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Extreme weather, heat waves, droughts and floods have caused immense damage in Asia over the past couple of years. The International Monetary Fund (IMF) says that the region is seeing temperatures rising two times faster than the global average, which puts the focus on Asia climate change. Mark Carney, the UN Special Envoy on Climate and Finance says that carbon reduction in the continent is a $50 tn business opportunity.
Speaking at the ongoing Global Financial Leaders’ Investment Summit in Hong Kong, Carney said that financial institutions will play a key role in offsetting carbon emissions by polluting businesses. “As it becomes increasingly apparent who (businesses) is on track or who is converging to the track, they are going to get a valuation premium,” Carney said.
BNY Mellon Investment Management previously said that the world needs $100 tn of investment to reach net-zero goals over the next three decades.
Asia climate change policy
“Getting to net zero will require tremendous, rapid change and large-scale technology deployment across industries. The transition will create massive opportunities to build entirely new businesses,” says McKinsey and Co. In Asia, more and more countries are committing to net-zero targets and the trend of decarbonizing business operations is accelerating across the region.
As per a report by consulting company Kantar, 58% of Asian consumers are willing to invest time and money to support companies that do good and 63% are already considering sustainability concerns when making a purchase decision. Some of the key concerns for Asian consumers with respect to climate change are — water pollution, extreme weather events, air pollution, carbon and greenhouse gas emissions, deforestation, and loss of biodiversity, among others.
The Paris Agreement has set 2050 as the target to go net zero, and several Asian countries have pledged to this target. But are they close to meeting this goal considering that Asia-Pacific is responsible for more than half of the world’s greenhouse gas emissions?
China, which emits 27% of the world’s greenhouse gases, says it wants to be carbon neutral by 2060. Chinese President Xi Jinping in 2020 said that the country will peak carbon emissions in 2030, before starting reducing till 2060. To become carbon neutral, China needs to offset the emissions from its economic activity.
The country has been trying to wean itself off coal and President Xi Jinping has said that China will not build any new coal-fired power plant projects overseas. China’s coal industry is subject to CO2 emission standards, but the policy on coal is on shaky ground as China struggles to avoid blackouts. However, China is already a leader in several decarbonization efforts.
The country is the biggest producer of solar PV panels, making more than 80% of solar panels around the globe and producing 95% of the materials used in making solar panels. The country is leading in the manufacture and sale of electric cars and batteries. Chinese EV maker BYD recently sold more cars than Tesla and is now expanding its business in Europe. Another EV startup Nio is launching in Europe.
The offshore wind sector is another area of interest for China, and the turbines manufactured domestically cost less than half of the global average. Some notable companies in this sector are Xinjiang Goldwind Science & Technology Co. Ltd., Mingyang Smart Energy Group Ltd. And Envision Energy. While these companies have a strong business in the domestic Chinese market, they are yet to create an impact in the international market.
Back in 2021, China started its national carbon trading scheme to help businesses offset emissions. Currently, the carbon trading market in China covers around 40% of the country’s CO2 emissions. A report by the World Economic Forum earlier this year said that China requires about $22 tn to achieve its net zero targets.
India, the second most populous country and the among the top three polluters in the world, intends to reduce the emissions intensity of its GDP by 45% by 2030 from 2005 levels. The country has pledged net zero greenhouse gas emissions by 2070, a significantly later deadline compared to other countries. By 2030, India aims to meet 50% of its electricity needs from renewable sources. The government estimates that low-carbon technologies could create a market worth $80 bn in India by 2030.
India is now in the process of issuing its first sovereign green bonds, and the government intends to issue green bonds worth $1.93 bn between October 2022 and March 2023.
Japan is the third most polluting country in Asia and has set an ambitious target of attaining carbon neutrality by 2050. However, the country is struggling with an energy crisis as it is highly dependent on imported fuel. Japan is now restarting its nuclear power plants to shed its dependence on fossil fuels.
Japan is a major producer of green hydrogen and is planning to expand its production to meet its power needs. The country already has over 195 hydrogen refuelling stations, the most in the world. Japanese corporates are now announcing investments to build more hydrogen fuelling stations, whereas the steel industry is working on developing technology by 2030 to produce steel using electric and hydrogen furnaces.
Elsewhere in Asia, Australia has passed landmark legislation to reduce greenhouse gas emissions by 43% by 2030 from 2005 levels. The bill is among the first of its kind, enshrining climate change policy in the legislation.
Australia is among the world’s largest exporters of coal, natural gas, iron ore and uranium. Several energy companies in the country are shutting down coal-fired power plants, but the government has been reluctant of cuts as the country already has one of the most expensive electricity rates.
A key plan to combat climate change is the Emissions Reduction Fund, which has earmarked about $4.5bn to help businesses and farmers reduce emissions.
Meanwhile, Malaysia has an ambitious plan to cut carbon intensity against GDP by 45% by 2030 over 2005 levels, Singapore has imposed a carbon tax on businesses, while Indonesia has announced a coal levy to reduce greenhouse gas emissions by 29%-41% in 2030 and reach net zero by 2060.
Carbon reduction business opportunities in Asia
McKinsey says that across the Asia Pacific, over 15 countries and 670 companies have set emission reduction targets. “The addressable market size for green businesses in Asia is expected to reach between $4 trillion and $5 trillion by 2030,” said the consultancy firm.
McKinsey has identified different sectors where there is a market for carbon reduction businesses, namely — transport, power, buildings, water, hydrogen, consumer, agriculture and land, oil, waste, industrials and carbon management.
Invesco says that global ESG AUM is forecasted to triple between 2020 and 2025 to $6.5 bn, of which Asia will take the lion’s share. “As ESG reporting matures across Asia, corporations are likely to increasingly integrate sustainability related issues into strategy and financial planning. Investors should keep an eye out for developments in the fast-transitioning Asian ESG scene,” says Invesco.
