations, 2022). Although there was a slight recovery in global air passenger traffic in 2021, there were still 2.2 billion fewer passengers than in 2019 (United Nations, 2022). Second, China’s SDG 9 progress index ranks ninth in the world, while Bangladesh exhibits the best SDG 9 progress performance (Saieed et al., 2021). In particular, Hong Kong is one of the lowest ranked countries and regions for SDG 9 progress (Saieed et al., 2021). One possible explanation is that Hong Kong faces high demand for electricity, and most of its electricity does not come from clean energy sources. An annual average of 7.96 billion kWh net of electricity is imported by Hong Kong from nuclear power plants in Shenzhen (To & Lee, 2017). From 2002 to 2015, coal contributed 74.3% of Hong Kong’s electricity generation, while less than 0.02% of the contribution came from alternative and renewable sources (To & Lee, 2017). The Guangdong–​Hong Kong–​Macao Greater Bay Area (GBA) confronts serious sustainable development problems as a result of urbanisation. The GBA comprises Hong Kong, Macao, and nine cities in Guangdong Province. As a major bay area, the GBA has one of the highest population densities in China. Between 1986 and 2017, all cities in the GBA experienced rapid urbanisation despite different urban expansion rates. In the GBA, six out of nine cities in Guangdong had an urbanisation rate of more than 70% in 2017 (Lin & Li, 2020). Declining environmental quality is another urbanisation-​related challenge in the GBA. Deforestation contributed to 14.86% of the GBA’s total urban growth area between 1987 and 2017 (Yang et al., 2021), and urbanisation continues to increase the GBA average air temperature, frequency of extreme precipitation, and health risks for residents (Li et al., 2021). The question emerges: how can people develop the infrastructure of the GBA to achieve sustainability? Green innovation and green finance are two main approaches. Green innovation helps to build green infrastructure, which

190  Tiffany Cheng Han Leung and Ying Guo can enhance a city’s resilience and reduce its vulnerability to physical risks, such as cyclones, floods, and natural disasters (Staddon et al., 2018). Green infrastructure has the advantages of reducing flood risk, lowering energy consumption, and improving air quality (Zuniga-​Teran et al., 2020), and green innovation can also have a positive impact on energy efficiency (Zakari et al., 2022). Meanwhile, green finance provides opportunities to transform existing city infrastructure. According to Jin et al.’s (2021) definition, green finance refers to financial services to assist environmental protection, tackle climate change, and improve energy efficiency. Irfan et al. (2022) state that pilot zones for green finance innovation and reform strongly promote green innovation compared to other areas. The remaining sections of this book chapter are organised as follows. Section 9.2 outlines the green innovation policies and plans in the GBA, including the overall GBA policy and the policies of the three major cities (i.e., Hong Kong, Macao, and Guangzhou), which represent three different administrative divisions in the GBA. Section 9.3 provides an introduction to the infrastructure industries of green innovation in the GBA. Section 9.4 summarises the green finance practices of the GBA, including the role of green finance in infrastructure. Section 9.5 offers suggestions for financing green innovation infrastructure in GBA cities and a collaboration model of technological infrastructures for green innovation through regional knowledge exchange and knowledge transfer. Finally, the conclusion of the chapter presents the main findings, implications, and limitations. 9.2  Green Innovation Policies and Plans in the GBA 9.2.1  Overview of Green Innovation Policies and Plans in the GBA

In 2019, the Outline Development Plan for the Guangdong–​Hong Kong–​ Macao GBA was released by the State Council of China. This document explains the role and future direction of the GBA. According to this plan, an innovative, environmentally conscious, and increasingly low-​carbon model should be adopted in the GBA (The State Council, 2019). The plan states that the GBA will continue to increase the proportion of clean energy by controlling total coal consumption, developing wind energy resources in an orderly manner, and safely and efficiently developing nuclear power (The State Council, 2019). Furthermore, the plan dictates that energy conservation and environmental protection will be integrated with big data, internet technology, and the IoT to transform traditional manufacturing industries (The State Council, 2019). According to the Guangdong Provincial Committee of the Communist Party of China and the Guangdong Provincial People’s Government (2022), Guangdong Province will strengthen its low-​carbon interchange and collaboration with Hong Kong and Macao. In particular, Guangdong Province will establish a coordination mechanism for addressing climate change with Hong

Financing Technological Infrastructure for Green Innovation  191 Table 9.1 Green innovation policies and plans in the GBA Applicable cities

Name of policies and plans

Release year

Greater Bay Area (GBA)

Outline Development Plan for the Guangdong-​Hong Kong-​Macao GBA Opinions on Completely Accurately Implementing the New Development Concept and Promoting Carbon Peak and Carbon Neutrality Building (Energy Efficiency) Regulation Cap.123 Buildings Energy Efficiency Ordinance Energy Saving Plan 2015–​2025+​ The Climate Action Plan 2030+​ Hong Kong’s Green and Sustainable Finance Strategy Climate Action Plan 2050 Clean Air Plan for Hong Kong 2035 Macao Environmental Protection Plan (2021–​2020) Macao Environmental Protection Plan (2021–​2025) The Second Five-​Year Plan for Economic and Social Development of the Macao Special Administrative Region (2021–​2025) Outline of the 14th Five-​Year Plan for National Economic and Social Development and Vision 2035 of Guangzhou Guangzhou’s 14th Five-​Year Plan for Ecological Environmental Protection Guangzhou Green Building Development Special Plan (2021–​2035)

2019

Hong Kong

Macao

Guangzhou

2022 1995 2012 2015 2017 2020 2021 2021 2012 2022 2021 2021 2022 2022

Kong and Macao. Guangdong Province also promises to promote in-​depth cooperation in the GBA in green technology innovation, mutual recognition, application of green financial standards, carbon trading, and carbon labelling, thereby constructing a common market for green finance (Guangdong Provincial Committee of the Communist Party of China & Guangdong Provincial People’s Government, 2022). Table 9.1 lists the green innovation policies and plans of Hong Kong, Macao, and Guangzhou. 9.2.2  The Case of Green Innovation Policies and Plans in Hong Kong

Hong Kong has achieved remarkable economic achievements as an international financial centre, but its environmental problems are still noticeable. CO2 emissions from imports to Hong Kong increased from 82 Mt in 1990 to 313 Mt in 2015 (Huang et al., 2019). Population density, GDP per capita, and trade openness are the primary factors increasing CO2 emissions (Huang et al., 2019). Population density is the major concern, and trade openness is the second leading cause of rising CO2 emissions (Huang et al., 2019).

