“China’s export dominance is ebbing, creating opportunities for other emerging market countries to fill the gap, including Mexico, India, and Southeast Asian nations,” said Malcolm Dorson, a New York-based senior portfolio manager at ETF manager Global X. The scale of change needed in global supply chains could drive such capitalContinue Reading
However, such voluntary clubs are often open to the free-riding problem mentioned above, making them less effective as climate governance mechanisms.
It is unclear under which category of climate club the G7 initiative will fall into. The media release promotes this climate club as one that is “open, cooperative and inclusive” which will seek the participation of all major emitters, including developing countries.
Yet this does not explain how the G7’s initiative will mitigate the tricky free-rider challenge. One study by the Center for Climate and Energy Solutions (formerly the Pew Center on Global Climate Change), suggests that if the G7 climate club is too exclusive then it will alienate developing countries. On the other hand, if membership requirements are too lax, there will be no progress in global mitigation.
It is likely that as the G7 climate club takes shape, more defined membership requirements around environmental performance may develop. If one of the membership benefits is the provision of access to G7 markets, this may have important economic consequences for ASEAN.
Members of the G7 are some of the largest export markets for Indonesia, Thailand, Vietnam and other regional countries. The risk of losing access to export markets may encourage environmental action at the national level but it can also result in trade disputes such as the recent palm oil conflict between the EU versus Malaysia and Indonesia.
Overly stringent membership criteria may inadvertently drive ASEAN governments closer to less-regulated markets such as China, Russia and India, which are unlikely to demand that their trade partners follow similarly rigorous environmental standards.
James Villafuerte remembers a few months ago when onions became a luxury in the Philippines.
Rising inflation, the reopened economy and heavy storms combined to spike in demand and short-circuited supply, sending the price of the pungent vegetable soaring to a 14-year high of $12.8 (700 PHP) per kilogram.
“[It got] to the extent that flight attendants were caught smuggling onions from other countries to bring into the Philippines because of the high price,” said the regional lead economist at the Asian Development Bank (ADB).
Such anecdotes have become symbols of a global economy wracked with uncertainty, as the continuing war in Ukraine and increasingly urgent climate crisis fuel concerns over inflation and rising living costs. But a new report from ADB released this month and regional analysts are giving reasons for Southeast Asian optimism in the face of wider global challenges such as flagging growth numbers and rising inflation.
Released Wednesday, the Asian Development Outlook reported a “marginal” downgrade for Southeast Asia’s growth prospects – from 4.7% to 4.6% for 2023 and from 5.0% to 4.9% in 2024 – reflecting weaker global demand for manufactured exports. The latest edition of ADB’s flagship publication focuses on analyses and insights for individual and regional economies across Asia.
Despite the foreboding outlook, experts still believe the region’s interconnectivity, resilient internal markets and the return of international travel will bolster Southeast Asia’s economies against the wider global challenges. Villafuerte noted that while growth projections have slowed, they still exceed those in other subregions and the global average.
“This is a region of 600 plus million people,” said Villafuerte. “Domestic demand remains intact and ‘revenge travel’ has really seen a huge leap in tourism, arrival and tourism related activities.”
Villafuerte acknowledged that global headwinds from elevated prices had contributed to global inflation. On Tuesday, the Philippines central bank announced that policymakers were prepared to tighten monetary policy in view of continually rising inflation.
His remarks came shortly after Kristalina Georgieva, managing director of the International Monetary Fund (IMF), the UN’s major financial agency, voiced similar concerns at last week’s G20 summit. The IMF’s own growth downgrades were predicted at 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024.
Georgieva cautioned that economic activity is slowing, “especially in the manufacturing sector”, and called for a stronger “global financial safety net” to help support less-developed countries. But for now anyway, she said the broader economic system is withstanding the pressure.
“The global economy has shown some resilience,” Georgieva stated. “Despite successive shocks in recent years and the rapid rise in interest rates, global growth – although anaemic by historical standards – remains firmly in positive territory, supported by strong labour markets and robust demand for services.”
A history of interconnected trade
While international trade networks remain important, countries are also looking inwards to their own domestic economies.
