The sustainability conversation – bringing together both climate and nature considerations – is one that is growing louder across Southeast Asia and is taking place in company boardrooms, in government and in financial institutions across the region.
But with so many challenges and opportunities it can sometimes feel like the amount of information companies and their leaders are expected to know and act upon is impossible to keep up with.
For that reason, it can be useful to take a high-level view of this shifting landscape. – stepping back from the micro level detail to look at emerging trends and opportunities across different markets, contexts and countries. At Pollination we talk about ‘seeing around corners’ – the ability to use the expertise of our global team to help clients understand what’s coming and how to position themselves.
Our team took the opportunity to do this at the Sustainability Week Asia event recently. With representation across government and corporate institutions, as well as finance and other global leaders, the scene was perfectly set for teasing out common interests, concerns and priorities across geographical and sectoral boundaries.
So here they are, the five megatrends driving action on climate and nature across the region. How well are you and your company positioned when it comes to these megatrends and what are you currently doing about it?
Do you agree with our experts?
1. The importance of driving value chain emissions reduction
If the early wave of thinking and planning around decarbonisation was mostly confined to Scope 1 and 2 emissions – those relating to the company’s direct activities or to emissions generated indirectly (such as the production of electricity it uses) – the next wave is unquestionably looking across the full value chain, including Scope 3 emissions.
We saw recognition during many of the discussions around Sustainability Week of the importance of supply chain engagement, data’s importance in addressing some of the current difficulties with capturing Scope 3 emissions accurately, and business model innovation being a key lever to reducing Scope 3.
Ritu Bhandari from Economist Impact presented research, drawn from its ‘Value Chain Navigator’, sharing insights into the adoption levers that work best to reduce value chain emissions. This work showed that customer engagement and business model innovation are the most commonly pulled levers. Business model innovation was shown to be the lever with both high and fast impact in reducing Scope 3.
We saw leading companies such as IBM, Fujitsu and Rolls Royce reflecting on the work they are doing in this area, making use of new datasets and technologies such as AI to better understand and evaluate their Scope 3 emissions. As we speed towards 2030 it is likely the need to fully quantify emissions footprints becomes an expected part of doing business. Some forward-thinking companies – including ones that we work with at Pollination — are already looking hard at how they can do this.
2. New and collaborative models are needed for finance and investment
The scope of the economic transformation needed across Asia is truly daunting and means that neither government nor the banking sector have the know-how or scale to act on their own to underpin action.
Globally, it will be necessary to raise US $4.5 trillion a year in investment if we are to limit global heating to just 1.5 degrees , according to the International Energy Agency, a figure that is almost triple the current level of investment. This figure that can only be reached if we see innovation in financing models that matches the innovation taking place in climate and nature solutions technology.
Green finance, blended finance and innovative investment solutions will be crucial in fostering sustainable growth across Asia. This necessitates new models for blending government and private finance, new ways of collaborating and new ways of understanding, rating and responding to risk in an investment context.
We saw widespread recognition of this need, including during an engaging session with Standard Chartered Global Head of Sustainability Strategy and Net Zero, Dana Barsky, who discussed how finance centres like Singapore need to innovate and adopt new financing models if they are to maximise their potential to drive innovation in climate and nature technology and solutions.
Blended finance is an area in which Pollination is active globally, as well as across the region. We are looking forward to working with governments and the financial services industry to help drive the innovation that is needed in this space.
3. Supercharging climate solutions requires both old and new capabilities
Both nascent and established technologies and players will be needed to drive the net zero transition and Southeast Asian economies are ideally suited to benefit from the technological revolution accompanying the net-zero shift.
Global investment in clean energy tech jumped 17% last year, according to Bloomberg NEF, with China the largest investor – responsible for 38% of that total. There was also strong growth in areas such as hydrogen (where investment tripled year on year), carbon capture and storage (almost doubling) and energy storage (up 76%).
The speed of change required means that smart operators are leveraging advantages and assets that they already have access to and looking to supercharge progress along those vectors.
The green hydrogen sector is a good example. We are seeing existing trade and business relationships offer a short cut to impact in this area and Southeast Asia’s proximity to ambitious players like China, Japan and Australia offers a distinct advantage. As a nation like Australia uses its abundant solar and other natural resources to pursue a goal of becoming a hydrogen superpower, companies and nations in the region who have established trade and investment relationships with it are well positioned to help enable and benefit from these ambitions, while positioning themselves for future supply of sustainable fuels and products.
Pollination is seeing this first-hand, as a partner in the developing company behind a massive green hydrogen and green ammonia production facility and export hub in Australia’s remote East Kimberley. In areas like agriculture and shipping, Asian economies can be powering ahead with innovation and technological change that maximises the potential of alternative fuels and energy sources while simultaneously working with regional partners and established relationships to ensure adequate supply of the resources that will be required for the transition.
4. Nature and biodiversity is a business problem, not just a conservation one
Increasingly, we are seeing a realisation hit corporate leaders that nature and biodiversity loss is a threat to the bottom line. These are no longer seen as just conservation issues, but increasingly as economic and business imperatives. Climate and nature are two sides of the same coin, and both are critical inputs to the health of your business. The World Economic Forum estimates that around half of all global GDP relies on ‘ecosystem services’ such as clean water, fertile soil and populations of pollinator insects. Loss of habitat and biodiversity across Asia threatens future economic prosperity for nations and is also emerging as a key risk for companies.
We saw this applied to discussions around supply chain and value chain risks for corporates but also in other areas, where it intersects with public policy and the importance of creating liveable spaces for future populations. There was a lively conversation about how to make Bangkok a more desirable and sustainable city to live in, with embracing and enhancing nature a key part of that challenge.
Such changes will be key in providing citizens with the amenity and lifestyle that will be prized in the new global economy as well as attracting the skilled workers and knowledge economy participants needed to ensure Southeast Asian economies continue to develop as the global economy races towards net zero.
Nature repair will also offer strong opportunities for Asian economies. Large portions of the rainforest and other habitats that need to be protected are based in the region. As nature markets and other financial mechanisms take shape to restore and protect such areas new revenue generating projects are becoming viable and opportunities are emerging.
5. Carbon market integrity is paramount. There is no time to waste
Nations around the region are rushing to respond to the current lack of standardisation and frameworks around international carbon markets but much of this action remains fragmented and is taking place at national rather than transnational level. We also saw a missed opportunity in regard to international cooperation in this area at last year’s COP 28 in Dubai.
It is imperative that the rules-based order that we need to guarantee certainty and transparency for investors, off takers and project developers alike emerges soon.
In our work across Asia, Pollination is often advising clients about a patchwork of different regulatory environments. Leading corporates who want to use carbon markets as a way of contributing to their decarbonisation strategy are increasingly wary of the greenwashing charge that can result from inadvertent purchase of low-quality carbon credits associated with poorly designed or executed projects.
If we are to maximise the significant potential of nature based solutions to contribute to reducing residual emissions – something that offers significant opportunities for many Southeast Asian countries – we will need to see greater clarity around Article 6 of the Paris Agreement and a resulting standardisation of carbon markets that allows for the identification of high quality and high integrity credits.
Such action will be important in shoring up confidence in these emerging markets and allowing them to grow and reach their significant potential. High quality credits will be valued at a premium and should be able to be sold as such if there is system-wide confidence in the way they are being produced, assessed and traded.
To explore how your organisation can respond to these trends get in touch with us at luke.fletcher@pollinationgroup.com
