As sustainability takes center stage globally, businesses, governments, and investors are increasingly prioritizing ESG principles. From the EU’s ambitious regulatory frameworks to Asia-Pacific’s innovative sustainable finance initiatives, this content explores the transformative journey towards a more sustainable future. In this article, we dive into the innovative strategies shaping the future of sustainability in the EU & Asia-Pacific region and unveil where the green movements originate and proliferate across the globe.
Eco-Conscious Real Estate: EU's Pursuit of Net-Zero
The real estate sector in the EU is under mounting pressure to align with net-zero objectives, a focal point highlighted in the latest report. Crucial trends such as the Corporate Sustainability Reporting Directive (CSRD), EU Taxonomy Regulation, and European Stability Reporting Standards (ESRS) emphasize the significance of transparency and sustainability within the industry. Companies are urged to divulge environmental, social, and governance (ESG) data, adhere to specific environmental classifications, and comply with comprehensive reporting standards.
At the forefront of the global fight against climate change, the real estate industry is pivotal. With the world’s aim to achieve net-zero emissions, the sector is increasingly prioritizing sustainability and implementing strategies to diminish its carbon footprint. This document delves into the emerging trends and methodologies within the real estate domain propelling this transition, alongside the alterations stemming from an enhanced comprehension of climate-related risks in the financial sector (banks, asset managers, financial intermediaries, and asset owners). (REAL ESTATE The road to net zero, 2024)
SBTi axes net zero commitments of 200+ companies
Over 200 companies, including industry leaders like Diageo and Unilever, had their net-zero commitments removed by the Science-Based Targets initiative (SBTi). These firms, part of the BA1.5°C campaign, faced challenges in setting full net-zero targets, with concerns ranging from Scope 3 emissions to litigation risks. SBTi aims to address these issues through sector-specific standards and regional differentiation, informing a review of its corporate net-zero standard next year. (Real Economy Progress, 2024)
Adapting Green Taxonomy: How Asia-Pacific Is Shaping Sustainable Finance
In the realm of sustainable finance, Asia-Pacific countries are embracing the principles of the EU’s green taxonomy, as underscored by a recent report from Sustainable Fitch. While the EU’s framework provides essential guidance, Asia-Pacific nations are tailoring their strategies through region-specific transition plans. Although the emergence of these regional taxonomies may pose initial challenges for investors, many are voluntary, with uncertain mandatory adoption timelines.
Transition finance has become a focal point in Asia-Pacific in 2023, driven by the region’s reliance on carbon-intensive sectors. Countries are actively developing frameworks to facilitate sustainable transitions, with a keen emphasis on defining ‘transition’ activities and pathways.
For example, the ASEAN taxonomy, recently updated in March, closely aligns with the EU Taxonomy but incorporates an additional criterion highlighting the avoidance of social harm. This reflects the growing recognition of social aspects in sustainable finance initiatives. (ASEAN Taxonomy Board, 2024)
Moreover, taxonomies vary widely in the scope of business activities they encompass. Bangladesh’s taxonomy, for instance, spans 52 activities across eight categories eligible for green financing, while China’s taxonomy covers a comprehensive list of over 200 activities. Furthermore, differences exist in the classification systems adopted by these green taxonomies.
National taxonomies, such as Bank Negara Malaysia’s Climate Change and Principle-based Taxonomy and Indonesia’s Green Taxonomy Edition 1.0, reflect diverse priorities and pathways while meeting international investor expectations. These taxonomies employ principles-based approaches and consider factors like economic development and climate risk management. (Eco-Business, 2023)
Singapore, renowned for its financial prowess, has introduced its own taxonomy developed by the Green Finance Industry Taskforce. Utilizing a “traffic lights” classification system, Singapore’s Taxonomy focuses on sectors like Energy, Transport, and Buildings for climate change mitigation. Its robust governance further bolsters the credibility of this taxonomy, positioning it as a leading standard in Southeast Asia. (Sustainable Finance Institute Asia, 2024)
Similarly, Thailand is in the process of developing its sustainable finance taxonomy, drawing inspiration from the EU Taxonomy and adopting a traffic light system. This taxonomy aims to classify activities based on environmental objectives and is part of the Sustainable Finance Initiatives led by the Working Group on Sustainable Finance. (Sustainable Finance Institute Asia, 2024)
In essence, these taxonomies provide essential frameworks for identifying green economic activities, promoting sustainable investments, and managing environmental risks. They play a crucial role in advancing the region’s sustainable finance and climate action endeavors.