According to the ADB report, while global demand for manufactured goods slowed, domestic demand amongst Southeast Asian countries remained intact. Indonesia’s GDP expanded by 5.03% in the first quarter of this year, and economic growth remained steady, despite a slowing in exports.
Strong national economies can help build on a history of intra-regional connectivity, according to Amanda Murphy, head of commercial banking at HSBC.
“Southeast Asia has long been a bastion of free trade and sits at the crossroads of two of the world’s largest free trade agreements: the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),” she told the Globe.
These agreements, formed in 2018 and 2020 respectively, have strengthened bilateral relations within the Asia Pacific area, creating a network of trade avenues with the advantage of geographical proximity. There are signs this is already paying some dividends.
According to a recent HSBC survey, Murphy explained, over the next two years, Asia-Pacific corporations will place 24.4% of their supply chains in Southeast Asia, up from 21.4% in 2020.
“In particular, RCEP, with its tariff reductions and business-friendly rules of origin, is increasing the appeal of Southeast Asia as a manufacturing base, something more corporates are recognising,” she said.
China
Within the Asia-Pacific region, Southeast Asian countries are planning their next steps with one eye on Beijing. Concerns over China’s slowing economy have caused ripples throughout international markets.
“Weaker growth in the People’s Republic of China has actually weakened the demand for manufactured goods in the region,” said Villafuerte. However some Southeast Asian countries are benefiting from a “China+1” strategy, where global manufacturers look to move production out of China to diversify supply chains and mitigate their risk.
“As businesses seek geographic diversification and adopt the ‘China+1’ strategy, Southeast Asia will continue to gain market share,” said Murphy. “Southeast Asia currently accounts for about 8% of global exports – there is every reason the share can increase.”
China’s exports in June fell to their lowest levels in three years, with a worse-than-expected 12.4% slump from the year before. On the other side of the world, the U.S. also saw a 2.7% export drop at the beginning of the year.
But for Southeast Asia, as trade between superpowers slows, there may be an opportunity to enter new markets and build new relations. As the U.S. and the E.U. have faded as top destinations for Chinese export markets, the East Asian giant has diverged towards other destinations, including Southeast Asia. Chinese exports to ASEAN – the country’s largest trading partner by region – spiked by 20% in October.
For ASEAN’s own export markets, building on critical sectors such as garment manufacturing will help strengthen the bloc’s overall economic outlook despite the global slow-down.
“Excepting [Myanmar], governments in the region are strongly committed to growth, which is fundamental. And this is export-led growth which is even better,” said Gregg Huff, professor of economic development and economic history in Southeast Asia at Oxford University. “Productivity increase is what enables real wages to increase. And if these increase it contributes to political stability.”
Domestic markets
Private consumption was the main driver for economic growth, due to improved labour conditions and income across the region. Some demographics saw an increase in disposable income, according to Singapore’s DBS Bank.
But Elizabeth Huijin Pang, a DBS equity research analyst, was quick to stress at a press briefing that some sectors felt the hit of rising inflation and prices more than others.
“There are still vulnerable groups who have seen the opposite [to our median customers],” she said. “Boomers saw expenses grow faster than income.”
Gig workers were another demographic spotlighted by the bank. DBS data revealed these informal workers to be Singapore’s most financially vulnerable group, with an expense-to-income ratio of 112%, almost double that of a DBS median customer.
“[Gig workers should not be] lagging behind the rest of the population in terms of their longer-term needs,” said Koh Poh Koon, Singapore’s senior minister of state for manpower, at a press conference last week. The remarks come shortly after the government’s agreement to accept recommendations from a workgroup for better representation for gig workers’ needs.
New sectors and opportunities
As well as focusing on vulnerable communities, shifts into new sectors are also a key part of Southeast Asia’s economic recovery. The region is one of the most vulnerable to climate change, and despite a recent decrease in green investments, a shift towards more sustainable business structures will likely be a key part of the region’s growth in its next economic era.
ADB has recently pledged $1 billion (54.4 billion PHP) towards the implementation of electric buses in Davao City, the Philippines’ largest road-based public transportation project.
