The Next Industrial Revolution from AlterCOP29

The following are notes of the presentation delivered at AlterCOP29, on the 14^th November 2024.  These are my opinions, as President of Red Sycamore. 

I said this at COP28, and I am repeating it here, carbon credits are the new oil.  With the proper strategic framework, it becomes a strategic asset that can influence energy and financial policy of related nations.  These are the steps that I believe we should work at, which democratises the process. 

We need to encourage private players to run carbon exchanges, in the same way that the cryptocurrency market has grown.  We should create the hype, and ride it, instead of stifling it.  Perhaps an offshore compliance exchange is an option. 

This is my controversial opinion: Fold the voluntary carbon credit market into the compliance market.  This is inevitable anyway.  As we develop carbon credits as financial instruments, I foresee increasingly more comprehensive compliance and regulatory frameworks.  There is no space for the laissez-faire approach of the voluntary market. 

We need to work towards creating rated, investment-grade compliance carbon credits, as a first step towards having them recognised as financial instruments.  The best carbon credits projects to create the necessary volume for trade is blue carbon credits from seagrass projects.  This is why Red Sycamore is in this space. 

The strategic intent for this is to create a secondary market for carbon credits.  When we have carbon credit futures, ETFs, and other derivatives, we have speculation and a viable secondary market that is a means to create the liquidity and encourage investment into more sustainability projects globally. 

This is how we address the funding gap, and bring in more players into the market.  If there is money to be made, there will be investment.  An appeal to self-interest is far more realistic than an appeal to altruism.  Major corporations and funds are beholden to self-interest.  Any claim of altruism is cynical and hypocritical.

Enhancing Market Confidence from AlterCOP29

The following are notes of the presentation delivered at AlterCOP29, on the 14^th November 2024.  These are my opinions, as President of Red Sycamore. 

To enhance market confidence, the obvious next step is establishing clear, standardised criteria for what constitutes a high-quality carbon credits.  From a financial perspective, we need to agree, across financial institutions, on the status of carbon credits, whether commodity, options contract, or something different.  The independent verification by accredited third parties should be made more stringent.  Gold, Verra and similar organisations are not the answer.  We need something that functions just like rating agencies like Moody’s and Fitch.  Perhaps, we need something similar for the carbon market. 

Projects need a better, legally enforceable framework for transparent, publicly available information about their methodologies, results, and impacts when reporting.  This framework needs to be standardised across projects, as far as practicable.  What we have is nowhere near enough.  Also, considering the different kinds of credits, even in the compliance market, we need a mechanism for convertibility.  This is a step towards fungibility. 

At COP29, there is a push to mobilise US$65 billion annually from the private sector to complement public funding for climate projects.  I am sceptical. The answer is not found in philanthropy and localised private funding.  This is publicity, not reality.  This level of coordination is not going to compete with the energy lobby, the mining lobby and other special interest groups.  The way forward is the appeal to self-interest, not altruism.

Regional Developments in Sustainability Finance from AlterCOP29

The following are notes of the presentation delivered at AlterCOP29, on the 14^th November 2024.  These are my opinions, as President of Red Sycamore. 

Regulators are setting minimum standards for sustainability reporting and disclosures to introduce more transparency and accountability on climate issues.  One of the discussions is the legal responsibilities of Chief Sustainability Officers (CSOs).  Some companies are pushing for the appointment of people with legal backgrounds.  Others, including myself, are pushing for CSOs to have an accounting background, because this is not primarily about legal compliance, but financial compliance. 

Countries are developing green taxonomies to standardise what qualifies as a green or sustainable investment.  The ASEAN Taxonomy Version 2 was released in June 2023, to provide a science-based framework to classify sustainable activities.  It includes four environmental objectives: mitigation of climate change risks, adaptation to climate change, protection of healthy ecosystems and biodiversity, and promotion of resource resilience and a transition to a circular economy.  The ASEAN Capital Markets Forum (ACMF) has released a roadmap for sustainable capital markets, focusing on strengthening infrastructure and improving access to financial products.  This roadmap aims to promote sustainable finance and support the region’s transition to a low-carbon economy. 

The ASEAN Taxonomy aims to ensure interoperability with other widely used international taxonomies, such as the EU Taxonomy and the Green Bond Principles.  Indonesia, Malaysia, The Philippines, Thailand and Vietnam are developing national taxonomies to align with the ASEAN Taxonomy.  Here, in Singapore, we have introduced a carbon tax and are developing its taxonomy to support sustainable finance and decarbonisation efforts. 

Issuance of green bonds has increased, with a cumulative value of over US$4 trillion since 2018.  Sustainability-linked bonds have gained traction, as they link financial performance to sustainability targets.  Despite a drop in net inflows from US$161 billion in 2022 to US$63 billion in 2023, sustainable funds continue to attract significant investments.  Environmental, Social, and Governance (ESG) funds are becoming more popular.  Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) provide funding and support for sustainable projects.  These institutions help to implement policies that promote sustainable finance.  The sustainable finance market in SEA is still relatively small, which indicates significant potential for growth.  Several countries in the region are considering or implementing carbon pricing mechanisms to incentivise emission reductions. 

