Green Horizons: Navigating Asia's Path to Sustainability and Resilience

Green Horizons: Navigating Asia's Path to Sustainability and Resilience

By SMU City Perspectives team

Published 29 April, 2024


POINT OF VIEW

A market-based mechanism needs a place to trade, a place that people can trust. In order to get that trust, we need to make sure that you can trace where the credit came from. Did it come from planting mangroves? Did it come from providing increased energy efficiency? 

- Nikki Kemp, Centre Director, Singapore Green Finance Centre


In brief

  1. Carbon markets can reach their full potential through effective infrastructure and innovative solutions that build trust through transparency, clear rules and collaboration. 
  2. Private investment is crucial for climate action, but high-risk and low returns deter investors. Blended finance can bridge the gap and incentivise private sector participation. 
  3. Nature-based solutions to biodiversity conservation should be prioritised given their multiple benefits for both climate mitigation and adaptation. 

Despite the growing urgency to bridge the gap between climate action goals and reality, much still has to be done. According to the UN Environment Programme Emissions Gap Report, emissions from 2023 put the world on a path to a temperature rise of around 2.7°C by 2100, almost twice the Paris Agreement goal of 1.5°C at the end of the century.

This was the point of discussion at The Economist Impact: Sustainability Week 2024, with the theme ‘Achieving Climate Targets, Faster.’ Among the distinguished speakers were Nikki Kemp, Centre Director of the Singapore Green Finance Centre (SGFC); Winston Chow, Professor of Urban Climate; and Hao Liang, Associate Professor of Finance who is also Co-Director of the SGFC. The Singapore Green Finance Centre (SGFC), an initiative of Imperial College and Singapore Management University. It is backed by the Monetary Authority of Singapore and leading global financial institutions, and aims to build a new ecosystem for sustainable investing in Asia through its research, educational programmes and talent development.

The three-day conference was held from 11 to 13 March in Bangkok and covered topics ranging from fostering Asia’s carbon market to protecting ecosystems and biodiversity and financing the transition. Here are four key takeaways from the conference.

(From left) Nikki Kemp, Centre Director of the SGFC, Hao Liang, SMU Associate Professor of Finance and SGFC Co-Director; and Winston Chow, Professor of Urban Climate

1. Building trust in carbon markets with better market infrastructure

Carbon markets have not achieved their full potential as instruments of decarbonisation because of the lack of trust surrounding their processes. This was a point raised by Nikki Kemp, Centre Director of Singapore Green Finance Centre, and she explained how the development of market infrastructures can build the trust needed.

 “A market-based mechanism needs a place to trade, a place that people can trust,” she said during the 'Fostering a Carbon Market in Asia' panel on 12 March, the second day of the conference. 

“Global industrialisation has caused carbon emissions to escalate since the 1950’s. By 1990 they were over 20 billion tonnes per year and they have increased to over 37 billion since then, largely as a result of industrial development in Asia. Decarbonising business models means embedding climate considerations in governance, operations and finance, and shifting to circular practices. The panel examined issues such as the lack of price certainty and transparency in carbon markets, which affect their credibility.”

“In order to get that trust, we need to make sure that you can trace where the credit came from. Did it come from planting mangroves? Did it come from providing increased energy efficiency? Is the measurement for carbon reduction scientifically backed? Who are the verifiers that we can rely on?”

Ms Kemp shared six pillars for building an effective and credible carbon market in Asia: namely trusted trading platforms, carbon price discovery, clear regulatory frameworks, innovation, private-public partnerships and collaborative initiatives. In particular, she highlighted the Climate Action Data Trust, a collaboration between the International Emissions Trading Association (IETA), World Bank and the Singapore Government which aims to aggregate and harmonise all major carbon credit registry data. Such infrastructure can revitalise carbon markets, making them active, accessible financing mechanisms built on transparency and trust.

In an interview with Thai media after the panel, Ms Kemp observed how price certainty and transparency were key to building a market. “At the end of the day, it's the companies and businesses we need to participate, no matter how big or small their budget. There's a lot of very, very small operations in this region that need to be targeted, particularly around the agricultural or nature-based end of the carbon markets.” 

She also emphasised the importance of cross-border collaboration in order to reach a common agreement on market standards that all countries can share, which will help improve the carbon market's accuracy, reliability and transparency.

2. Turning to private sector funds to close the financial gap

The Organisation for Economic Co-operation and Development (OECD) estimates that the transition to low-carbon climate-resilient infrastructure needs an annual investment of USD 6.9 trillion, but investors have only put in over USD 1 trillion in Environmental, social and governance (ESG) funds over the past two years. This concerning gap must be narrowed for a truly meaningful impact on climate mitigation, and it is here that the private sector plays a key role.