“I think transforming our growth model into a more environmentally sensitive and green model of growth is important,” said Villafuerte. “When we analyse actually some of these green industries, we realise they also generate a substantial amount of jobs. … These will again be investment opportunities and also opportunities for employment.”
For Murphy, the rise of the regional digital economy is another key focus area for growth.
“Given that more than 75% of its population is online it’s not surprising that businesses are transforming their business models to cater to changing customer behaviour,” she said.
The rise of real-time payments and recent initiatives to facilitate cross-border transactions, such as QR code payment agreements between Singapore, Malaysia, Thailand, Indonesia and the Philippines, are helping to boost the region’s economic connectivity.
“When intra-Southeast Asia real-time payments become a reality, we can expect a jump in the velocity of transactions, whether they are business-to-business or business-to-consumer, which in turn will lead to greater economic activity in the region,” said Murphy.
Transitioning through growing pains
As global crises continue, it is up to Southeast Asia’s private and public sectors to proactively plan their own paths forward.
“Three long-term trends that businesses cannot overlook if they want to capture the opportunities in Southeast Asia are what I would call the 3Ts: trade, transition to net zero, and digital transformation,” said Murphy.
Looking ahead to the future, Southeast Asian nations will have to take a proactive approach to adapt to these growing sectors. Moves are already being made at government level. Both Singapore and the Philippines both recently announced their first sovereign ESG (environmental, social and governance) bond and in April, Singaporean finance minister and Deputy Prime Minister Lawrence Wong revealed the Monetary Authority of Singapore’s finance plan for Net-Zero.
For Vilafuerte, looking forward involves looking back. Governments and market response to the Philippines’ onion inflation earlier this year was almost immediate and prices and supply regulated.
“These are temporary shocks and there are natural stabilisers,” he said. “Higher prices and inflation are a sign of a strong recovery. So I think this is just an adjustment period.”
For weeks now, global markets have ricocheted between excitement over a Chinese stimulus boom and disappointment that Beijing was taking its sweet time to jolt a slowing economy.
It’s now clear that Xi Jinping’s team has settled on a strategy somewhere in between. And for the global economy, the signals from this week’s meeting of the Politburo, the Communist Party’s top decision-making body, seem short-term negative for world markets – but long-term positive.
As Bill Bishop, long-time China-watcher and author of the Sinocism newsletter, sees it, the policy direction being telegraphed seems “fairly dovish,” but “doesn’t seem to signal much more significant stimulus incoming near-term.”
That’s bad news for bulls betting on a new Chinese stimulus bonanza that lifts markets from New York to Tokyo. Under the surface, though, there are myriad hints that the arrival of Premier Li Qiang in March is putting reforms on the front-burner once again. In other words, Beijing cares more about avoiding boom/bust cycles going forward than just mindlessly fueling a 2023 boom.
As “no fiscal expansion plans have been revealed so far, the impact will only be felt very progressively,” says economist Carlos Casanova at Union Bancaire Privée.
Economist Wei He at Gavekal Dragonomics added that “the Politburo’s meeting on the economy shows that officials recognize weak demand is an issue. But the meeting mainly called for ‘precise’ policy adjustments.” As such, it “remains far from certain whether those can deliver a near-term turnaround in growth. The conservative stance points to, at best, a stabilization or weak recovery” in the second half.
Instead of aggressive plans for massive monetary easing and fiscal pump priming — as markets had assumed — the chatter is about prudent policymaking with an emphasis on lower taxes and fees and incentivizing increased investment.
Rather than sharp drops in the yuan to boost exports, Li’s reform squad is focused on catalyzing greater scientific and technological innovation and giving the private sector more space to thrive and create new good-paying jobs.
In lieu of scores of top-down decrees or public jobs-creation schemes, the zeitgeist is that developing a thriving micro, small and medium-sized enterprises (MSME) sector is a more forceful way to address record youth unemployment than large-scale stimulus.
What Xi and Li are telegraphing might be best called the “anti-Mario Draghi” approach to enlivening Asia’s biggest economy.
The reference here is to the former European Central Bank president’s infamous pledge “to do whatever it takes” to stabilize the financial system via powerful monetary easing.
