This article first appeared in AsianInvestor.
With the imminent return of the United Nations Climate Change Conference (COP27) this year, the framework for global carbon credit trading will once again fall into focus.
In Asia, developments of this sort are still in their early stages. Take Hong Kong as an example: the financial hub’s bourse, the Hong Kong Exchanges and Clearing (HKEX), just launched a voluntary carbon credit trading platform aligned with international standards on October 28, following Singapore and China in the region.
Japan also started a carbon credit trading trial in September before full operations begin in 2023. Vietnam is also looking into building its own carbon credit market.
For Asian markets, this momentum is a great step forward for Asia’s energy transition, as China, Japan, and Hong Kong are among the top stock exchanges in the world, consisting of major Asian companies in the region.
Hong Kong in particular is a major hub for international investors to hold shares in Chinese companies. With China being one of the world's bigger dischargers of carbon, more action by Chinese companies would be one step forward for the country’s net zero transition.
But carbon credit trading also raises questions about potential greenwashing in the absence of unified standards in accounting, pricing, and compensation trading rules.
When international standards developed by Europe or other international organisations are followed by Asian markets as well, I think it is important to have enough Asian colour in the discussions and rules setting phases, to make sure there is a decent balance between energy transition and Asia’s unique economic and social development status. This is especially relevant for developing countries.
Companies and investors that still have “dirty energy” links in Asia should be given certain credit if they actively disclosure such links and participate in transitioning either themselves or their portfolio companies — since most countries in the region are still underdeveloped and are highly reliant on fossil fuels and palm oil, among other high polluters.
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We must understand that Asia as a whole, is still in its very early days in the carbon credit journey, and the first step to take is to enhance transparency and to enable more disclosure. A one-size-fits-all mentality, in either the carbon trading rules or the overall net zero transition strategy, simply will not be effective.
Moreover, Asia should not bear sole responsibility for its carbon-intensive production processes, and asset owners should not use this reality as an excuse to walk away from relevant investments — nor should they be harshly blamed if they still claim exposure as part of their impact investing agenda.
As the world’s factory, the region is still producing the lion’s share of carbon emissions. It simply wouldn’t be fair for people in Europe to wear the clothes that have been produced in Vietnam, at the cost of high emissions, and then blame the Southeast Asian country for producing them.
After all, the cleaner skies that can be found in some parts of the world are at the expense of the dirty work done on the other side of the globe. Furthermore, Asia’s colonial past can’t merely be written off or forgotten.
To that end, we certainly need stronger Asian voices in authoritative international organisations that are ultimately responsible for the setting of global standards.
