Asean’s climate commitment still intact amid geopolitical, economic uncertainty

[SINGAPORE] While sustainability has taken a backseat globally in light of ongoing geopolitical and economic uncertainties, this could provide an opportunity for Asean to play a leading role in climate action, said Eugene Wong, chief executive officer of the Sustainable Finance Institute of Asia (SFIA), which is host of the Asean Taxonomy Board.

In fact, current Asean chair Malaysia’s public reaffirmation of the need to continue regional cooperation on climate shows that the commitment is still intact.

During the recent sustainability-focused Ecosperity conference organised by Temasek, the country’s Natural Resources and Environmental Sustainability Minister Nik Nazmi Nik Ahmad said that there is an urgent need to protect South-east Asia’s populations and coastal cities, given the region’s vulnerability to extreme weather events.

“We must transition while safeguarding livelihoods. We must ensure no one is left behind. We must ensure development is climate-compatible. All of these must continue to be pursued, regardless if we end up with 24 per cent or 10 per cent, or as we all live in hope, 0 per cent tariffs,” he said.

“While we remain committed to resolving the tariff issue through negotiation, both on a bilateral and regional basis, the climate cooperation agenda must continue in tandem,” he added.

Slightly more than a month ago, global markets roiled after United States President Donald Trump’s imposition of a blanket tariff rate of 10 per cent on all countries. About two weeks later, solar exporters from South-east Asia were hit again with duties as high as over 3,500 per cent on their products – an outcome of a process that started under the previous administration under Joe Biden.

Coupled with geopolitical and security concerns over the Russia-Ukraine war, as well as the recent India-Pakistan conflict, it is unavoidable that investment flows and national resources are re-allocated away from climate to address these issues.

Despite these challenges, Asean has been quite resolute on the need to continue pushing for sustainability, Wong told The Business Times.

“Asean, also in the last five years, has become quite a vocal leader in sustainable finance globally. So the question is, can we hold the line? We must, and we intend to,” he added.

Wong also said that while short-term survival is top of mind for governments and businesses, sustainability has not been forgotten, but merely reprioritised.

“The more tariffs come and cause economic hardship, the more social equality is going to be important. So definitely, the sustainability agenda is still there. It’s been reprioritised. It’s going to come back at some point,” he said.

Asean regulatory developments

As a region made up of mostly emerging markets, South-east Asia has typically faced a dearth of much-needed investments towards green and energy transition projects that could support its decarbonisation.

The focus of the region’s regulators is to develop a more enabling environment for private investments by coming up with the Asean taxonomy and the Asean transition finance guidance frameworks.

The Asean taxonomy – which is a regional classification system that defines what economic activities qualify for sustainable financing – is now in its third version, with plans for a fourth to be finalised by the end of this year.

With the endorsement of the Asean Taxonomy Board, SFIA recently developed a digital tool known as Accept, which aims to provide a side-by-side comparison of how a particular economic activity is classified under various taxonomies.

Designed to provide equivalence between taxonomies, the platform would help to reduce fragmentation by using the Asean taxonomy as a common language, while still allowing each Asean member state to address its own national needs, said Mardini Haji Eddie, who is chair of the Asean Taxonomy Board, as well as the deputy managing director for monetary operations, development and international at Brunei’s central bank.

“For investors and financiers, the challenge is that if they operate regionally or globally, they have to deal with different taxonomies and determine how they deal with each classification, under those taxonomies. But if they use the Asean taxonomy, and also through Accept, they only have to determine their preferences under the Asean taxonomy, and Accept will translate any taxonomy classification into the equivalent Asean taxonomy classification,” said Mardini, who also spoke to BT in the same interview with Wong.

When asked if the Net-Zero Banking Alliance’s recent decision to replace its 1.5 degrees Celsius climate target to “well below 2 deg C” was a vindication of Asean’s earlier decision to have some flexibility baked into its taxonomy and transition finance framework, Wong said that there was a need for Asean to be realistic given the economic development levels of some of its member states.

The region’s regulators had previously been criticised for designing the Asean taxonomy and transition finance guidance as a tiered system, in which the highest tier sets the criteria and threshold for economic activities aligned to a 1.5 deg C pathway, while the lower tiers are not on that gold standard trajectory.

But while some corporates have the ability and resources to pursue decarbonisation plans aligned with the 1.5 deg C pathway, most of the 71 million micro, small and medium-sized enterprises in the region do not, said Wong.

“We know that it’s not possible because our countries have different starting points. We are not Europe, and we will cause social and economic dislocations if we just go for 1.5 deg C,” he said.

“Transition is a balance between ambition and reality... How can we get the reality to fit with the ambition? There is this concept of paradox of ambition. If you actually push people to do something that’s too ambitious, they’ll just give up, or you won’t succeed. So you might as well be practical about it. You might as well try and have a very realistic pathway on how you can achieve what you want to do,” he added.

The tiered approach also reflects one of the foundational principles of the Paris Agreement, known as the Common but Differentiated Responsibilities and Respective Capabilities principle, said Wong.

This means that while all countries share the obligation to address climate change, their levels of responsibility and capacity to do so differ based on their historical emissions and economic development.