A year later, Draghi’s liquidity onslaught inspired then Bank of Japan Governor Haruhiko Kuroda to follow suit.
On Draghi’s watch, the ECB unleashed stimulus on a level that would’ve been unfathomable to Bundesbank officials of old. In Tokyo, between 2013 and 2018, the Kuroda BOJ’s balance sheet swelled to the point where it topped the size of Japan’s $5 trillion economy.
Neither monetary boom did much, if anything, to make the broader European or Japanese economies more competitive, productive or, broadly speaking, more prosperous. Instead, executive monetary support generated a bubble in complacency.
Draghinomics — and Kurodanomics — took the onus off government officials from Madrid to Seoul to loosen labor markets, reduce bureaucracy, incentivize innovation, tighten corporate governance or invest big in strengthening human capital.
China, it seems, is determined to go the other way. In the months since Xi started his third term — and Li arrived on the scene as his number two — Beijing has confounded the conventional wisdom on Chinese stimulus.
The start of this week’s Politburo is no exception. Markets were betting on major stimulus moves. Instead, China unveiled a 17-point plan to attract more private capital its way.
In a note to clients, analysts at Capital Economics said that “the absence of any major announcements of policy specifics does suggest a lack of urgency or that policymakers are struggling to come up with suitable measures to shore up growth.”
One possible interpretation was that Xi’s inner circle wants to put some actions on the scoreboard before next month’s annual huddle in the resort of Beidaihe to discuss long-term policy direction. Yet the tenor of steps seems more about supply-side reforms than fiscal and monetary pump-priming that might squander progress in reducing financial leverage.
Instead of talking about reaching this year’s 5% growth target, the government said the priority now is that “good foundation is laid for achieving the annual economic and social development targets.” Officials admitted, too, that “economic recovery will show a wavy pattern and there will be bumps during progress.”
In other words, the instant gross domestic product gratification that investors came to expect in Xi’s first two terms has been replaced with a more pragmatic approach. While there will be “prudent monetary policy” and at times an “active fiscal policy,” the bigger objective is to “extend, optimize, improve and enforce tax cuts and fee reductions.”
Stimulus will indeed emerge when, and where, needed. The Politburo said, for example, that it would “accelerate the issuance and use of local government special bonds.”
This means it’s entirely possible that local governments may be allowed to “dig into” remaining special bond quotas, including from previous years, says economist Yu Xiangrong at Citigroup, who estimates the quota to be about 1.1 trillion yuan (US$154 billion).
But there was far more discussion of ways to “adapt to the major change in supply-demand relations in the property market,” and, in timely fashion, to “adjust and optimize real estate policies.” That, Beijing says, means steps to “increase construction and supply of low-income housing,” and “revitalize all types of idling properties.”
To economist Zhiwei Zhang at Pinpoint Asset Management, “this is an interesting signal as the property sector downturn is arguably the key challenge the economy faces now.” As such, “it seems the government has recognised the importance of policy change in this sector to stabilize the economy.”
Just as important, arguably, is the government saying it’s committed to “effectively prevent and resolve local debt risks, make a package of plans to resolve the debt.” The same goes for commitments to “concretely optimize private firms’ development environment” and “build and improve the routinized communication mechanism with companies.”
Furthermore, the party’s latest phraseology includes pledges to “firmly crack down on excess fee and fine charging, resolve the receivables governments owe to companies” and “accelerate the fostering and growing of strategic emerging industries.” The plan, the party notes, is to “strengthen financial regulation, steadily push for the reform and risk resolution at small and medium-sized financial institutions of high risks” as a means to “stabilize the basic market of foreign trade and investment.”
Such language is more the stuff of Adam Smith and Milton Friedman than Mao Zedong. More Hans Tietmeyer of Bundesbank fame than Draghi or Kuroda. One possible area of optimism is that Xi’s government is finally serious about fixing the underlying troubles in the property sector – not just treating the symptoms.
Casanova points to the Politburo’s statement that authorities would recalibrate property policies based on the “local property market situation” and consider developments related to “demand and supply imbalances.” To him, “that last point is new, suggesting a change in the macroprudential regime, as the government now sees a structural shift, requiring bottom-up measures to better reflect local conditions.”
