As COP26 has now finished, what does it mean for those businesses in Asia? We look at some of the key announcements made during the course of the negotiations by governments and within key sectors in Asia.
For a more detailed analysis on the final outcomes of COP26 see here.
Asia in the spotlight
To recap on some of the big announcements from Asia governments during COP26:
- India committed to achieving net zero emissions by 2070. This is a big move from India given it is the first time India has set a target, despite the later timeline.
- Vietnam also announced a target of net zero by 2050 – again, a first for Vietnam.
- The surprise US-China joint declaration setting out the various climate actions the two countries plan to cooperate on. Although the joint declaration is light on concrete actions, it does emphasise that both countries have committed to take “enhanced climate action” and that that climate action needs to happen this decade – how this plays out will be a very important dynamic over the next year (see here).
- Asia signatories to the Global Methane Pledge (an initiative to cut methane emission levels by 30% by 2030) included Indonesia, Japan, South Korea, Malaysia, Indonesia, Singapore and Vietnam. Although China was not a signatory, the US-China joint declaration includes commitments from China to develop an ambitious national action plan on methane emissions.
- Around 140 countries signed a pledge to halt and reverse forest loss and land degradation by 2030. More than half of the Association of Southeast Asian Nations (ASEAN) were signatories – participation from the region is particularly important since Southeast Asia is home to nearly 15% of the world’s tropical forests and has one of the fastest rates of deforestation.
However, the failure by countries to have delivered on the promise of US$100 billion per year to help developing countries adapt to the worst effects of climate change by 2020 was disappointing. So, for the region’s developing countries, the final agreement that the US$100 billion per year will now be mobilised “urgently” through to 2025, fell woefully short of the US$1 trillion a year estimated as needed by International Energy Agency (IEA) if the world is to reach net zero emissions by 2050 (see here).
What does COP26 mean for different sectors?
Energy & power sector
The “energy transition” is fundamentally changing the power and energy sector globally and we have seen Asia as a growth market for renewables and new and emerging technologies, such as green hydrogen, smart cities and utility-scale batteries.
Under the Glasgow Climate Pact, the 197 countries represented at COP26 agreed new rules on limiting greenhouse gas emissions, including a "phase-down" of coal power (a last minute change from "phase out") and a phase-out of "inefficient" fossil fuel subsidies but with no timeline. This marks the first time that coal or fossil fuels have been directly referenced in a COP agreement (see COP26 press release).
Vietnam was among those counties that pledged to phase out coal power and Singapore was the first country in Asia to join the Powering Past Coal Alliance, an international coalition of countries, cities, regions and businesses that promotes the transition from coal to clean energy.
Although China did not sign the coal pledge, it reiterated in the US-China joint declaration its commitment to phase down coal consumption during the 15th Five Year Plan (which covers the period 2026 to 2030), and further committed to use its best efforts to accelerate this. Ahead of COP, President Xi Jinping announced at the United Nations General Assembly that China would not build new coal-fired power projects abroad (see here). In the run up to COP, we also saw China publishing is roadmap, or “1+N” Guidance Document and Action Plan, setting out how China would achieve hitting peak carbon emissions by 2030 and achieving carbon neutrality by 2060 (see here).
Given the pledges and statements made at this COP, we may well see Asia governments becoming more interventionist on fossil fuels (particularly coal) and methane.
2021 has seen an increasingly complex regulatory environment for businesses operating in Asia. Each jurisdiction has developed its own codes and guidelines as to what climate disclosures are required of, for example, asset managers, and the degree to which these apply varies. What has been a positive development during COP26 is the new International Sustainability Standards Board (ISSB) established by the IFRS which will develop a “comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs” (see here).
We also saw the Glasgow Finance Alliance for Net Zero (GFANZ) – which is a coalition of hundreds of financiers and funds with over US$130 trillion in assets under management – announce that they are willing to mobilise their significant financial firepower towards the net zero transition (see here). This commitment by banks, asset managers, and asset owners (including those based in Asia) is a significant sign that financial services firms will likely look to tighten lending standards and decarbonise their portfolios.
In the transport sector, a group of over 30 countries, including Cambodia and India, and some (but not all) major car manufacturers committed to phasing out fossil fuel vehicles by 2040 (see here). Automotive manufacturer signatories from Asia included BYD Auto and Gayam Motor Works. However, some of the world's top carmakers, as well as major car markets China, the US, France and Germany, did not sign up.
Japan was among 19 countries that agreed to create zero emissions shipping trade lanes between ports to accelerate decarbonisation of the global shipping industry (see here).
Japan and South Korea were also part of the International Aviation Climate Ambition Coalition committed to reduce aviation CO2 emissions (see here).
Consumer & retail
The Fashion Industry Charter for Climate Action, made up of over 100 companies (including Asia based companies Hop Lun Ltd., Hansoll Textile Ltd., and Chenfeng Group Co., Ltd.), committed to raising their environmental targets with the aim of halving emissions by 2030, up from a previous target of 30%.
Final word on carbon markets
COP26 saw an agreement on the “Paris rule book” enabling inter-state carbon allowance trading and regulation of the carbon voluntary market. The development of carbon markets in Asia will be one to watch in 2022 as this year saw China launching its first national carbon emission trading scheme (see here) and DBS Bank, Singapore Exchange (SGX), Standard Chartered Bank and Temasek announced the establishment of a joint venture, Climate Impact X (CIX), to develop a global carbon exchange that will be headquartered in Singapore (see here).
The road ahead …
As we reflect on the outcome of COP26, we should look to the year ahead. Asia is likely to see a continuing market appetite for ESG financial products, a ratcheting demand for consistent, comparable ESG data, growing concerns around issues like “greenwashing” and narrower finance options for “no go” areas like coal.
The key question as we look forward is whether countries will actually deliver on their pledges and NDC commitments in the decade ahead, however the pressure on companies and the financial sector to make progress on the climate agenda is not going let up anytime soon.
For our full coverage of COP26, including what it means for business in the US, UK, EU and Germany, see our COP26 microsite.