192  Tiffany Cheng Han Leung and Ying Guo Environmental problems may in turn lead to health and safety impacts among local residents. For example, urban warming increases the likelihood of local residents contracting air pollution-​related pneumonia and increases the acute mortality rate of pneumonia (Sun et al., 2019). Therefore, Hong Kong has issued a series of laws related to environmental protection and formulated relevant green innovation plans. Hong Kong has established several environmental management regulations for the construction and transportation industries (Pan & Pan, 2019; Shafique, 2022). In 2017, 7.39 million people lived on 1,106.3 square kilometres of land in Hong Kong. Seventy-​five per cent of this land is protected, while only a quarter can be developed, making high-​density multileveled buildings common in Hong Kong (Pan & Pan, 2019). Because Hong Kong is a city that emphasises service sectors and sectors with high energy demand are not predominant in Hong Kong, construction is a major contributor to carbon emissions (Pan & Pan, 2019). In 1995, Hong Kong implemented the first Building (Energy Efficiency) Regulation Cap.123 (Pan & Pan, 2019). In 2012, the Buildings Energy Efficiency Ordinance was fully implemented (Pan & Pan, 2019). In addition, as 18% of Hong Kong’s GHGs come from the transportation sector, local residents are encouraged to buy and drive new energy vehicles (Shafique, 2022). For example, the profit tax of the first year of registration could be fully deducted for customers who register electric vehicles in Hong Kong (Shafique, 2022). Hong Kong promotes green innovation by implementing climate action, energy conservation, emission reduction, and a series of green finance and Environmental, Social and Governance (ESG) reporting initiatives. To reach the long-​term objective of becoming carbon neutral by 2050, Hong Kong formulated the Energy Saving Plan 2015–​2025+​in 2015 (Yu & Ho, 2021). In response to the 2015 Paris Agreement, the Hong Kong Environment Bureau later released the Climate Action Plan 2030+​in 2017. The plan uses carbon emissions in 2005 as a baseline and sets a goal of reducing carbon emissions by 26%–​ 36% by 2030 (Ho & Yu, 2022). The plan includes not only requirements to reduce carbon emissions from infrastructure but also provisions to enhance climate resilience (Yu & Ho, 2021). In October 2021, the Climate Action Plan 2050 was the most recent version for Hong Kong to implement this new initiative, which includes the following strategic goals: net-​zero electricity generation, energy saving and green buildings, green transport, and waste reduction (Zhu, 2022). In the same year, the Hong Kong government released the Clean Air Plan for Hong Kong 2035 with the vision of “Healthy Living, Low-​carbon Transformation, World Class” (Environment Bureau, Transport and Housing Bureau, Food and Health Bureau & Development Bureau, 2021). According to this plan, Hong Kong will test electric and hybrid ferries and work with ferry operators to explore implementing new energy ferries by 2035. To give the public more district-​ based air quality information, Hong Kong is developing a smart air quality monitoring system that integrates new technologies such as the IoT and

Financing Technological Infrastructure for Green Innovation  193 artificial intelligence (Environment Bureau, Transport and Housing Bureau, Food and Health Bureau & Development Bureau, 2021). Although these policies and plans differ slightly in their specific focus, they all aim to make Hong Kong an environmentally friendly and liveable city. The Green and Sustainable Finance Cross-​Agency Steering Group was launched in May 2020 to coordinate on climate change issues in financial sectors. Hong Kong’s Green and Sustainable Finance Strategy was announced by the Green and Sustainable Finance Cross-​ Agency Steering Group in December 2020. According to this strategy, Hong Kong will enhance the management of financial risks associated with climate and encourage the transmission of information about the climate at all levels (Green and Sustainable Finance Cross-​Agency Steering Group, 2020). In particular, climate-​related risks will be considered a source of financial risks to manage these risks and create a financial system that is climate resilient in Hong Kong (Green and Sustainable Finance Cross-​Agency Steering Group, 2020). In addition, the Cross-​Agency Steering Group mentioned above works to explore a green classification framework that could be adopted in Hong Kong for consistency with the Common Ground Taxonomy of the International Platform on Sustainable Finance (Green and Sustainable Finance Cross-​Agency Steering Group, 2021). The Task Force on Climate-​Related Financial Disclosures framework is the foundation upon which the Cross-​Agency Steering Group is dedicated to encouraging sectors in Hong Kong to publish climate information by 2025 (Green and Sustainable Finance Cross-​ Agency Steering Group, 2021). The Hong Kong government plans to further encourage green innovation, but there are various obstacles to implementation. For example, most potential solar photovoltaic users complain about the high setup costs and long payback period for the initial investment (Mah et al., 2018). Different users have different policy preferences. Residential users prefer government subsidies, institutional users lean towards regulations, such as renewable portfolio standards, and commercial users prefer feed-​in tariffs (Mah et al., 2018). Such diverse preferences may hinder the promotion of solar photovoltaics. 9.2.3  The Case of Green Innovation Policies and Plans in Macao

In 2012, the Macao Environmental Protection Plan (2010–​2020) was first formulated (Environmental Protection Bureau, 2012). The plan emphasised the concepts of sustainable development, such as low-​carbon development, citizen involvement, and regional collaboration. To adapt to future development, the Macao Environmental Protection Plan (2021–​2025) takes 2019 as the base year and establishes a number of environmental protection goals by 2025 (Environmental Protection Bureau, 2022). The Macao government has proposed four different paths: (i) jointly tackling climate change and building a green and low-​carbon Macao; (ii) stepping up efforts to reduce environmental pollution and creating a liveable

194  Tiffany Cheng Han Leung and Ying Guo and travelable city; (iii) stepping up efforts to safeguard the environment and raise life quality; and (iv) integrating GBA development and deepening environmental protection exchange and cooperation. Macao committed to ten indicators in this plan. For example, the CO2 emission rate in 2025 will be reduced by 55% compared with 2005, and the proportion of buses using new energy will reach 90% by 2025 (Environmental Protection Bureau, 2022). Macao integrated the concept of green innovation into the Second Five-​ Year Plan for Economic and Social Development of the Macao Special Administrative Region (2021–​2025). Under this plan, Macao is committed to actively cooperating with China’s environmental protection development strategy and strengthening environmental protection in crucial sectors, such as environmentally friendly infrastructure, sewage treatment, and solid waste treatment (Government of the Macao Special Administrative Region, 2021). Macao has also committed to completing a study on a long-​term carbon reduction strategy during the implementation of the second five-​year plan (Government of the Macao Special Administrative Region, 2021). In summary, the following three points can be highlighted for the Macao context. First, compared with Hong Kong, the time span of the current green innovation plan formulated by the Macao government is shorter. However, a study on long-​term carbon reduction strategies will be completed from 2021 to 2025 (Government of the Macao Special Administrative Region, 2021). Second, Macao’s planning emphasises the positioning of a tourism and leisure city, which is in line with Macao’s major pillar industries. Third, both in the past and in the future, public participation and regional cooperation are the major directions of Macao’s policy (Environmental Protection Bureau, 2012, 2022). 9.2.4  The Case of Green Innovation Policies and Plans in Guangzhou

Guangzhou is the capital city of Guangdong and representative of mainland Chinese cities in the GBA. Compared with the other eight mainland cities in the GBA, Guangzhou has the highest level of green development, followed by Shenzhen and Zhuhai (Wang et al., 2018). However, Guangzhou’s innovation level, one of the measures of green development, ranks fifth among the nine Chinese mainland cities in the GBA (Wang et al., 2018). Guangzhou has therefore formulated several relevant policies to promote green innovation. In 2021, the Guangzhou People’s Government formulated the Outline of the 14th Five-​Year Plan for National Economic and Social Development and Vision 2035 of Guangzhou. In this document, “green” and “low-​carbon” are mentioned many times, and “innovation” is mentioned more than 400 times (Guangzhou People’s Government, 2021), which indicates that these concepts have gradually become important to Guangzhou’s government policies. According to Guangzhou People’s Government (2021), Guangzhou City expects that carbon emissions will decrease steadily in the future. By 2035, the carbon emission rate in Guangzhou will reach its peak, stabilise,

