Amundi Asia Responsible Investment Views 2024

 Asia’s GREEN TECH GIANTS

Asia, led by China, is at the forefront of the global movement towards sustainable development, heavily investing in green technologies. The region accounts for approximately 70% of the $470bn global investment in clean energy technologies necessary to meet the 2030 Net Zero Emission Scenario demands.

Governments in Asia have played a key role to promote green technology through policies, subsidies, and tax incentives. China, Japan, and South Korea, in particular, have recognized the potential of solar energy and battery storage early on, directing substantial investment towards these technologies.

China has established a dominant position in the manufacturing of solar PV, wind power, and EV batteries, holding 80%, 60% and 70% of the global manufacturing capacity respectively. The country's aggressive cost reduction strategies in solar panel production with renewable portfolio standards and feed-in tariffs have significantly undercut prices globally, contributing to its dominance and raising concerns among international competitors.

Besides traditional green technologies, Asian nations are focusing on emerging sectors such as green steel, biofuels, and green hydrogen to maintain their global leadership. China's investment in sodium-ion batteries and Japan's green steel & hydrogen strategy highlight the region's commitment to diversifying its green technology portfolio.

The Asia-Pacific region, rich in biodiversity, faces significant environmental threats exacerbated by climate change and unsustainable practices. However, there is a growing recognition of the risks associated with biodiversity loss and climate change effects, prompting increased investment in nature-based solutions and initiatives such as the AIIB Adaptation Bond to enhance climate resilience and adaptation.

Aiming for a Just Transition to Net Zero in Asia

Asia and especially Southeast Asia face the dual challenge of transitioning to low-carbon economies and fostering inclusive growth, requiring innovative financing to support essential infrastructure and energy projects, and emphasizing the urgency of allocating resources towards sustainable development.

The IEA reported a growing divide in CO2 emissions evolution between developed and emerging countries. On one side, advanced economies saw a record decline in emissions in 2023, primarily due to clean energy growth, for which China contributed significantly to, through global addition of renewable energy capacities. On the other hand, local emissions of emerging economies like China and India have surged on the back of rapid economic growth and energy demand. Globally, emissions increased by 1.1% (+410 Mt CO2) in 2023. Compared to 2019, it represents additional 900Mt CO2, and would have been three times larger without the growing deployment of clean energy technologies emphasizing the global challenge of aligning economic development with environmental sustainability.

Asian countries are pursuing the development of comprehensive sustainable finance frameworks, including transition finance, sustainability roadmaps, taxonomy approaches, and carbon pricing schemes, providing clear guidelines and roadmaps for facilitating sustainable investments and assessing companies' transition credibility.

Asian companies are facing an increased need to enhance due diligence practices due to development of green taxonomies locally, as well as with the expected implementation of the CSDDD in Europe. Local initiatives are also pushed to provide clarity on sustainable investments and mitigate greenwashing risks.

Just Energy Transition Partnerships (JET-P) serve as a critical mechanism for coal-dependent economies, with financial pledges like South Africa's $8.5bn and Indonesia's $20bn indicating the scale of support for transitioning to renewable energy sources.

Asia is making notable strides in carbon pricing with China's national ETS covering 4 billion tons of CO2, accounting for over 40% of the country's emissions. Additionally, the region is responding to the EU's Carbon Border Adjustment Mechanism (CBAM) by enhancing their carbon pricing mechanisms, highlighting a unified effort towards mitigating climate change despite varying progress rates among countries.

The region's proactive stance is exemplified by various initiatives, from Hong Kong's Core Climate voluntary market to Singapore's carbon tax covering 80% of its emissions. South Korea's comprehensive ETS and Japan's plans for a full-scale national ETS by 2026 further demonstrate Asia's commitment to robust carbon pricing mechanisms as a critical tool for climate action.

With the world's largest ETS, China is advancing its market-based carbon pricing, covering 2,257 power sector companies and planning to include more sectors. The recent compliance cycle saw carbon prices exceed RMB 80/t, with expectations to rise amidst efforts to align with international carbon pricing.