That’s not to say Xi and Li won’t support demand where needed.
“We expect the government to roll out modest fiscal support in the second half of 2023, but no aggressive fiscal stimulus,” says economist Ning Zhang at UBS AG. Even so, Zhang says, “some policy room may be kept to support economic growth in 2024.”
Additional stimulus measures that Zhang expects Beijing to prioritize: an acceleration of special local government bond sales; a resumption of policy banks’ special infrastructure investment funds; Beijing providing credit to clear up local governments’ arrears to corporate suppliers; modest property policy easing and credit support for stalled property projects; a modest credit growth rebound; and perhaps a small official rate cut.
There also could be “some small-scale and targeted support” for selected consumption categories as well, Zhang says.
Mostly, though, the signals coming from Beijing this week suggest a greater emphasis in increasing confidence via reform and more vibrant safety nets than runaway stimulus. Bottom line, China’s Draghi days seem over – and that’s a good thing.
Trading carbon emissions is the El Dorado of climate-change management, a new market that will allow corporations to offset their presumed contribution to global warming and give governments a mechanism to balance economic and environmental interests. But carbon emissions are notoriously hard to measure, and the existing scorekeepers for emissions have run into withering criticism by scientific referees.
Carbon-emitting businesses are supposed to purchase credits from entities that reduce carbon emissions, including reforestation, reducing emissions from landfills, and man-made removal of carbon dioxide from the atmosphere. Measurement is the main problem.
The carbon market has a long way to go to catch up with the hype. The global consulting firm McKinsey claims that “demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030,” and presumably US$350 billion by 2050.
Other estimates project a $22 trillion market by 2050 as artificial intelligence produces more reliable data.
An improvement in measurement techniques could make the difference between a stillborn project and one of the world’s largest markets. One startup claims to have made a radical improvement in measurement accuracy by applying AI to a suite of existing models of carbon emissions. If AI succeeds in creating a globally accepted measurement standard, the carbon trading market could become one of the world’s largest.
Jizhaojia GCN says it has developed an algorithm that incorporates several of the most widely accepted models of carbon emissions, drawing data from a wide range of industrial enterprises and joint ventures. The firm was founded by the Chinese-American entrepreneur Bruno Wu, a shareholder in Asia Times’ holding company.
The Chicago Mercantile Exchange began trading carbon offset futures two years ago, but investor interest has been minimal. An exchange-traded fund (ETF) that tracks carbon offset futures contracts, KraneShares Global Carbon Offset Strategy, has attracted just $1.2 million in investments – a microscopic amount by ETF standards – and trades just 7,000 shares a day on average. The carbon ETF topped Yahoo Finance’s list of 2023 ETF flops.
The CBL GEO (Global Emissions Offset) futures trade carbon emissions for aviation under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a small market in which emissions are easy to measure. But only 202 contracts were traded on July 21, out of 16.3 million contracts that changed hands on the Chicago Mercantile Exchange.
Carbon emissions from passenger cars, let alone factories and farms, entail measurement problems far greater than aviation, which involves a limited number of vehicles whose fuel use is easy to calculate.
Credits for reducing carbon emissions are generated by activities like rainforest reforestation. Verra, a non-profit organization that sets global standards for measuring emissions, has been under fire from investigative journalists and scientific critics.
A joint investigation by the UK newspaper The Guardian, the German weekly Die Zeit, and SourceMaterial “has found that, based on analysis of a significant percentage of the projects, more than 90% of their rainforest offset credits – among the most commonly used by companies – are likely to be ‘phantom credits’ and do not represent genuine carbon reductions,” The Guardian reported on January 18. Verra has certified nearly $3 billion of carbon credits.
SourceMaterial wrote that the investigation “raises questions for the organizations that many of the world’s biggest companies, and the consumers who buy their products, rely on to set the standard for effective carbon offsetting – in particular the biggest of them, Verra.”
Verra is one of four carbon offset registries that measure the carbon reduction due to the reforestation of rainforests and allow carbon-emitting businesses to purchase credits from rainforest nations as an offset.
