Climate, Environment and the Path Forward:
An interview with Christine Loh

Professor Christine Loh is Chief Development Strategist at The Hong Kong University of Science and Technology’s Institute for the Environment. She is also a Visiting Scholar at UCLA’s Anderson School of Management. She was Under Secretary for the Environment in the HKSAR Government (2012-17) and a Member of the Hong Kong Legislative Council (1992-97 and 1998-2000). Loh has been active in public policy and politics since the 1980s. She founded and was the CEO of the non-profit think tank, Civic Exchange (2000-12), and helped to establish several non-profit organizations in Hong Kong related to the environment, equal opportunity, arts and culture, as well as human rights. Professor Loh is currently a board member of CDP Worldwide, Global Maritime Forum, New Forests Pty Ltd, and Towngas Smart Energy Company Limited. Loh is a lawyer by training, and a commodities trader by profession.

Q1. Please introduce yourself and tell us about your current interests.

I am at HKUST, which gives me a chance to work with experts in science, engineering, technology, and business. I am a member of various research teams, which is great for learning. My job at HKUST is to connect academic research with the needs of government and the commercial world through engagement. By also spending time at UCLA, I get to see what’s happening across the Pacific. Universities are great places to be stimulated by younger minds.

The boards I serve on let me see sustainability in action, as each of them are tackling how to achieve sustainability. I learn from each one of their businesses to enrich my own understanding, and of course to play the governance role of a board member.

I spend time making sense of what the sustainability transformation means in policy and business terms. There is an active speaking circuit on climate change and green finance. It’s good that people want to discuss doing tangible things, for someone like me who has been barking up this tree for decades!

Q2. It is difficult to understand climate and environmental issues by looking at a single point in time. Can you provide a brief summary of how things have changed in recent years and where we are today in terms of consensus and action?

There were several points that mattered – say three in particular. COP21 in 2015 mattered – that was the birth of the Paris Agreement. Governments agreed to a new multilateral climate change framework. The G20 at Hangzhou under China’s presidency in 2016 mattered. As a follow-up to COP21, the G20 Green Finance Synthesis Report was prepared to get the global financial system to mobilize private capital for green investment. Green finance became increasingly fashionable from that point. China pledged in September 2020 at the UN to peak carbon by 2030 and achieve carbon neutrality by 2060. That really mattered. The world’s biggest carbon emitter committed to decarbonize at speed and scale, which pressured others to make commitments, including Japan, South Korea, and India.

The 2016 G20’s Green Finance Synthesis Report was prepared by the G20 Green Finance Study Group (GFSG), which also worked with existing G20 units that were already working on financial stability, climate finance, and climate-related financial disclosure. It expedited attention on banking, the bond market, institutional investors, as well as risk analysis, and measuring progress that you could say led to the classification of green investments (taxonomy) and lit the fire for what is generally referred to as the recent ESG explosion.

Where are we now? Conducting planetary risk analysis and measuring progress is extremely challenging. Scientists continue to struggle with how to do it. The finance sector would like easy formulae but that’s not how nature works. Another huge challenge is how you then put a value on the risks. It will take many more years for us to learn how to do it better.

Q3. The growing geopolitical divide between the US and China is impacting cooperation on a number of key issues, not least of which is climate. Are you optimistic that the greater good can trump politics?

I am optimistic because that’s my nature. I need to get up every morning and get on with stuff. Pessimism doesn’t work for me. I stay focused on studying China because it has policies, plans, projects, timelines, and targets to drive development – called achieving “ecological civilization”. In 2012, the ruling party inserted ecological progress as one of its core mandates, and in 2018, the national Chinese Constitution was amended to reflect the same thing.

If China can basically stay the course to 2060, despite concerns over security as a result of the geopolitical conflict with the United States, the outcome could still be quite positive for Planet Earth. Beyond geopolitics, every economy can do a lot more using existing technologies. Governments play a vital part to set the right conditions.

Q4. China’s actions are crucial to decarbonization efforts. What are your thoughts on its plan to decarbonize and how would you compare this plan to India, which is another giant country that tends to receive less media scrutiny?