Japan Leads the Way with Climate Transition Bond for Sale
Japan plans to issue ¥20 trillion ($135 billion) of climate transition bonds over the next decade to support its green transformation program and catalyze private investment in low-carbon technologies like green hydrogen. The debut sale of ¥1.6 trillion of such bonds is scheduled to start in the second week of February 2024, making them the world’s first sovereign climate transition bonds. These bonds will be backed by emissions trading system (ETS) revenues, with over 670 companies participating in Japan’s national ETS, accounting for 40% of the country’s total emissions. (財務省 | Japan Ministry of Finance, 2024)
The revenue generated from the auction of emission allowances for power generators, starting in 2033, will be used to repay the transition bonds. Additionally, a levy on fossil fuel imports, to be implemented from 2028, will contribute to paying off the debt. Japan’s innovative approach is expected to inspire other countries in Asia and globally with emerging emissions trading systems. (Nikkei Asia, 2024)
Japan’s climate transition bond framework outlines a clear plan to allocate proceeds from the issue, focusing on subsidies, equity investments, and debt guarantees for projects aligned with emission reduction targets. Projects prioritized for funding will contribute to both emission reductions and economic growth, with regular reporting ensuring transparency.
China's ESG Initiative: Mandatory Reporting Requirements
China’s top three stock exchanges, namely the Shanghai Stock Exchange, Shenzhen Stock Exchange, and Beijing Stock Exchange (BSE), have introduced stringent sustainability reporting guidelines. These mandates compel numerous large and dual-listed companies to divulge details regarding environmental, social, and governance (ESG) issues, commencing in 2026. (SSE, 2024) (Shenzhen Stock Exchange, 2024)
This initiative brings China in line with global counterparts like the EU’s CSRD and the US’s SEC climate disclosure regulations, enhancing corporate transparency and environmental accountability. The comprehensive disclosure guidelines encompass a wide array of ESG subjects, including climate change, biodiversity, circular economy, energy consumption, and social responsibility, such as anti-corruption measures.
This move is expected to catalyze Chinese firms to prioritize and openly report their sustainability endeavors, fostering greater corporate transparency and environmental stewardship. It’s a significant stride towards harmonizing China with ESG disclosure norms observed in countries like the UK, Australia, and Singapore. (The Business Times Singapore, 2024) (FinTech Global, 2024)
Additionally, addressing unique ESG challenges in Asia and other regions requires localized strategies and concerted efforts at governmental and corporate levels, particularly in the realms of transition, decarbonization, and financing. As global guidance remains insufficient, governments worldwide are actively developing relevant frameworks and solutions to address these pressing issues.
Vietnam's Path to Sustainability: 2024 is The Year of Collaborative Efforts
Vietnam’s Prime Minister Phạm Minh Chính has introduced the Resource Mobilization Plan (RMP) post-COP28, signifying advancement in the Just Energy Transition Partnership (JETP). With a 2050 net-zero objective, Vietnam is transitioning towards wind, gas, and solar energy, reducing reliance on coal per its eighth National Power Development Plan (PDP8). (EIAS, 2024)
The EU, notably through the EVFTA, backs Vietnam’s clean energy aspirations. Challenges like complying with CBAM and CSDDD persist, necessitating Vietnamese businesses to adhere to rigorous EU standards.