The trading volume and price of carbon offset credits have both fallen this year in response to challenges to the integrity of the system.
A recent World Bank report notes, “The voluntary carbon market is difficult to measure. The cost of carbon credits varies, particularly for carbon offsets, since the value is linked closely to the perceived quality of the issuing company.
“Third-party validators add a level of control to the process, guaranteeing that each carbon offset actually results from real-world emissions reductions, but even so, there’s often disparities between different types of carbon offsets.”
World Bank added, “A measure of skepticism attends the use of credits in decarbonization. Some observers question whether companies will extensively reduce their emissions if they have the option to offset emissions instead. Companies would benefit from clear guidance on what would constitute an environmentally sound offsetting program as part of an overall push toward net-zero emissions.
“Principles for the use of carbon credits would help ensure that carbon offsetting does not preclude other efforts to mitigate emissions and does result in more carbon reductions than would take place otherwise.”
A World Bank official familiar with the institution’s activity in carbon trading says the Bank offered its own system of carbon emissions measurement as a global standard but failed to persuade constituent governments to adopt it.
Despite the glowing forecasts, carbon trading markets are stagnating or shrinking due to the poor quality of data.
Jizhaojia GCN says it can generate higher-quality carbon emissions data using a proprietary algorithm that links three technologies.
The first is Enabling Satellite-based Crop Analytics At Scale, or ECAAS. This analyzes satellite imagery and remote sensing to create large datasets for agriculture and forestry. ECAAS promises to dramatically reduce the cost of collecting on-the-ground data and generate artificial-intelligence training sets for machine learning.
According to a Jizhaojia GCN release, “The ECAAS platform is compatible with various devices in the fields of energy, transportation, industry and agriculture. Through the application of technology, the speed of market development and the efficiency of data capture and utilization are greatly improved.
“ECAAS can create a network effect similar to Microsoft or the SWIFT funds transfer system to integrate digital technology into carbon emissions management.”
Second, Jizhaojia GCN applies the EPC (Engineering, Procurement and Construction) system for energy management, deriving its own data from more than 210 gigawatts of clean energy projects now under contract.
Third, Jizhaojia employs cloud-based energy management systems using Virtual Power Plant technology, which aggregates the output of different energy sources, trading electricity in order to maximize efficiency.
Jizhoajia’s AI algorithm integrates data learning sets from all three technologies to assign a digital identity to carbon products, making it possible to settle trades across the full range of emissions products, according to a company release.
According to CBRE’s head of Singapore capital markets Michael Tay, Far East Shopping Centre is the only commercial site currently available for sale along Orchard Road. He added that the site is “strategically positioned” to be part of the government’s plan, with the SDI scheme meant to “expedite the rejuvenation ofContinue Reading
More broadly, Xi’s administration blames widening social disparities in part on the internet boom, particularly in the pandemic era, and is moving to address any public discontent that could threaten its authority. That led to the “common prosperity” program, which has faded from public view but still guides the activitiesContinue Reading
“Now, offerings were a little bit smaller because the markets are a bit choppy, and therefore people prefer to wait and to time it a little bit more, or just to do a smaller offering,” he explained.
“In terms of capital rates, it’s a single percentage digit below last year. So it’s not that much, considering that globally it’s 40 per cent down.”
The HKD-RMB Dual Counter Model and the Dual Counter Market Making Programme will also help connect China and the rest of the world.
“Now there will be this unique opportunity to have Chinese domestic investment that can invest in international companies that decide to list in Hong Kong. This is very unique. There’s no other market that provides that strength,” said Mr Aguzin.
Mr Aguzin said the first half of the year has been a “stubborn” and “challenging” environment for Hong Kong stocks, with factors like high inflation and interest rates.
While it is exposed to such global developments, it is also uniquely positioned to benefit.
“It has this ability to be part of two systems in a way, and be part of China and be part of the international (system), which I think positions it very well,” said Mr Aguzin.
The world faces escalating natural disasters, yet nowhere is the threat more immediate than in Asia and the Pacific. Ours is a region where climate change-induced disasters are becoming more frequent and intense.