China announced its decarbonization plan in 2021 ahead of COP21, referred to as “1+N”. “1” refers to the long-term climate goal and “N” refers to the many numbers of plans to peak carbon by 2030 and beyond. Hence, it means one unchanging goal and numerous plans to come. Since its announcement in 2021, there have indeed been many plans. China is strong on mobilizing its governing structures and resources to move in one direction, and to adjust along the way when something is not working. That’s why China is so interesting to watch – how it is implementing plans, which ones are working, and which ones are not, and how the authorities adjust as it goes along.

India’s commitment is to achieve carbon neutrality in 2070. It is behind China in putting policy, plans, and projects together. Its carbon emissions are also much lower than China although it has strong urbanization and industrialization potentials in the years to come. India has to see how to expand its energy needs for development and at the same time do it in the most energy efficient and low-carbon ways.

I would like to think that there are many cooperation opportunities between China and India in climate change, both with respect to decarbonization, as well as climate adaptation since both countries face extreme weather and they will need adaptive plans for both urban and rural regions.

Q5. In the United States, we have seen ESG/climate change become hot button political issues further dividing those on the left and right. Is this unique to the US or are you seeing similar trends in other countries around the world?

The US is unique in how the country deals with political conflicts between the right and the left. Constitutionally, states have a lot of power under America’s federalism. American history is full of punch-ups between states versus the federal government in the exercise of power. It is also very much part of US political culture for the right and left to slug things out using the courts. Judicial appointment is political – a major area where the right and left battle to get their preferences on the bench to ensure favorable outcomes for their respective ideologies for years to come.

With climate change, the American political establishment on the right had disputed climate science for a long while, and it has fought cases to limit the regulatory powers of the federal environmental authorities. An example of a recent win being the Supreme Court majority decision in 2022 to limit the Environmental Protection Agency’s ability to restrict greenhouse gas emissions from power plants.

A current rallying cry among the right is over ESG. They see ESG as “anti-market” and a tool to “weaponize capital” promoted by their nemesis – those on the left. Several right leaning states have passed laws to ensure state funds are not invested using ESG principles. ESG investing is under attack at the federal level too with congressional debates about the way forward. Other jurisdictions in the world may have legitimate questions and concerns about ESG but there isn’t the conjunction of conditions, like in the US, where differences become full-scale ideological warfare.

Q6. Green finance and greenwashing accusations are both popular topics in the media these days. How can investors reconcile climate risks with financial values, and how should they look at green finance as a sector?

The direct physical climate risks arising from extreme weather – such as severe storms, heavy rains, floods, sea level rise, droughts – are based on science and the projections of possible future scenarios and timeframes. IPCC’s science reports are good examples, and they are useful for governments and private asset owners to consider the climate adaptation measures needed to be resilient. It is especially important for the insurance sector.

The world of finance is interested to know what the climate risks for regions and industries are, and what companies are doing to assess their risks and plan their business going forward. Some investors are aligning their portfolios to net-zero commitments, which means they would likely favor companies located in regions with strong climate policy commitments and industries and companies that are low emissions or are lowering emissions.

In assessing companies, investors may look at their ESG ratings from organizations such as MSCI and CDP, which collect corporate data through asking companies to self-report on a range of information. For example, MSCI says its ESG ratings are designed to measure a company’s resilience to financially material ESG risks – in other words, the rating a company gets represents one facet to financial performance – that is the “green” facet is one facet for investors to note.

You may still not invest in a top-rated ESG company because it may not be sufficiently profitable. As for greenwashing, there are three perspectives to bear in mind: first, ratings based on self-reporting could be an issue; second, measuring green performance is genuinely challenging especially with nature, like carbon removal from trees; and third, corporate claims are being challenged on technical grounds.

Q7. What are your thoughts on transition finance? What are the challenges around this and do you see any successful examples?

Major industries are high carbon, like oil companies, electricity providers, and heavy industries such as mining, steel, aluminum, cement, and chemicals. The concept of transition finance is about funding their decarbonization. The truth is we can’t expect fossil fuel-based companies to just drop what they are doing since fossil fuels still make up about 80% of global energy. It’s a long goodbye to fossil fuels whether anyone likes it or not. Even solar and wind businesses rely on mining and heavy industrial products that make solar panels and wind turbines.

There is a lot of transitioning that needs to happen all around the world and a lot of transition finance must be raised. Government policy is essential to do everything, everywhere, all at once to set new standards and pass regulations to decarbonize industries – China is an example – and policy is effective to raise the bar for the whole of an economy. The market needs policies for transformation otherwise existing incentives are not sufficiently profitable.