Financing Technological Infrastructure for Green Innovation  195 and subsequently decrease (Guangzhou People’s Government, 2021). For the duration of the 14th Five-​Year Plan (2021–​2025), the Guangzhou government committed to addressing climate change and improving the control system for the total amount and intensity of energy consumption (Guangzhou People’s Government, 2021). The plan calls for Guangzhou to promote green innovation in areas, such as infrastructure, clean production, ecological environment, and energy conservation and preservation (Guangzhou People’s Government, 2021). In particular, more than 60% of cities will participate in green communities, and the proportion of green travel in the central city will increase to over 70% by 2025 (Guangzhou People’s Government, 2021). In July 2022, Guangzhou’s 14th Five-​ Year Plan for Ecological Environmental Protection was released for the 2021–​2025 period. During these five years, Guangzhou will work towards replicable and scalable innovation achievements in low-​carbon demonstration, ecological environment governance, and green trade and promote Guangzhou Nansha District as an innovative region for green and low-​carbon development (Guangzhou People’s Government General Office, 2022). The construction of public sea-​friendly landscapes and facilities such as ecological seawalls in Nansha District will be improved (Guangzhou People’s Government General Office, 2022). New buildings are encouraged to actively use different forms of energy-​ saving technology in Guangzhou. By 2025, the proportion of green building area in the city’s new civil buildings will reach more than 90% (Guangzhou People’s Government General Office, 2022). In short, Guangzhou’s green innovation policy takes into account both the immediate and the long term, which demonstrates that the Guangzhou government has adopted a flexible strategy. Guangzhou has designated specific green innovation areas in the city. 9.3  Technological Infrastructure for Green Innovation in the GBA 9.3.1  Overview of Technological Infrastructure for Green Innovation in the GBA

The concept of technological infrastructure is pertinent to agglomerations of organisations in related industries, concentrations of core research by universities, clusters of industrial R&D, and business or financial services. Such geographic concentrations of entities and institutions form a technological infrastructure that augments the capacity for innovation in a region to specialise in specific technologies and industrial developments (Weiss & Birnbaum, 1989; Feldman & Florida, 1994). Given the high traffic pressures in the GBA in recent years, transformation of its transport systems should be a focus of the GBA’s development of green infrastructure and related innovation. Such transformation is reflected in the following points. First, the geographical environment of the GBA is complex. The downstream area of the GBA has densely distributed river channels, which require the construction of multiple bridges. In addition, the mountainous areas of Hong Kong and

196  Tiffany Cheng Han Leung and Ying Guo Shenzhen make the development of transportation facilities more difficult (Zhou et al., 2020). Second, the GBA has a high rate of car ownership, and the growth rate of vehicles is faster than the carrying capacity of roads (Zhou et al., 2020). From 2006 to 2016, CO2 emissions from traffic sectors in nine Chinese mainland cities in the GBA continued to rise (Cao et al., 2019). Air and road transportation contribute the most to emissions, while the emissions of railways are much lower than those of aviation (Cao et al., 2019). After years of governance, the GBA’s green transport has improved. For example, in 2013, the core cities in the GBA, such as Guangzhou, Dongguan, and Shenzhen, had the poorest environmental quality of the main roads and transport hubs (Zhou et al., 2020). In 2017, the main roads and transportation hubs achieved an improvement in environmental quality. The places with poor environmental quality were primarily located in the central construction zones in the GBA, such as factories, highways, and railway stations (Zhou et al., 2020). The Hong Kong–​Zhuhai–​Macao Bridge is a typical example of green transport in the GBA. The Hong Kong–​Zhuhai–​Macao Bridge is an approximately 56 km sea crossing bridge, connecting the three cities of Hong Kong, Macao, and Zhuhai. However, during construction, engineers and the government discovered that the bridge spanned the Guangdong Pearl River Estuary Sousa Chinensis National Nature Reserve, the largest Sousa Chinensis reserve in China, which may cause permanent damage to the living areas of precious and endangered dolphins (Liu et al., 2018). Therefore, the design and construction team of the bridge took a series of ecological compensation measures, such as the construction of Sousa Chinensis rescue and nursery bases, monitoring of Sousa Chinensis during construction, and food organism enhancement in the reserve (Liu et al., 2018). By September 2017, the population of Sousa Chinensis in the Pearl River estuary of Guangdong rose by a substantial amount (Liu et al., 2018). The transformation of fossil energy to safer and cleaner energy as well as the adoption of renewable energy technologies is one of the concerns of the GBA’s development of infrastructure for green innovation. According to a simulation analysis by Zhou et al. (2021), Hong Kong will reach its peak energy consumption approximately 2025, while the energy consumption of Macao and nine cities in mainland China in the GBA will grow slowly until 2035. The percentage of nonfossil energy in the GBA will rise to approximately 45% by 2035 (Zhou et al., 2021). The energy self-​sufficiency rate in the GBA is also expected to increase to 25% in 2035 from 10% in 2015 (Zhou et al., 2021). Sewage treatment plant construction is one of the key objectives in the infrastructure for green innovation in the GBA. There is regional heterogeneity in the GBA sewage treatment plants. In absolute numbers, Zhuhai and Huizhou have fewer treatment plants, and Zhaoqing and Jiangmen have more (He et al., 2021). In terms of per capita numbers, Dongguan and Guangzhou have the lowest number of sewage treatment plants per capita

Financing Technological Infrastructure for Green Innovation  197 (He et al., 2021). In general, the GBA needs to balance the spatial layout and service capacity of GBA sewage treatment plants (He et al., 2021). 9.3.2  Infrastructure for Green Innovation in Hong Kong

