At the start of 2020, climate action was unstoppable. Following the remarkable growth of the voluntary carbon markets in 2018–19, the first quarter of this year was marked by a string of big corporate climate commitments, from Microsoft's 'carbon negative' pledge to a US$10 billion commitment to fight climate change from Amazon CEO Jeff Bezos.
Propelled by Greta Thunberg's global climate strikes, companies, investors and countries were waking up and realising that sustainability makes economic sense—even in Asia Pacific, a region that has not traditionally spearheaded carbon pricing.
Then the pandemic hit.
To explore what happened next, South Pole teamed up with the legal experts at Reed Smith Singapore for a Climate Chatter webinar on carbon market, pricing and policy trends in APAC and the impact of the coronavirus on climate action in the region.
Consumers are more conscious of the climate impact of their purchasing decisions than ever. Investors know this, as well as being increasingly aware of the physical and transition risks their portfolios may be exposed to due to climate change, and their money is moving to back companies that take sustainability seriously.
Led by Hong Kong where listed companies must now display their ESG credentials, stock exchanges across APAC are including sustainability in their terms and conditions. In Singapore listed companies must integrate ESG, while ASX-listed companies in Australia are encouraged to report on material climate risks.
This is pressuring the private sector and financial institutions to manage risks and act on climate change, and the coronavirus crisis has revealed payoffs for early movers: ESG funds have continued to outperform their traditional counterparts, even during global economic downturn.
How is this driving the growth of the carbon markets? Well, businesses are setting sustainability goals such as climate neutrality, net zero and 100% renewable energy - to meet all of these ambitious targets, they need carbon credits.
Right now, steel makers can't make carbon neutral steel and oil and gas producers must use carbon removal units to offset their resulting emissions.
— John Davis, Commercial Director APAC, South Pole
While the global outbreak of COVID-19 has affected businesses in all sectors, corporate climate goals are long-term commitments enshrined in commercial strategy—businesses still need to chase them, even and especially as they work to recover from times of economic hardship.
Moreover, organisations investing in carbon offsetting to achieve climate-related goals can simultaneously fulfil parallel CSR objectives, like supporting global sustainable development.
Carbon credits can be sourced from climate action projects that support Sustainable Development Goals on top of SDG 13: Climate Action
Alongside voluntary corporate climate action, the rise of carbon pricing policy across APAC is another key carbon market driver.
The carbon pricing policy landscape in APAC (Source: South Pole 2020)
Carbon pricing systems operational in Asia Pacific include emissions trading systems (ETS) in China and South Korea, while Singapore introduced a carbon tax in 2019. Indonesia, Thailand, Vietnam and Taiwan are all also exploring setting up carbon markets.
Many large conglomerates with cross-border operations are responding to carbon pricing regulations with company-wide decarbonisation strategies. Internal company policies, like Nestlé's net zero 2050 target or Asian pharmaceutical giant Takeda's 2 degree aligned roadmap, have knock-on effects in the supply chain and incentivise emissions reductions for their subsidiaries abroad—even in countries without carbon pricing legislation.
Two additional factors affecting the carbon markets are Article 6, the carbon market mechanism of the Paris Agreement, and CORSIA, which is the market-based mechanism requiring carbon neutral growth for the aviation sector from 2021 onwards. COVID-19 has consequences for both.
Finalising the Article 6 Rulebook was top of the agenda for COP 26 this November. However, with the UN climate conference now postponed to 2021, consensus on a way for countries to trade emissions with one another and the private sector to help achieve their nationally determined contributions (NDCs) under the Paris Agreement is delayed too.
Moreover, due to the impact of the pandemic on air travel, the baseline of emissions from which the international aviation industry must achieve carbon neutral growth will be based on 2019 emissions alone, rather than an average of 2019 and 2020 as was originally stipulated. And the latest forecast by the International Air Transport Association (IATA) estimates that international aviation activity will only recover to 2019 levels by 2024, meaning that there will be little to no expected demand for offsets from airlines to achieve reductions under CORSIA until then.
Despite this, global carbon markets remain an important avenue for reducing emissions. And if anything, as Peter Zaman of Reed Smith pointed out in our Climate Chatter, the coronavirus has shown what can happen if you don't tackle a foreseeable problem—whether that's the looming potential for a global pandemic, or climate change.
A number of Asian countries have already identified economic recovery as a chance to build back better: experts in Singapore have linked a green recovery with long-term economic resilience, while Korea's incumbent government won its April election with an ambitious net zero 2050 proposal.
Rebuilding our economies and preparing for climate change are part of the same journey. That means the time to act—for governments, corporates, investors and individuals—is now, and the upwards trajectory of the carbon markets in APAC and globally are a sign of more climate action to come.
Watch South Pole's Climate Chatter on Carbon pricing & carbon credits in APAC below to learn more.
As we set our sights on building back better, carbon offsetting is a means for companies to reduce their emissions today while supporting global communities, many of whom are on the frontline of the coronavirus pandemic. The time to act is now!