There was a flurry of activity over transition bonds a few years ago but that seems to have petered out due to the challenge over how to define “transition”. BTW, it’s not like fossil fuels companies and heavy industries can’t raise money – they can – it’s just not labelled “green” or “transition” capital. Currently, oil and coal companies are profitable in light of the war in Ukraine, which has thrown a spanner into the works from a climate perspective.

Q8. There is a lot of talk around no-regret, low-regret and win-win options for addressing climate and other environmental issues. Is this a good framework in your opinion?

The no-regret option is spending on saving natural resources, like in energy and water. The idea of no-or-low-regret spending is you can’t really lose by investing in using fewer resources because that saves money and reduces emissions. The problem is the market hasn’t directed money at scale towards efficiency because it’s not sufficiently profitable.

Take the example of investing in retrofitting existing buildings to improve energy efficiency. According to the World Green Building Council, buildings are currently responsible for 39% of global energy related to carbon emissions of which 28% is from energy needed for heating/cooling and operating the building, such as elevators and lights, and 11% from materials and construction. So, if you can retrofit buildings to use less energy to control temperature and operating electrical equipment, the world can save a lot of energy, thereby reducing carbon emissions.

I am a broken record on having government and financiers working together so that there could be a blend of public and private finance with the right policy incentives to raise massive capital to finance retrofitting buildings over say a 25-year period. This would help governments to achieve their climate targets, help building owners and tenants to reduce costs, and if designed correctly, it should also stimulate all kinds of innovations and technologies, as well as create new jobs. What’s not to like about it!

Q9. Fossil fuels are not disappearing anytime soon, and solar, wind and nuclear are facing an increasing variety of challenges including geopolitics, supply chain woes, domestic regulatory/approval hurdles, etc. What do you see as a realistic near/long-term path forward away from fossil fuels?

In the near term, it would be helpful to define a pathway for the future of fossil fuels because the industry is large in many economies, supporting the livelihood of millions. While Denmark can already rely on more than 50% of its electricity from wind, many countries can’t, especially large developing economies like China. For its part, China is building out renewables and nuclear at a speed and scale no one is matching but its energy needs are so large that energy security at a time of heightened geopolitics is a real concern.

China’s idea is radical – it is building the newest and most efficient coal plants together with giant renewable farms in bases like in Inner Mongolia to generate electricity transported via ultra high-voltage transmission lines to population centers in the east. The coal plants are there to deal with the intermittency of wind and solar, and as back-up power. There are many moving parts that are not always in synch, like power pricing, which create inefficiencies. Nevertheless, China is the place to watch.

Q10. What are the challenges and benefits around nature-based solutions to climate issues?

Look at it this way – Planet Earth is a system of life-supporting functions. The pumping of lots of greenhouse gases since the Industrial Revolution is causing global warming, leading to frequent extreme weather. Supporting nature keeps ecosystems resilient. For example, reforestation increases nature’s capacity to absorb carbon; and reviving mangroves makes coastal areas more resilient to tidal flooding. Nature-based solutions are ways to manage and restore ecosystems.

You could say climate change, biodiversity and land management are now being discussed in the same breath, which is positive. Nature-based solutions should be practiced alongside decarbonization.

An interesting policy is “sponge city”, prevalent in Chinese cities. It is a design concept for a city to function like a sponge in absorbing water rather than causing floods during heavy rain, and for the water to be stored and reused rather than be drained away. In Hong Kong, the government has built a giant water storage facility under the famous Happy Valley Racecourse to help manage flooding.

Q11. As someone who previously worked in government, how do you compare working within the system to now being outside?

When you are in government, if you are senior enough, you have the chance to reform and direct policy. It helps if you know what you want to do and why. You have to cope with the daily thrust of politics internally within the giant bureaucracy and in the political arena. These can be enervating, bruising, and frustrating. Outside government you no longer have the power, but it is possible to build influence – if you know what you are doing and why.

Q12. For young people keen to get involved in climate or environmental issues, what advice would you give them in terms of academic and career paths?

The environment has already become an important part of economic and financial decision-making for both governments and business. This trend will not be reversed because sustainability and climate change are serious problems to address for the long term. I would like to see schools and colleges integrate environmental and social issues into multidisciplinary ways of teaching and learning so that students already have the fundamental knowledge when they join the workforce. This is also what employers are asking for.

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