As wind power technology is gradually maturing, there are opportunities for Hong Kong to develop more wind energy facilities through onshore wind power and offshore wind power developments. The advantages of offshore wind power for Hong Kong are as follows: (i) offshore wind power can achieve local consumption and reduce transmission costs and transmission losses; (ii) offshore wind power has higher power generation efficiency than onshore wind power; and (iii) offshore wind power can reduce GHG emissions (Lin et al., 2020). Due to Hong Kong’s unique location and climate, the development of offshore wind farms may offer a promising energy alternative. Gao et al. (2014) found that the area of potential offshore wind farms accounts for approximately 21.68% of the water area in Hong Kong. The southeastern water areas of Hong Kong are the most suitable locations for wind farm development (Gao et al., 2014). In 2006, Hong Kong received two proposals to exploit the city’s wind energy potential, but as of 2022, Hong Kong still does not have an offshore wind farm (Delina, 2022). The development of offshore wind farms in Hong Kong faces potential challenges. First, the construction and operation of offshore wind farms may have a major impact on marine organisms, such as fish, sea turtles, and dolphins (Delina, 2022). Second, as offshore wind farms need to be installed and operated offshore, the fixed asset costs are often high (Lin et al., 2020). The built-​up area of Hong Kong is only a quarter of the total land area, approximately 277 square kilometres (Hong Kong Green Building Council, 2020; Pan & Pan, 2019). Nevertheless, green buildings represent an important way to achieve a sustainable city. The following are three examples of green buildings in Hong Kong. First, the Building Environmental Assessment Method (BEAM) Plus was established in 2010 to measure green building performance (Hong Kong Green Building Council, 2017). In August 2020, more than 1,600 projects –​including residential, commercial, government, and institutional buildings –​joined BEAM Plus, covering a total gross floor area of over 52,000,000 square meters (Hong Kong Green Building Council, 2020). Second, in 2012, the CIC-​Zero Carbon Park, the first zero-​carbon building in Hong Kong, opened, with more than 200 different species of plants and advanced ecological technology, along with an exhibition centre and an educational centre (Hong Kong Green Building Council, 2020). Third, a commercial building, Hong Kong One Taikoo Place, utilises a waste-​ to-​energy and triple-​generation system, generating biodiesel from leftover cooking oil waste (Hong Kong Green Building Council, 2021). One Taikoo Place saves energy at a rate of 34% annually, exceeding the baseline performance of BEAM Plus (Hong Kong Green Building Council, 2021).

198  Tiffany Cheng Han Leung and Ying Guo 9.3.3  Infrastructure for Green Innovation in Macao

The gaming industry is a major pillar industry in Macao. In 2019, Macao had a total of 58,225 full-​time gaming industry employees, accounting for 8.5% of Macao’s total population and 14.7% of the labour force. In 2019, revenues from gaming and related services amounted to MOP$ 2,933.8 billion, accounting for more than 65% of Macao’s GDP (MOP$ 4,455.3 billion). Even in 2020, during the COVID-​ 19 pandemic, revenue from gaming and related services accounted for 30% of GDP (Government of Macao Special Administrative Region Statistics and Census Service, 2021). Macao is heavily reliant on the gaming industry due to the singleness of the industry structure and a short industrial chain (Lu, 2016). With limited diversification of the gaming industry, Macao is minimally resistant to unforeseen crises. Therefore, Macao is trying to improve sustainability by building green infrastructure. Below, two examples are given to demonstrate the development of green infrastructure in Macao. The first example is urban public transport. Macao is a tourist city with short travel distances, where it is appropriate to use electric buses as an energy-​saving and emission-​reduction solution (Song et al., 2018). However, Song et al. (2018) found that electric buses in Macao cannot effectively reduce potential GHG emissions due to their limited energy efficiency (Song et al., 2018). Therefore, improving the power system, reducing power consumption, and using cleaner power could be adopted by electric buses to increase energy efficiency in the future (Song et al., 2018). Song et al. (2018) suggest that Macao can invest more to improve carbon production efficiencies for electricity generation and provide more tax incentives related to electric buses. The second illustration is lowering GHG emissions from city construction. Steel is a major source of GHG emissions among building materials. Its GHG emissions climbed from 148.13 Kt CO2e in 1999 to 1552.26 Kt CO2e in 2016 (Zhao et al., 2019). The total GHG emissions from commercial buildings during occupancy were higher than those from residential buildings in 1999, but the opposite was true in 2016. Whether in commercial or residential buildings, electricity is the largest source of GHGs, higher than oil gas and natural gas (Zhao et al., 2019). The gaming business accounts for the greatest overall GHG emissions from building energy usage. The GHG emissions from energy consumption in the gaming industry in 2016 were 2,722.32 Kt CO2e, far exceeding the level for residential buildings (893.86 Kt CO2e) and commercial buildings (742.42 Kt CO2e) (Zhao et al., 2019). In sum, to reduce GHG emissions, Macao needs to rely on clean energy, energy efficiency, and green building materials (Zhao et al., 2019). A number of companies are trying innovative methods to build environmentally friendly buildings. The subsidiary of China State Construction Engineering International Holdings Limited uses prefabricated construction technology when designing and building senior apartments, which can save water,

Financing Technological Infrastructure for Green Innovation  199 construction consumables, and general waste (China State Construction Engineering International Holdings Limited, 2021). 9.3.4  Infrastructure for Green Innovation in Guangzhou

In 2020, the Guangzhou People’s Government General Office (2020) proposed 20 main tasks in three areas: information infrastructure, technological infrastructure, and converged infrastructure. The optimisation of converged infrastructure includes tasks for ten industries, including smart cities, smart manufacturing, smart transportation, and smart environmental protection. Guangzhou values the infrastructure environment and services directly related to daily life, such as urban green infrastructure (UGI), which includes green lanes, green roofs, and parks in urban areas, to solve the problem of urban heat islands (Wang et al., 2021; Zhang et al., 2020). UGI is recognised by residents of different communities. Zhang et al. (2020) found that 80% of Guangzhou respondents are willing to pay for the use and maintenance of UGIs, and there are three UGIs located in the central urban area of Guangzhou City. However, Zhu et al. (2019) found that there is an excess supply of green infrastructure in the eastern part of Haizhu District but an insufficient supply of green infrastructure in the central and western parts of Haizhu District, which lack green infrastructure with higher population densities and severe urban waterlogging (Zhu et al., 2019). In the transportation industry, Guangzhou has become the city with the largest number of fully electric buses in the world, with 11,394 fully electric buses in 2019 (Mayor of Guangzhou, 2020). At the 7th C40 Global Mayors’ Summit held in October 2019, Guangzhou received the World C40 City Green Technology Award. This made possible contributions to bus electrification (Mayor of Guangzhou, 2020). Yuexiu Transport Infrastructure Limited (Yuexiu Transport) is one of the representatives of green innovation in the transport infrastructure sector in Guangzhou. By applying the hot central plant recycling technique, Yuexiu Transport improves pavement overhaul engineering and road shoulder hardening solutions, saving approximately 4,300 tons of stone and 80 tons of asphalt in 2021 (Yuexiu Transport Infrastructure Limited, 2022). The company follows the trend of electric vehicles and has added 40 charging stations in the three service areas along the Daguangnan Expressway and the two service areas along the Han’e Expressway (Yuexiu Transport Infrastructure Limited, 2022). As a city often hit by floods (Huang et al., 2018), Guangzhou has taken action to build a sponge city that uses permeable pavement and road materials, increasing rainfall infiltration and storage of urban storm water (Chan et al., 2018). A control flooding system has been built by using reservoirs, canals, sluices, pumping stations, and other facilities (Mayor of Guangzhou, 2020). Guangzhou has also built super dams to reduce damage caused by floods and typhoons in the southern coastal areas (Mayor of Guangzhou, 2020).