Denmark pledges strong support for Vietnam’s green transition through the newly established Green Strategic Partnership (GSP). Despite global economic challenges, Vietnam maintained robust growth in 2023. To sustain this momentum, Vietnam must enhance its business environment and prioritize green energy development. The GSP signifies a milestone in bilateral relations, fostering high-level dialogues and technical cooperation. Denmark stands committed to assisting Vietnam in achieving its goal of net zero emissions by 2050, offering expertise and investment in renewable energy projects (SGGP News, 2024)
Beyond the EU, Vietnam’s relations with other nations also contribute significantly to the journey towards collaboration to achieve net zero. For instance, under the proposed Australia-Vietnam Partnership for Economic Growth, Australia plans to invest A$75 million in Vietnam between 2024 and 2029, with the potential for a further five-year extension. (Vietnam Briefing News, 2024)
Singapore and Vietnam are also citing significant achievements in the 50-year diplomatic relations and 10-year strategic partnership. Singapore remains Vietnam’s largest investor, with investments totaling over 74.51 billion USD, contributing to economic growth and job creation. As the two countries move towards a Comprehensive Strategic Partnership, both nations are committed to further strengthening bilateral ties for mutual prosperity and success in 2024 and beyond with the aim to deepen cooperation in innovation, energy connectivity, and sustainability, with notable progress in areas like renewable energy and carbon credits projects. (VietnamPlus, 2024)
In conclusion
The surge in sustainability and ESG initiatives globally signifies a collective commitment to environmental and social responsibility. Looking forward to 2024, significant growth and impact are anticipated in sustainability and ESG endeavors. With a focus on regulatory frameworks, corporate transparency, climate action, and innovation in sustainable finance, countries worldwide are advancing towards a more sustainable future. As stakeholders prioritize ESG factors and collaboration, the upcoming year holds promise for accelerating progress. With concerted efforts, the journey towards a more sustainable and inclusive future is well underway, driving positive change on both local and global scales.
References
Shenzhen Stock Exchange (2024). [online] Shenzhen Stock Exchange. Available at: https://www.szse.cn/index/index.html.
ASEAN Taxonomy Board. (2024). You are being redirected… [online] Available at: https://asean.org/book/asean-taxonomy-for-sustainable-finance/.
財務省. (2024). Japanese Ministry of Finance . [online] Available at: https://www.mof.go.jp/.
Eco-Business (2023a). Asean Taxonomy Version 2: An overview of the coal phase-out framework. [online] Eco-Business. Available at: https://www.eco-business.com/news/asean-taxonomy-version-2-an-overview-of-the-coal-phase-out-framework/.
EIAS. (2024). Navigating the Green Transition: The EU and Vietnam’s Partnership for a Decarbonised Future. [online] Available at: https://eias.org/publications/navigating-the-green-transition-the-eu-and-vietnams-partnership-for-a-decarbonised-future/ [Accessed 2 Mar. 2024].
FinTech Global. (2024). Major Chinese Stock Exchanges reveal new mandatory sustainability reporting requirements for firms. [online] Available at: https://fintech.global/2024/02/12/major-chinese-stock-exchanges-reveal-new-mandatory-sustainability-reporting-requirements-for-firms/ [Accessed 2 Mar. 2024].
Nikkei Asia. (2024). Japan is breaking new ground with its climate transition bonds. [online] Available at: https://asia.nikkei.com/Opinion/Japan-is-breaking-new-ground-with-its-climate-transition-bonds.
SGGP News. (2024). Denmark ready to support Vietnam in green transition: Danish Ambassador. [online] Available at: https://en.sggp.org.vn/denmark-ready-to-support-vietnam-in-green-transition-danish-ambassador-post107697.html [Accessed 2 Mar. 2024].
SSE (2024). Shanghai Stock Exchange. [online] Sse.com.cn. Available at: http://english.sse.com.cn/.
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Real Economy Progress. (2024). SBTi axes net zero commitments of 200+ companies. [online] Available at: https://real-economy-progress.com/climate/sbti-axes-net-zero-commitments-of-200-companies/.
REAL ESTATE The road to net zero. (2024). [online] ISFC. Available at: https://static1.squarespace.com/static/5f7709cd633d6220bbee2709/t/65e84f6478949d065657fd46/1709723502819/Real_Estate_Report_March2024.pdf
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