Since 1970, 2 million people have lost their lives to disasters. Tragically, but all too predictably, the poorest in the least-developed countries are worst-affected. They will find themselves in the eye of the storm as temperatures rise, new disaster hotspots appear and existing risks increase. Unless we fundamentally change our approach to building resilience to disaster risk, temperature rises of 1.5°C or 2°C will make adaptation to the threat of disasters unfeasible. Disaster risk could soon outpace resilience in Asia and the Pacific.
It is worth pondering what this would mean. The grim tally of disaster-related deaths would inevitably rise, as would the annual cost of disaster-related losses, forecast to increase to almost $1 trillion, or 3% of regional GDP, under 2°C warming up from $924 billion today, or 2.9% of regional GDP. The deadly combination of disasters and extreme weather would undermine productivity and imperil sustainable development.
In the poorest parts of our region, such as the Pacific small island developing states, disasters would become a major driver of inequality.
Losses would be particularly devastating in the agriculture and energy sectors, disrupting food systems and undermining food security as well as jeopardizing energy supply and production. Environmental degradation and biodiversity loss would be remorseless, leading to climate change-driven extinctions and further increasing disaster risk.
To avoid this exponential growth of disaster risk, there is a narrow window of opportunity to increase resilience and protect hard-won development gains. To seize it, bold decisions are needed to deliver transformative adaptation. They can no longer be postponed.
This week, the UN Economic and Social Commission for Asia and the Pacific (ESCAP) is convening top policymakers, experts and academics from across the region on 25-27 July to discuss transformative adaptation policies and actions at ESCAP’s Committee on Disaster Risk Reduction. The Asia-Pacific Disaster Report 2023 will also be launched at the Committee.
The stakeholders drawn to this meeting will consider key questions such as prioritizing greater investment in early warning systems.
Expanding coverage in least developed countries is the most effective way to reduce the number of people killed. Early warning systems can shield people living in multi-hazard hotspots and reduce disaster losses everywhere by up to 60%. They provide a tenfold return on investment. To protect food systems and reduce the exposure of the energy infrastructure – the backbone of our economies – sector-specific coverage is needed.
Investments at the local level to improve communities’ response to early warning alerts, delivered through expanded global satellite data use and embedded in comprehensive risk management policies, must all be part of our approach.
Only transformative adaptation can deliver the systemic change needed to leave no one behind.
Armida Salsiah Alisjahbana
Nature-based solutions should be at the heart of adaptation strategies. They support the sustainable management, protection and restoration of degraded environments while reducing disaster risk. The evidence is unequivocal: preserving functional ecosystems in good ecological condition strengthens disaster risk reduction. This means preserving wetlands, flood plains and forests to guard against natural hazards, and mangroves and coral reefs to reduce coastal flooding.
Forest restoration and sustainable agriculture are essential. In our urban centers, nature-based solutions can mitigate urban flooding and contribute to future urban resilience, including by reducing heat island effects.
Beyond these priorities, only transformative adaptation can deliver the systemic change needed to leave no one behind in multi-hazard risk hotspots. Such change will cut across policy areas. It means aligning social protection and climate change interventions to enable poor and climate-vulnerable households to adapt and protect their assets and livelihoods.
Disaster risk reduction and climate change adaptation must become complementary to make food and energy systems more resilient, particularly in disaster-prone arid areas and coastlines. Technologies such as the ‘Internet of Things’ and artificial intelligence can improve the accuracy of real-time weather predictions as well as how disaster warnings are communicated.
Yet to make this happen, disaster risk financing needs to be dramatically increased, with financing mechanisms scaled up. In a constrained fiscal context, we must remember that investments made upstream are far more cost-effective than spending after a disaster.
The current level of adaptation finance falls well short of the $144.74 billion needed for transformative adaptation. We must tap innovative financing mechanisms to close the gap. Thematic bonds, debt for adaptation and ecosystem adaptation finance can help attract private investment, reduce risk and create new markets. These instruments should complement official development assistance, while digital technologies improve the efficiency, transparency and accessibility of adaptation financing.
Now is the time to work together, to build on innovation and scientific breakthroughs to accelerate transformative adaptation across the region.