200  Tiffany Cheng Han Leung and Ying Guo 9.4  Green Finance in the GBA 9.4.1  Development of Green Finance in the GBA

Green projects often create positive externalities, such as lower carbon emissions (Bai et al., 2022), which are beneficial to the sustainable development of society. However, such projects do not necessarily increase profits. Therefore, traditional financing methods might not be suitable for green projects. Instead, new green financial products –​such as green bonds, green funds, and green insurance –​are prevalent tools to raise funds for green projects (Bai et al., 2022). To date, the three major cities in the GBA have developed green finance to different levels. Hong Kong, an international financial centre, is able to attract international capital and adopt international regulations and standards to develop financial products and services that could harmonise local, regional, and international stakeholders (Ng & Leung, 2020; Deloitte China, 2021). In the GBA, Hong Kong is at the forefront of both the growth and scale of green bonds (Peking University HSBC Business School & HSBC Bank [China] Company Limited, 2021). In 2018, a government green bond scheme with a limit of HK$100 billion was launched by the Hong Kong government. In 2021, the Green and Sustainable Finance Grant Scheme launched by the Hong Kong government was welcomed by investors. At the end of June 2022, the scheme approved approximately 110 applications covering various green and sustainable debt instruments worth US$35 billion (Hong Kong SAR Government, 2022). In July 2021, the Center for Green and Sustainable Finance established a database to help industry and academia find data resources and training information (Hong Kong SAR Government., 2022). The Macao government established the “Environmental Protection and Energy Conservation Fund” to aid in the development of the environmental protection sectors in 2012. However, the scale of Macao’s green funds is still relatively small, and the funds are mainly based on government fiscal expenditures (Peking University HSBC Business School & HSBC Bank [China] Company Limited, 2021). A variety of green and sustainable financial products are provided and promoted with the collaboration of the Macao government and China (Macao) Financial Assets Exchange Co., Ltd. (MOX) (Liu & Lin, 2022). The Bank of China Macao Branch issues RMB-​ denominated biodiversity-​ themed green unsecured advance notes for financing and refinancing projects that fall under the definition of biodiversity-​related eligible green in the Sustainable Development Bond Management Statement of Bank of China (Liu & Lin, 2022). Guangzhou has the only green finance reform and innovation pilot zone in southern China. The scale of green financial products in Guangzhou continues to rise. In 2019, the Guangzhou Pilot Zone issued RMB$ 35.1 billion in green bonds, far exceeding the RMB$ 4.8 billion in 2017 (Peking University HSBC Business School & HSBC Bank [China] Company Limited, 2021).

Financing Technological Infrastructure for Green Innovation  201 There are different types of green finance in Guangzhou, including green credit, green funds, and green insurance. As of September 2019, the green loan balance of banking institutions in the Guangzhou Pilot Zone accounted for 60% of the GBA green loan balance (Peking University HSBC Business School & HSBC Bank [China] Company Limited, 2021). 9.4.2  Financing Green Innovation Infrastructures in the GBA

The Climate Bonds Initiative (2021) assesses the current state of financing of green innovation infrastructure in the GBA. Prior to COVID-​19, globally aligned green bonds were on the rise in the GBA. In 2020, the main use of green bonds in the GBA was to raise funds for the construction industry, followed by transportation and energy (Climate Bonds Initiative, 2021). In addition, the GBA has abundant green innovation infrastructure investment opportunities. The first is low-​carbon transport. Population growth and accelerated urbanisation have fuelled the continuous development of intercity rail and public transport systems in the GBA. The second opportunity is renewable energy. The GBA has taken wind and solar energy as important industrial development paths. Developers and owners of renewable energy projects should have a variety of funding options available from banks, specialised project financiers, and capital markets. The third opportunity is sustainable water management projects, which are the most market-​oriented infrastructure sector in China. Foreign investors, local operators, and private investors are permitted to participate in this sector. In addition, there are numerous investment opportunities in green construction and new infrastructure (Climate Bonds Initiative, 2021). The Guangdong People’s Government General Office (2020) encourages local governments to flexibly use financial funds, funds, and corporate bonds to support new infrastructure development. However, there are still some difficulties with green finance in the construction industry. First, government subsidy programmes for green buildings were granted when green building projects usually needed to be completed and passed rigorous testing (Wong et al., 2022). However, it is difficult to assess whether green buildings still meet the requirements in actual operation (Wong et al., 2022). Second, some developers build low-​quality green buildings to obtain government subsidies, which may lead to insufficient public funds to support the growing demand for green buildings (Wong et al., 2022). Looking for investment from private capital may be one of the solutions (Wong et al., 2022). 9.5  Collaboration Model: Technological Infrastructures for Green Innovation through Regional Knowledge Exchange and Knowledge Transfer The first recommendation is to develop cross-​border technological infrastructure cooperation, such as connecting the power systems of Hong Kong

202  Tiffany Cheng Han Leung and Ying Guo and Macao with the energy infrastructure of mainland China. Guangdong Province is actively constructing new nuclear power plants and offshore wind farms, which poses an opportunity for Hong Kong to increase the ratio of imported clean energy through regional cooperation (Civic Exchange, 2021). The Hong Kong government may consider importing renewable and nuclear energy from Guangdong through joint ventures between power companies or signing a power purchase agreement with the Guangdong government (Civic Exchange, 2021). The integration of power systems in Hong Kong, Macao, and mainland China is not similar to mainland China power replacing the power systems of Hong Kong and Macao. However, this approach offers the possibility of increasing the share of renewable energy in Hong Kong and Macao (Du & Loh, 2020). The second recommendation is to explore uniform green finance standards. Hong Kong and Macao have a high degree of policy autonomy. This autonomy allows Hong Kong and Macao to take into account local factors in their policies and standards but may make it more difficult for Hong Kong and Macao to integrate into mainland China’s environmental management (Du & Loh, 2020). The GBA needs to formulate a unified green finance support project standard and evaluation system (Deloitte China, 2021). However, due to the complexity of industry types and systems, the GBA still does not have a unified green finance standard. Hong Kong’s financial industry has matured with international experience. Therefore, Hong Kong’s Green Finance Certification Scheme can be extended to other GBA cities. Green financial product standards will also be updated through continuous international exchange and cooperation (Peking University HSBC Business School & HSBC Bank [China] Company Limited, 2021). The second recommendation is in line with the plan of the Guangdong provincial government. Guangdong Province proposes to collaborate with Hong Kong and Macao to conduct research on carbon finance standards, systems, and products (Guangdong People’s Government General Office, 2022). The province has also committed to promoting environmental information disclosure, green financial product standards, green enterprise project identification standards, green credit rating assessment, green bonds, and other green finance standards for mutual recognition and mutual learning in Guangdong, Hong Kong, and Macao (Guangdong People’s Government General Office, 2022). The clusters within the GBA have the potential to create a momentum of innovation given the proximity between the main cities of complementary strengths. On the one hand, the proximity of cultures nurtures trusts with a sense of mutual understanding that facilitates the exchange of ideas and the transfer of knowledge, especially its tacit components. Moreover, participants from organisations of heterogeneous skills, objectives, and interests can be provided with opportunities to interact within a regional network, creating a context for knowledge sharing on creative tensions and managerial issues

