Cambodia, Indonesia, Laos and Vietnam have “highly negative” exposures to physical climate risks while the exposure of the Philippines is “very highly negative,” Moody’s Investors Service says.
In a report released in Singapore Monday, the U.S. credit rating agency also said that physical climate risks were “moderately negative” in Malaysia, Singapore and Thailand. Assessments of the two other ASEAN economies — Brunei and Myanmar — were not available.
Despite big exposures to physical climate risks across Southeast Asia, Moody’s said exposures to carbon transition risks were “neutral-to-low” in the near term in most of the eight ASEAN economies.
“We expect slow policy implementation of decarbonisation, delaying transition costs for this high-growth region to the future,” it said.
The report said ASEAN economies were “making some headway” in enacting climate policies and taking action.
“The region is lagging leading economies, although its member states are at various stages of launching carbon markets or sustainable finance taxonomies,” it said.
In the case of Cambodia, the report noted that the country was aiming for solar, hydro, biomass and other forms of renewable energy to account for 35 percent of power generation by 2050.
For current energy mixes, Moody’s said coal and natural gas dominated in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam while Cambodia and Laos relied mainly on hydropower and coal.
“Natural gas oriented economies, both as exporters or consumers, will be better positioned than coal producers.
“These include Malaysia – ASEAN’s largest exporter of liquefied natural gas (LNG) – as well as Singapore and Thailand.
“By contrast, Cambodia and Laos have significant hydroelectric power generation capacity that they can export to neighbouring countries such as Thailand and Vietnam,” the report said.
REGIONAL CARBON MARKET ‘RELATIVELY UNTESTED’
Moody’s was upbeat about prospects for a regional carbon market.
“ASEAN has established a precedent for multilateral regional coordination, specifically in the areas of banking, financial markets, cross-border payments and regional electricity trade,” it said. “We expect ASEAN to facilitate progress on regional carbon market development.”
But the report cautioned that regional cooperation on carbon pricing and trading was “relatively untested” and “still in its infancy” with ASEAN member economies still “at an early stage of constructing their own carbon pricing mechanisms.”
Carbon tariffs imposed in export markets — notably the European Union — “could hurt ASEAN’s exports by increasing overall costs for commodities, particularly palm oil, iron and steel, a credit negative to affected exporters from the region.”
But initial signs of cooperation between countries in the region “could mitigate the potential negative impact of carbon levies imposed by ASEAN’s trade partners.”
ASEAN SUSTAINABLE FINANCE MARKET MORE DEVELOPED
THE report found that ASEAN’s sustainable finance market was more developed than the nascent carbon market.
“Guiding principles are already in place and ASEAN financial institutions are leading the regional integration in managing their own carbon transition risk exposure,” it said.
According to Moody’s ESG Solutions — an affiliated company focusing on environment, social and governance climate risks — ASEAN’s sustainable finance market almost doubled from an estimated US$5.8 billion in 2019 to US$10.8 billion last year.
“We expect the growth momentum in ASEAN to remain strong as taxonomies provide better guidance for sustainable investment,” the rating agency said, noting that Indonesia, Malaysia and Singapore had already launched their own green classification systems.
Moreover, it added, several governments in ASEAN — notably Malaysia and Singapore — have issued green bonds in both foreign and local currencies.
Source: Agency Kampuchea Press