This article is featured on The Southeast Asia Information Platform for Energy Transition (SIPET)'s website.
In recent years, corporate leaders in Southeast Asia have been increasingly prioritizing decarbonization as a critical business imperative. ASEAN, with a population of over 680 million people and a combined GDP of approximately $3.6 trillion, is one of the fastest-growing economic regions in the world, experiencing robust economic growth and increasingly establishing itself as a critical global market with significant influence in trade, investment, and supply chains.
Along with this rapid industrialization and growth, companies in the region are facing mounting pressure from stakeholders, governments, and global markets to transition to more sustainable and environmentally friendly practices. This shift is driven by a combination of regulatory demands, investor pressure, and the clear need to mitigate the severe impacts of climate change.
Corporate Drivers for Decarbonization
There are several key factors driving corporates in Southeast Asia to decarbonize their operations and supply chains. First, there is growing recognition of the risks associated with climate change, including extreme weather events, supply chain disruptions, and long-term operational risks. Companies are also responding to regulatory frameworks, such as national commitments to reduce emissions under the Paris Agreement and corporate disclosure requirements on sustainability performance. While these signals are medium and long-term, they are driving corporates to plan and begin to take action.
In addition, consumers and investors are increasingly demanding transparency and accountability from businesses regarding their environmental impact. This shift in expectations is creating a competitive advantage for companies that can demonstrate their commitment to sustainability.
Increasing Corporate Commitments to Net Zero
Many multinational corporations and regional businesses are stepping up their efforts by setting ambitious Net Zero targets. In recent years, there has been a significant increase in the number of companies in Southeast Asia setting climate targets through the Science-Based Targets initiative (SBTi). SBTi helps companies set greenhouse gas (GHG) emission reduction targets in line with climate science. Its goal is to encourage companies to align their strategies with the Paris Agreement, which aims to limit global warming to well below 2°C, with efforts to stay within 1.5°C.
Across Asia, the number of companies headquartered in Asia with validated science-based targets grew by 140% just during 2022 and 2023. And within Southeast Asia, the momentum is catching up rapidly. In fact, the number of corporates in Southeast Asia with SBTI targets grew 4-fold between 2021 and 2022—from 25 to 109 companies, with that growth spread relatively evenly across Singapore, Indonesia, Thailand, and Malaysia, and to a lesser extent Vietnam, Cambodia, and the Philippines. And in Indonesia, during 2023, the number of companies with validated targets tripled.
Clearly, the commitment to reducing emissions in line with SBTi standards is becoming a critical part of business operations in Southeast Asia, driven by both internal corporate strategy and external pressures like supply chain requirements and regulatory changes. This growth is also fueled by the increasing awareness of the need for credible climate action and the economic potential of reducing emissions. Companies based in Singapore, Indonesia, and Thailand are playing pivotal roles, particularly in sectors like manufacturing and energy, which are key contributors to global supply chains.
This trend in corporate commitments signals that more businesses are beginning to integrate sustainability into their core operations. And the urgency to meet these goals is further amplified by corporate leaders recognizing that decarbonization is not only necessary for the planet but also beneficial for long-term business resilience
Challenges Faced by SMEs
As the momentum increases, it is becoming evident that the journey toward decarbonization is not without its challenges, especially for small and medium enterprises (SMEs). SMEs often struggle with limited financial resources and lack of technical expertise needed to implement decarbonization projects, and to attract the necessary investment. Unlike large multinationals, SMEs often lack access to cutting-edge technologies and face higher costs (both transaction costs, as well as the cost of capital) in adopting renewable energy solutions or improving energy efficiency. Additionally, it can be time-consuming and burdensome for smaller players to navigate the regulatory landscape and align with international sustainability standards can be particularly burdensome for these smaller players. For example, over the past 10-15 years, the number of reporting regulations for global Environmental, Social, and Governance (ESG) have surged dramatically. Since 2011, the number of ESG regulations introduced worldwide has increased by 155%, with more than 1,255 new regulations established, compared to 493 regulations established between 2001 and 2010.
To overcome these technical and information barriers, SMEs require targeted support in the form of financial incentives, access to affordable decarbonization technologies, and capacity-building initiatives. At the recent ASEAN Decarbonization Forum, held in Bangkok during 24-25 September 2024, senior experts from companies such as Hitachi, Schneider Electric, Bosch, CP and others highlighted the need for innovative financing mechanisms that can help derisk investments in sustainability for SMEs.
The Importance of Open Knowledge and Learning Platforms
Given the complexities involved in decarbonization corporate operations, there is a growing recognition of the need for open and inclusive platforms that foster knowledge sharing and collaboration. The launch of the Southeast Asia Corporate Decarbonization Exchange (CDx) in Bangkok in October 2024 aims to address this gap. CDx will provide a space for corporates, technology suppliers, and advisors to engage in peer-to-peer learning, share best practices, and co-develop solutions tailored to the region's unique challenges. Such platforms are crucial in accelerating the energy transition by facilitating collaboration and enabling companies to learn from each other's successes and failures
In conclusion, while Southeast Asia faces significant challenges in decarbonizing its industries, there is clear momentum toward achieving Net Zero targets. By harnessing corporate commitment, supporting SMEs, and fostering open knowledge exchange, the region can make meaningful progress in its decarbonization journey.