Financing Technological Infrastructure for Green Innovation  203 (Hermans, 2013). For instance, the EV and renewable energy industries around Guangzhou can explore product commercialisation and metropolitan market potentials in Macau and Hong Kong, whereas Hong Kong, as a global financial centre, provides capital-​raising opportunities for these emerging industries. Similar to many other countries, governments in the GBA have worked diligently to maximise the potential of science and technology for industrial development. The world-​class universities based in Hong Kong focusing on core research of science and technology have been providing the intangibles that are complementary to the product innovation initiatives for the manufacturing strengths and infrastructures in Guangdong Province. According to Conlé et al. (2021), the “New R&D Institutes” in the province would facilitate intraregional and extra regional knowledge players to develop a variety of knowledge transfer models within the GBA. Such a model of dynamic capabilities and knowledge flows among the three main cities forming the underlying technological infrastructure for green innovation is illustrated in Figure 9.1. Knowledge transfer is broadly defined as “identifying knowledge that already exists, acquiring it and subsequently applying this knowledge to develop new ideas or enhance the existing ideas to make a process better” (Liyanage et al., 2009, p. 122). Knowledge sharing or exchange is considered an important step towards a knowledge transfer process. While knowledge sharing is typically taken at a personal level, knowledge

Figure 9.1 A model of dynamic capabilities for regional knowledge exchange and knowledge transfer in the Greater Bay Area.

204  Tiffany Cheng Han Leung and Ying Guo

Figure 9.2 Knowledge transfer nexus for developing sustainability competency.

transfer is at an organisation level (Liyanage et al., 2009). Knowledge sharing across disciplines is necessary to encourage universities and industries to advance existing knowledge and explore new knowledge (Fullwood et al., 2013; Ramayah et al., 2013). Effective knowledge sharing can be highly enhanced and facilitated in this setting (Liao et al., 2013). To facilitate and promote knowledge sharing across disciplines, it is necessary for institutions to consider major factors influencing behaviour to share tacit and existing knowledge under a creative environment that fosters knowledge sharing behaviours (Chen & Huang, 2007; Ramayah et al., 2013; Yu et al., 2013). Moolenaar et al. (2010, p. 627) defined innovative climate as “the shared perceptions of organisational members concerning the practices, procedures, and behaviours that promote the generation of new knowledge and practices”. Figure 9.2 demonstrates an integrating role of an emerging knowledge transfer nexus that connects with stakeholders in the GBA to develop their sustainability competency. In recent years, interest in enhancing sustainability in the GBA has aroused attention among its stakeholders under the evolving interdisciplinary concepts of ESG. Furthermore, Bi et al. (2020) studied the ecological security (health and risk) status of the GBA and strongly suggested protecting natural resources by reducing excessive

Financing Technological Infrastructure for Green Innovation  205 ecological consumption. Xie et al. (2021) argued that the future use of urban underground space in the GBA should seriously consider sustainability issues; green energy systems and IoT management are among the suggested options. 9.6 Conclusions This book chapter provides an overview of green innovation policies, green innovation infrastructure, and the development of green finance in three main cities of the Guangdong–​Hong Kong–​Macao GBA. This chapter raised the following three key points. First, there are similarities and differences in the green innovation policies of the three main GBA cities. In particular, Hong Kong’s green innovation policies are mostly long-​term strategies, while Macao’s policies are focused on short-​and medium-​term goals. Meanwhile, Guangzhou’s green innovation policy takes into account both the long term and the short term. However, in Hong Kong, Macao, and Guangzhou, low-​ carbon emissions are a buzzword. Second, the GBA’s green innovation has strong development potential but faces challenges of uneven development and insufficient funds. Third, the level of green finance in the GBA varies. Hong Kong’s green finance is in line with international standards and is more mature than that of Macao and Guangzhou. However, Macao and Guangzhou are gradually developing green finance by formulating dedicated policies and launching financial products. The key implications of this chapter are as follows. First, this chapter outlines green innovation policies in three GBA cities. This information may help policymakers identify the best practices from different cities to better understand how to develop future policies to collaborate with different regions with complementary capacities. Second, this chapter presents an overview of the GBA’s green infrastructure and green finance development for investors to effectively evaluate viable cities and development projects. Third, the chapter provides recommendations for future development opportunities among governments, infrastructure developers, and stakeholders in the financial industry. For example, the GBA should explore unified green finance standards, which would make the GBA’s green finance mechanisms more extensively adoptable for extensive and scalable technological innovation by enhancing knowledge sharing and transfer as well as the ultimate transfer of green technologies and solutions that in turn stimulate investments in the transformation of the existing infrastructures to reduce carbon emissions. There are two main limitations of this chapter. First, this chapter only reviews existing research papers, government policies, and industry reports on financing green innovation infrastructure. It does not establish an evaluation framework or quantitatively analyse the major factors of green infrastructure finance development in the GBA. Second, this chapter examines

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10 Design and Implementation of Electric Vehicle Transport Systems Cases of Metropolises in Asia-​Pacific Andrew Yang Wu, Yui-​yip Lau, Lok Man Wong, Juai Wu and Z.Y. Dong

Introduction Frequent extreme weather is constantly reminding people it is urgent to address global climate change. The global energy shortage is also intensifying. Many countries have announced a ban on the sale of fuel vehicles. The development of electric vehicles (EVs) has become an important measure to address climate change and optimize the energy structure. Vehicles are always the most convenient and easier way for people to deal with transport methods in daily lives, such as going to work, a day trip, or taking children to school. People used to purchase petrol cars or take public transport in the past, but in recent years, as people started to be concerned about environmental problems, EVs have become one of the major trends throughout the world. Many countries have started promoting EVs and implementing EVs in public transport, such as buses, taxis, and other commercial vehicles, to reduce the impact of petrol cars, such as air pollution and greenhouse gases (GHGs). EVs, which are invented to reduce the impact of transportation, such as carbon emissions, are operated without a traditional combustion engine (Tallodi, 2022). They are usually powered by a battery pack and can be charged with electricity, solar energy, and other renewable energies. As EVs can effectively mitigate air pollution and GHGs, they have become very popular in recent years, and many drivers have gradually changed from petrol cars to EVs. Currently, climate change is a major issue worldwide, and the government and environmental organizations have started to advocate some ideas to enhance the environmental awareness of people. To effectively reduce air pollution and other GHGs, many countries would like to reduce their carbon emissions by promoting EVs. Using electrical energy instead of fuel (which requires combustion) to achieve carbon neutralization. Since using EVs is beneficial to the environment and the ecosystem, the government from several countries has laid out a series of policies to promote EVs as well as to educate people on how to protect the environment by switching to EVs. To successfully promote EVs, the government and some environmental organizations have vigorously carried out promotional DOI: 10.4324/9781003288343-13

