Working Towards COP26: What it Means for ASEAN and Businesses in the Region

By Yee Chuin Lim Senior Consultant and Royston Wah Consultant, Speyside Group

The 26th UN Climate Change Conference of the Parties (COP26) occurs in a momentous period amidst a new normal brought on by the COVID-19 pandemic. In the dynamic and emerging markets of Southeast Asia, how does COP26 and the road to net zero fit into ASEAN states’ policies and what would it spell for businesses?

ASEAN: The Road to Net Zero

As of September 2017, all ASEAN member states have signed and ratified the Paris Agreement. However the overwhelming focus in Southeast Asia remains economic development, with a very uneven landscape when it comes to efforts to mitigate climate change. The climate plans of several ASEAN states have come under fire for being critically or highly insufficient. While the Philippines has an ambitious goal to cut GHG emissions by 75% by 2030, any progress is hindered by a lack of strong domestic impetus, since its target is highly conditional on external financing and assistance. Any effort to secure global net zero by 2050 and keeping 1.5 degrees within reach would require significantly more political will and unity by ASEAN.

Nevertheless, there are positives at the country level, indicating national priorities are moving in the right direction towards meeting COP26 targets. For example, Vietnam has a National Climate Change Strategy along with recent legislation to advance its green goals, including the 2020 Law on Environmental Protection, which introduced the Extended Producer Responsibility (“EPR”) concept. Producers and importers now bear greater responsibilities in relation to plastics, with mandated recycling for some and for others, financial contributions to the Vietnam Environment Protection Fund Meanwhile, Indonesia submitted its first Long- Term Climate Strategy in July 2021, looking to peak GHG emissions in 2030 and reach net zero by 2060. Legislation has followed in-step, with the moratorium on forest-clearing permits made permanent in 2019. In Thailand, authorities are drafting a national masterplan to achieve net zero with plans to present it at COP26; the masterplan proposes changes to support low carbon power generation, and electric vehicle adoption, among others. The upcoming legislation to watch will be Thailand’s comprehensive Climate Change Act, approved by Deputy Prime Minister Prawit Wongsuwan in March 2021.

The Business of Climate Change

While it is primarily up to the governments to provide the infrastructure and initial resources, ASEAN’s efforts are nonetheless impacted and driven by upcoming fast-changing trends in sustainability and practices. To thrive and remain relevant, businesses will need to make adjustments to keep up.

Firstly, slowdown in economic activity due to COVID-19 has prompted many to see it as an opportunity to build back better. In this region, the attention has shifted very much to Indonesia and businesses that could perpetuate unsustainable logging and deforestation. Businesses are well aware of heightened sustainability calls and have made commitments,

such as Asia Pacific Resources International Limited’s net zero by 2050 plan. While Indonesia’s GHG emissions goals and anti-deforestation legislations are positive indications, institutional obstacles hinder a coordinated regulatory approach. For instance, authority over forest management is split between the central and regional governments with multiple examples of incoherent policies. Evaluation of emission reductions are also notoriously difficult to ascertain. To stay ahead of the curve in markets like Indonesia where regulation proceeds in a haphazard manner, businesses will need clearer insights on the regulatory landscape and policy motivations.

Reconfiguration of the energy mix to include more renewables is also a key thrust of the ‘build back better’ movement. Thailand will take time to wean off the use of fossil fuels, but there are long-term plans towards renewables which will impose penalties on fossil fuels while incentivising renewable energy adoption. The effect will be significant, impacting businesses all the way to downstream industries who rely on fossil fuels. But not all businesses are transitioning fast enough. According to Standard Chartered, the majority of ASEAN companies are looking to delay significant action to after 2030, citing the lack of resources and support from executive leadership. Transitioning will require extensive organisational change which if not done early enough, could impact supply chains and bottom lines.

Worldwide lockdowns and restrictions due to the pandemic have also accelerated the growth of e-commerce, presenting a major emerging channel to implement sustainable practices. Many are calling for eco-friendly packaging to be used at large scale, which will potentially increase business costs from production and distribution. We need not look further than the EPR concept in Vietnam, effective from 2022, which will impose extra costs to producers, and e-commerce and logistic players. To remain competitive, businesses will need to pivot early to non-plastics to reduce reputational costs and the cost burden from the new legislation. Careful monitoring of and compliance with regulations related to recycling and plastics will prove to be essential in the FMCG industry moving forward.

Conclusion

With COP26 occurring amidst major disruptions brought on by the pandemic, the road to net zero will challenge governments, businesses, and consumers in Southeast Asia to revaluate their policies and practices. A concerted and sustainable push in the right direction will require a reimagining of our practices, political will, and financing from both public and private sources. With huge uncertainties down the line, businesses will need to be laser-focussed in managing change and adapting to emerging regulations.

ABOUT THE AUTHORS

Yee Chuin graduated with a Master’s degree from the University of Oxford and a degree in international relations from Peking University China. As a senior consultant at Speyside, she oversees APAC regional projects and clients, helping businesses to manage commercial, regulatory and political risks. She has a strong background in government, industry body, NGOs and think-tanks across Asia, having lived and worked across Southeast Asia and China. Royston graduated with a Bachelor’s degree in Political Science from the National University of Singapore. With a strong background in research and writing on policy and regulatory issues, he supports APAC regional projects at Speyside to deliver insights across multiple industries including financial services, healthcare, and tech.

ABOUT THE COMPANY

Speyside Group is a global emerging markets specialist with more than 25 years of experience of helping multinationals with market entry and growth. Our experienced public policy teams tailor and provide clear insights around political, legislative, and regulatory issues, along with strategic counsel to capture opportunities and mitigate risk. Complementing that is a strong corporate affairs practice to help clients manage reputation and relationships with key stakeholders. We have an unrivalled presence on the ground with offices in Asia, Central & Eastern Europe, Latin America, and Africa. Visit speyside-group.com/ for more information.