During the 'Financing the Transition' panel, Assoc Prof Hao Liang highlighted two obstacles that cause the private sector to hesitate in investing in spaces like biodiversity - the high-risk nature of some of these projects and the low returns compared to other investment products. He said, "While investors today are not sufficiently motivated or incentivised to finance the transition due to the high level of uncertainty, there are enough mechanisms that can align their incentives."

One such solution to incentivise investors and facilitate support is blended financing, which entails mixing capital from the private sector, public sector, and philanthropy foundations while ensuring that the private sector still receives a sizeable return through a well-designed financial structure. With such mechanisms in place, Assoc Prof Liang said he is “personally optimistic about what's going to happen in the next few years.”

Alongside Prof Liang were Undivided Ventures' Mr Alexander Bent, Barclays Asia Pacific's Mr Atul Jhavar and Economist Impact’s Ms Anjali Shukla. Representing the private sector, both Mr Jhavar and Mr Bent discussed the value of investing in promising early-stage companies across various sectors, and providing them with the support needed to grow. Mr Jhavar explained, "We need to make sure that we are investing enough in technologies that will accelerate their impact while also getting companies to scale. That's where capital markets come into play, and in a significant way.”

3. Prioritise nature-based solutions for biodiversity conservation

To help cool the planet, it is important to first look at what nature has been offering us from the beginning. Prof Winston Chow advocates for nature-based solutions such as parks and natural spaces that can help sequester, or reduce, carbon emissions through ecosystem resources like trees, soil and biodiversity at large.

During the panel discussion on 'Climate Risk: Protecting Ecosystems and Biodiversity' on the second day of the event, Prof Chow, who is the Co-Chair for Working Group II on Impacts, Adaptation and Vulnerability of the Intergovernmental Panel on Climate Change (IPCC)’s Seventh Assessment Report (AR7) Cycle Bureau, highlighted their findings that “utilising nature-based solutions to biodiversity conservation has multiple synergies, not just in terms of climate mitigation, but also of climate adaptation.”

He uses the example of the 16 square kilometre agricultural area of Bang Krachao, referred to as Bangkok’s Green Lung, to show how nature can be integrated into urban landscapes to reduce temperatures, improve air quality, and provide space for recreation and biodiversity. Prof Chow adds that in the long run, companies that prioritise and have actionable steps on biodiversity conservation can be better protected from the multitude of climate risks emerging in Asia.

Among the panellists were Boston Consulting Group's Mr Dave Sivaprasad, Economist Impact's Ms Anjali Shukla and Kuala Lumpur Kepong Berhad's Mr Ku Kok Peng. Prof Chow references Mr Ku Kok Peng’s company, Kuala Lumpur Kepong Berhad, as an example of how business and scientific cases for biodiversity conservation align. 

As an oil, palm and rubber plantation-based company, Mr Ku said, “What we have internalised is that ecosystems and biodiversity are not separate from businesses. All businesses will draw on the earth’s resources, in our case, land and water. So ecosystem degradation will therefore create physical and other consequential risks for operations, such as fire, flood or market risk due to price instability.”

4. Asia’s road to climate resilience: Getting all stakeholders on the same page

While all the panel discussions called for collective action in enhancing climate resilience in Asia, an underlying challenge lies in persuading stakeholders to adopt these strategies and move, in their own way, towards the same goal. 

Asia is well on its way to climate mitigation and climate adaptation, but progress varies greatly within the region. Ms Kemp pointed out that Singapore, Malaysia, Thailand and Indonesia have set up emissions trading markets in recent years, and the Philippines and Vietnam are also considering how to implement carbon pricing and trading. 

Asian countries also face varying priorities as a result of their unique economic and sectoral circumstances. Assoc Prof Liang distinguished between two types of risks countries and sectors are facing: physical risks and transition risks. Physical risks include extreme weather events and rising sea levels which especially affect agricultural sectors while transition risks include the devaluing of company assets as a result of net-zero emissions goals. He therefore explains that what is considered a transition in one country or sector may not apply across the board. Singapore’s establishment of the first Multi-Sector Transition Taxonomy is therefore an important step in providing clarity on what constitutes sustainable and transition financing within the region.


Meanwhile, Prof Chow emphasised investing in the knowledge capital of the region well over the next decade to ensure that the labour force is informed about the risks we face, how to manage them and how to mitigate them. “This requires a substantial investment in reskilling, retraining and educating people across all sectors, especially in vulnerable populations in Asia,” he shares. 

Ultimately, there is no one-size-fits-all solution to climate change, and it is here that academic and research institutions can play an important role in finding localised answers. In relation to his work with SMU and the SGFC, Prof Chow encourages people to “join us, study with us, research with us. We could give you an idea of how best to deal with this issue.”

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The Economist Impact: Sustainability Week 2024 was held from March 11 to 13, 2024, in Bangkok. The conference attracted leaders from business, government, academia and NGOs worldwide, with over 1,000 participants. It served as a platform for discussing pressing sustainability issues and exploring solutions to accelerate climate action in Asia and beyond.

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