214  Andrew Yang Wu et al. videos and policies to encourage people to purchase EVs. Countries including Norway, the United States, the United Kingdom, France, Germany, and several Asian countries and regions, such as India, Japan, Singapore, China and Hong Kong, have promoted EVs for a few years (How Nations Around the World Are Encouraging Electric Car Ownership, 2021). To help citizens adapt to new technologies, the government has been installing electrical charging stations, providing several funds and subsidies for drivers to purchase EVs, waiving the vehicle purchasing tax, etc. These actions have started attracting people to change from petrol cars to EVs, and most importantly, people have become aware of the environmental problems brought by petrol cars, and more people would like to change to EVs to protect the environment. The metropolises we study in this paper, including Singapore, Shanghai, Sydney, and Hong Kong, have high daily travel demand and dense populations, and their air pollution is also vigorous. By promoting EVs, the air pollution of these places can be significantly reduced. As a result, air turbidity can be greatly reduced, as well as better air quality for citizens. This chapter unveils EV and infrastructure development in three countries and cities in Asia-​Pacific regions, including Singapore, Shanghai, Sydney and Hong Kong. It looks into EV development, including the development progress, opportunities for EVs, and potential challenges and opportunities. Market Penetration of EVs in Asia-​Pacific Metropolises Case studies of representative metropolises in the Asia-​ Pacific, including Hong Kong, Shanghai, Singapore, and Sydney, have been conducted in this chapter, focusing on the rapid penetration of EVs and increasing charging facilities in those regions. Furthermore, the scope of the Greater Bay Area (GBA) and the Delta Region, the economic development of which is led by Hong Kong and Shanghai, have also been included in the analysis to evaluate the impact from the leading metropolises on their nearby regions. Hong Kong

Hong Kong and other metropolises around it, including Macau, Shenzhen, and Guangzhou, have formed the most leading region in China in terms of economic development and technological innovation. The Hong Kong government has released several policies to promote EVs. As of August 2022, there are a total of 36,402 EVs in Hong Kong alone, which accounts for approximately 3.9% of the total number of vehicles (Environmental Protection Department HKSAR, 2022). Similar to other countries and cities, the Hong Kong government has adopted a series of measures to promote the purchase and use of EVs. The measures include the following: (1) First Registration Tax (FRT) concessions for EVs on or before 31 March 2014, the concession is mainly divided into two parts, including (a) electric commercial vehicles, such as buses, electric motorcycles, tricycles,

Design and Implementation of Electric Vehicle Transport Systems  215 taxis, and goods vehicles, will be completely waived (Environmental Protection Department HKSAR, 2022); (b) For electric private vehicles, the FRT for private cars will be waived at a maximum of HKD$97,500 (Environmental Protection Department HKSAR, 2022). Additionally, under the One-​for-​One Replacement Scheme, if the owners of private vehicles arrange to scrap and deregister their own old private cars and register a new electric private vehicle can enjoy a much higher FRT concession, which is up to HKD$287,500 (Environmental Protection Department HKSAR, 2022); (2) New Energy Transport Fund (formerly Pilot Green Transport Fund), which motivates the transport sectors to adopt low carbon transport and green innovative technologies. In other words, this encourages drivers to try out new EVs, including commercial vehicles (Environmental Protection Department HKSAR, 2022). In addition, HKD$180 million will be allocated to franchised bus companies (Environmental Protection Department HKSAR, 2022). The disbursement includes the purchase of 36 single-​deck electric buses, which include 8 supercapacitor buses and 28 batter-​electric buses (Environmental Protection Department HKSAR, 2022). To summarize, to promote EVs successfully, the Hong Kong government has launched different plans and policies to support not only electric private cars but also electric commercial vehicles, including public transport such as buses and taxis. Singapore

To encourage citizens to adapt to EVs, the Singapore government has laid out several incentives for electrical car drives, including (1) the Vehicular Emission Scheme (LTA | Vehicle Emission Schemes, 2022), which rebates SGD$20,000 for Band A EVs and SGD$10,000 for Band A2 EVs from 2018 to 2020 (LTA | Vehicle Emission Schemes, 2022); and (2) the Enhanced Vehicular Emission Scheme (LTA | Vehicle Emission Schemes, 2022), which provides an allowance for SGD$25,000 and SGD$15,000 for Band A and Band A2 EVs, respectively (LTA | Vehicle Emission Schemes, 2022). The schemes mentioned above are based on the carbon dioxide (CO2) emissions of vehicles, as well as the emissions of four other pollutants, including carbon monoxide (CO), nitrogen oxide (NOx), hydrocarbons (HC), and particulate matter (PM). In addition, the Singapore government also released the Carbon Emission-​based Vehicles Scheme (CEVS) and Revised CEVS, which mainly focus on carbon dioxide (CO2) emissions for electric or plug-​in hybrid cars and taxis (LTA | Vehicle Emission Schemes, 2022). Apart from the schemes mentioned above, the SG government also carried out the EV Early Adoption Incentive, for which the EVs and electric taxis registered from 1 January 2021 to 31 December 2023, EV drivers will receive a 45% rebate and a wave of Additional Registration Fees, which capped at SGD$20,000 (LTA | Supporting Cleaner and Greener Vehicles for a Sustainable Land Transport Sector, 2020). In summary, the Singapore government mainly focuses on issues with carbon emissions when promoting EVs. This strategy is expected

216  Andrew Yang Wu et al. to enhance the environmental awareness of citizens and encourage them to purchase EVs at the same time. Shanghai and the Delta Region

Shanghai and its surrounding provinces, forming the Delta Region in China, have been one of the two leading economic development regions in China in the last decade. The other region is the GBA, as explained in the above section. In 2021, the three automobile brands with the most EV sales in the Delta Region are Tesla, Wu-​ ling, and BYD. Among them, the sales volume and sales growth rate of EVs in each province and city are shown in Figure 10.1. Data source is from Research Center of New Energy Vehicle Public Data Collection and Monitoring in Shanghai. The Shanghai municipal government introduced the “Shanghai Implementation Plan for Accelerating the Development of New Energy Automobile Industry (2021–​2025)” in February 2021. The policy document indicated that by 2025, the annual output of local EVs will exceed 1.2 million, and EVs’ output value has exceeded US$50 billion, accounting for more than 35% of the output value of the city’s automobile manufacturing industry; at the same time, the R&D and manufacturing of key components such as power batteries and management systems, fuel cells, drive motors, and power electronics have reached the international leading level. Significant progress has been made in networked and intelligent core technologies such as operating systems and new electronic and electrical architectures to form a complete supply chain. The Jiangsu provincial government also proposed the “Opinions on Promoting the High-​Quality Development of the New

Figure 10.1 EV sales of Shanghai and the Delta Region in China in 2021.