A regional strategy that supports early warnings for all is needed to strengthen cooperation through the well-established United Nations mechanisms and in partnership with subregional intergovernmental organizations. At ESCAP, we stand ready to support this process every step of the way because sharing best practices and pooling resources can improve our region’s collective resilience and response to climate-related hazards.
The 2030 Agenda for Sustainable Development can only be achieved if we ensure disaster resilience is never outpaced by disaster risk. Let us seize the moment and protect our future in Asia and the Pacific.
Armida Salsiah Alisjahbana is the under-secretary-general of the UN and executive secretary of the UN Economic and Social Commission for Asia and the Pacific (ESCAP).
With several ESG-backed initiatives in recent years, the Philippines-based conglomerate Ayala has solidified its commitment to sustainability. Operating across verticals including energy, finance, infrastructure, and real estate, Ayala has committed to net zero greenhouse emissions by 2050. The conglomerate’s energy wing ACEN recently created the world’s first energy transition mechanism (ETM) in November 2022, backed by BPI and RCBC.
On the social front, Ayala’s GCash app and BPI’s BanKo have played pivotal roles in financial inclusion for unbanked Filipinos and small to medium size enterprises. BPI and Globe are currently reviewing their framework to consciously focus on these areas.
When it comes to governance, Ayala’s boards are working towards an appropriate level of diversity and independence. This involves maintaining high standards when it comes to transparency and disclosure.
The 190-year-old company’s social and sustainability initiatives have a long history. Albert de Larrazabal, CFO at Ayala Corporation said, “We have always aligned ourselves to national interest and had very high standards of governance and stewardship. As we must be mindful of the ecosystems we operate under, ESG in various forms has always been part of our value proposition.”
Ayala’s approach to ESG
Today, ESG-based financing is a priority for Ayala. Apart from ACEN’s implementation of the world’s first ETM, Ayala has issued a social bond with the IFC in support of its cancer hospital. Larrazabal said, “We are looking to do KPI-linked social and ESG financing, which incorporates targets into the commercial terms and conditions of the loan.”
Even during the M&A process, the conglomerate is mindful of integrating new acquisitions into its ESG framework. Ayala has also taken steps to ensure that ESG is a priority that is ingrained at the highest levels of the organisation, leveraging its membership with the World Business Council for Sustainable Development (WBCSD). The conglomerate’s board has received training which ensures they can play an active role in tracking and monitoring developments in the ESG space.
Corporates making public commitments to sustainability draw a lot of attention, not all of it positive. Asked how Ayala approaches concerns about greenwashing, Larrazabal said, “Sometimes it happens inadvertently because of incorrect measurements. That’s why we brought in South Pole. We have taken steps to ensure we are on the right track by committing to independent verification, to give people a degree of reassurance.”
Building a model for the APAC region
While the need for sustainable leaders is strongly felt across APAC, many countries in the region have a minimal contribution to emissions — the Philippines emits half the global average on a per capita basis. Larrazabal said, “Between 80% to 88% of our emissions — depending on individual businesses — are scope 3.” These emissions are defined as the result of activities from assets not owned or controlled by a reporting organisation, but which are a part of its value chain. Larrazabal said, “Our scope 3 is somebody else’s scope 1 and scope 2. We need an environment that enables, incentivises, and if that fails, penalises those who disregard scope 1 and 2.”
Many emerging markets grapple with issues similar to those facing the Philippines — adopting renewable energy, while meeting the demands of a growing population and economy. As a result, ETM-like arrangements may be embraced to a greater extent. Asked for his advice on managing such a transaction, Eric Francia, president and CEO at ACEN said, “It is important for investors to reconsider their position on coal, so long as the principles are well understood. One may be investing in a coal plant, but for a good purpose, which is enabling its early retirement.”
Offering a financial perspective on the ETM, TG Limcaoco, president and CEO Bank of Philippine Islands added, “We provided lending and brought in other institutions. We took reduced rates of returns for equity and debt exposure, which allowed us to shorten the life of the plant by 10 to 15 years. It is a big win for everyone involved.”
For more on Ayala’s adoption of ESG and a deeper insight into the world’s first ever ETM, please watch the accompanying video.
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