Design and Implementation of Electric Vehicle Transport Systems  217 Energy Vehicle Industry” in August 2019. The policy paper indicated that by 2025, the total manufactory output of EVs in Jiangsu province will exceed 1 million units by three leading EV manufactory firms. The Zhejiang provincial government introduced the “14th Five-​Year Plan for the Development of New Energy Vehicle Industry in Zhejiang Province” in April 2021, which emphasized both technological innovation and increased manufacturing. The plan explicitly revealed that by 2025, the average power consumption of EVs should be less than 12 kWh/​100 km. The total EV manufacturing amount by provincial companies will reach 600,000 with a value of more than US$20 billion. The Anhui provincial government announced the “14th Five-​Year Plan for High-​Quality Development of the Automobile Industry in Anhui Province” in February 2022. The announcement pointed out that the province would adhere to the development of EVs and charging facilities, which would be integrated with the development of the Internet of Things (IoT) in the province. The proportions of the main EV models sold in Shanghai and the Delta Region are shown in Table 10.1. China has played a leading role in the implementation of electric cars. According to Columbia University, nearly 50% of electric cars and approximately 99% of electric buses in the world were deployed in China in June 2019 (Electric Vehicles | Guide to Chinese Climate Policy, 2022). Additionally, in 2018, the sales volume of EVs in China increased by 80%, reaching 1.1 million electric cars. In 2021, Shanghai would keep providing special licence plates to new EV buyers and would keep encouraging the purchases of environmentally friendly vehicles (Argus Media, 2022). To illustrate, the government began to issue “green-​coloured” licence plates for new energy vehicles (NEVs) in December 2016 (Argus Media, 2022) to identify drivers who are willing to use electric cars. Green licence plates are divided into two categories: small EVs and large EVs (Dixon, 2017). To support the development of EVs, the plates for EVs are free of charge in Shanghai, whereas the plates for traditional vehicles cost approximately RMB￥12,000 (Electric Vehicles | Guide to Chinese Climate Policy, 2022). In addition, if NEV drivers purchased EVs before 31 December 2020, there would be an allowance of CNY￥5,000 per unit (Argus Media, 2022). In addition, the Ministry of Industry and Information Technology, the Ministry of Finance, and the State Taxation Administration made a joint announcement on Continuing Tax Table 10.1 Types of EVs sold in the Shanghai and Delta Regions in 2021 Model

Battery electric

Plug-​in hybrid

With range extender

64.07% 89.67% 81.68% 89.46%

33.37% 8% 15.27% 8.93%

2.56% 2.33% 3.05% 1.61%

Place Shanghai Jiangsu Zhejiang Anhui

218  Andrew Yang Wu et al. Exemptions on Purchasing New Energy Vehicles for those who purchase NEVs within 2023 (from 1 January 2023 to 31 December 2023), including battery electric vehicles (BEVs), plug-​in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles, which can enjoy exemption from the car purchasing tax (Interesse, 2022). From the above policies, we can see that the Chinese government has put much effort into promoting EVs and providing incentives for those who are willing to purchase EVs. Sydney and New South Wales State

There are 10,026 registered EVs in New South Wales (The NSW Government, 2022), and as of April 2022, there are more than 30 EV models available in Australia (Corby, 2022), including PHEVs and BEVs or EVs. Sydney is the largest city in Australia and the capital of the state of New South Wales. Due to the popularity of EVs, there are many different model choices for Australian consumers to purchase. The NSW Government provides support to both families and businesses, including the following: (1) Allowance and stamp duty exemption for EV purchases. To make EVs more affordable for buying, the NSW Government provides an allowance of AUD$3,000 for the first 25,000 eligible EVs (hydrogen fuel cell vehicles and BEVs) sold, with no more than AUD$68,750 (The NSW Government, 2022). Additionally, since the government has abolished the stamp duty on buying EVs, including private cars and motorcycles (The NSW Government, 2022), which means that eligible EV buyers can save up to AUD$5,540 (The NSW Government, 2022), this may encourage more drivers to change from petrol or diesel vehicles to EVs. To facilitate EV development comprehensively, the NSW Government has invested AUD$105 million to assist private businesses, non-​ profit organizations, and local councils in converting their fleets to electric passenger, light commercial or sports utility vehicles (The NSW Government, 2022). It is believed that carbon dioxide (CO2) emissions will be greatly reduced if EVs are commonly purchased and used. The overall EV development in Australia is relatively quite mature, as there have already been over 40,000 EVs in Australia from 2011 onwards. By the end of 2021, the sales of EVs have increased from 6,900 to 20,665 units (Kelly, 2022), and EVs have increased from 0.78% to 2% in the new-​ car market in 2021 (Corby, 2022). This indicates that the market share of EVs has gradually increased in the vehicle market in Australia. Strategies for Developing EV Charging Facilities Case of Integrating EV with the MTR system in Hong Kong

MTR Corporation Limited is considered one of the leading global railway operators due to its environmental friendliness, cost efficiency, customer

Design and Implementation of Electric Vehicle Transport Systems  219 service, and safety. In 1975, MTR Corporation Limited was set up to provide a comprehensive urban metro system to fulfil Hong Kong’s public transport conditions. In December 2007, the Kowloon-​Canton Railway Corporation was merged into the MTR Corporation Limited, which generated a new era in Hong Kong railway development. MTR Corporation Limited is committed to introducing environmental, social, and governance elements into its operations and business to generate long-​term value for relevant stakeholders. The reduction of GHG emissions is one of the new business strategies to support the United Nations Sustainable Development Goals. MTR Corporation Limited creates a low-​carbon solution linking local communities. To a certain extent, MTR Corporation Limited plays a key role in transforming Hong Kong into a carbon neutralization city on or before 2050. To sustain smart city development, MTR Corporation Limited not only integrates green characteristics and energy efficiency measures in the design, construction, and operations of railway properties (e.g., building, car parks, shopping malls, residential, and commercial) but also launches a series of smart and green integration of EVs in public transport sectors (MTR Corporation Limited, 2022). MTR Corporation Limited produces the Mass Transit Railway urban rail system in Hong Kong pertaining to a feeder bus services network that operates a fleet of 169 buses. Alexander Dennis is the major bus supplier that will provide a wide range of EV models, including Enviro500, Enviro400, and Enviro200. Due to Hong Kong starting the evolution of zero-​emission bus services, MTR Corporation Limited ordered the new Enviro500 EV three-​axle zero-​emission double-​decker from Alexander Dennis. Such an EV is able to serve 130 passengers in high-​capacity composition for busy service in Hong Kong (MTR Corporation Limited, 2022). MTR Corporation Limited offers 3,548 parking spaces. However, only six EV chargers are established in the specific station and public car park (see Table 10.2; Hong Kong Government Release, 2022). To support smart and green car parking, a number of EV charges along with smart technologies such as the IoT, Wi-​Fi, artificial intelligence, and cloud computing may require enlarging the capacity in the forthcoming years. As such, it may achieve technical sustainability via real-​time traffic flow and volume detection in peak and nonpeak hours (Wong et al., 2021). Case of Integrated Charging Stations in the Built Environment of Singapore

Since the carbon dioxide emissions in Singapore reached 7.7 million tonnes in 2016 (Land Transport Authority, 2022), the government decided to reduce the peak land transport emissions by 80% by 2050 (Land Transport Authority, 2022). Recently, there have already been more than 3,000 public EV charging points in Singapore (Lim, 2022), and the government would like to make it more common in the coming few years. To facilitate EV development, the Singapore government aims to install EV charging facilities in

220  Andrew Yang Wu et al. Table 10.2  MTR Corporation Limited –​Number of parking spaces and electric vehicle charges Location

Hong Kong Station Kowloon Station Tsing Yi Station Kam Sheung Road Station Tsuen Wan West Station Ocean Park Station Hung Hom Station High-​Speed Rail Hong Kong West Kowloon Station Choi Hung Park and Ride Public Car Park

Number of electric vehicle chargers

Number of parking spaces

Quick (>20 Kw)

Medium (