Discussions at COP29 are focused on establishing a new climate finance goal to replace the previous commitment of US$100 billion annually by 2020.  Developing countries, including those in SEA, are advocating for a higher annual commitment of at least US$1.3 trillion from wealthy nations to support climate action.  Singapore has pledged up to US$500 million to support Asia’s decarbonisation and climate resilience through the Financing Asia’s Transition Partnership (FAST-P).  They aim to raise US$5 billion with international partners to make climate action less financially risky.  That is extremely ambitious. 

The Economic Development Board (EDB) has launched a new grant to support carbon project developers and finance activities that can generate high-quality carbon credits aligned with Article 6 of the Paris Agreement.  This grant aims to spur the development of more carbon projects in the region. 

Several countries in Southeast Asia are considering or implementing carbon pricing mechanisms to incentivise emission reductions.  Singapore introduced its carbon tax on 01^st January 2019, under the Carbon Pricing Act (CPA).  The initial tax rate was set at S$5 per tonne of CO₂ equivalent (tCO2e) for the first five years (2019-2023) to provide a transition period for businesses to adjust.  To support its net zero target, the carbon tax will be raised to S$25/tCO2e in 2025, S$45/tCO2e in 2026 and 2027, and is expected to reach S$50-80/tCO2e by 2030.  The carbon tax applies to all industrial facilities with annual direct greenhouse gas (GHG) emissions of at least 25,000 tonnes of CO2 equivalent (tCO2e).  This covers about 80% of Singapore's total GHG emissions from around 50 facilities in sectors such as manufacturing, power, waste, and water. 

From this year, companies can use high-quality international carbon credits (ICCs) to offset up to 5% of their taxable emissions.  These credits must comply with rules under Article 6 of the Paris Agreement and meet seven principles to demonstrate high environmental integrity.  A transition framework has been introduced to support emissions-intensive trade-exposed (EITE) companies as they work to reduce emissions and invest in cleaner technologies, while managing the near-term impact on business competitiveness. 

Malaysia is considering implementing a carbon tax, with discussions ongoing about the appropriate rate and coverage.  Indonesia has introduced a carbon tax on coal, with the revenue intended to fund renewable energy projects and reduce emissions.  The Philippines has implemented a carbon pricing mechanism through its Renewable Energy Act, which includes incentives for renewable energy projects.  No Southeast Asian (SEA) countries have implemented a national Emissions Trading System (ETS) similar to the European Union ETS. 

The global carbon credit framework is a system designed to reduce greenhouse gas emissions by allowing countries and companies to trade carbon credits.  Article 6 enables countries to pursue voluntary cooperation to reach their climate targets.  It allows for the trading of carbon credits between countries, helping to finance climate action in developing nations.  Credits traded under Article 6 come with corresponding adjustments to ensure that emissions reductions are not counted twice.  The Core Carbon Principles (CCPs) set rigorous thresholds on disclosure and sustainable development, ensuring that carbon credits meet high-integrity standards.  These principles serve as a global benchmark for high-quality carbon credits.  The supervisory body for Article 6.4 has established standards for how international carbon crediting projects will work.  This includes a dynamic mechanism to update these standards as needed.  This framework is expected to direct resources to the developing world and help save up to US$250 billion a year when implementing climate plans. 

The Monetary Authority of Singapore (MAS) introduced a concept called transition credits to help accelerate the phase-out of coal-fired power plants in Asia.  Transition credits are a new class of high-integrity carbon credits generated from the emissions reduced through the early retirement of coal-fired power plants (CFPPs) and their replacement with cleaner energy sources.  These credits aim to provide financial incentives for asset owners to retire coal plants earlier than their operational lifetimes, serving as a complementary financing instrument to bridge the economic gap for early coal plant retirements.  The Asian Development Bank, the International Energy Agency, and the World Wide Fund for Nature (WWF) Singapore are also involved.  According to the International Energy Agency (IEA), Southeast Asia will need an estimated US$12 billion in concessional finance by the early 2030s to support the accelerated uptake of clean energy technologies.

Overview of Major Trends in Sustainability Finance in SEA from AlterCOP29

The following are notes of the presentation delivered at AlterCOP29, on the 14^th November 2024.  These are my opinions, as President of Red Sycamore. 

Red Sycamore were at the United Nations Framework Convention for Climate Change’s 28^th Conference of Partners, in November 2023.  While there, the team had private discussions with: government representatives, central bankers, representatives from financial institutions and major corporations, and potential investors of sustainability projects. 

Our conclusion: the carbon credit system, and sustainability finance, as a whole, needs to evolve.  Consider this: the Loss and Damage Fund was established to assist developing countries particularly vulnerable to the adverse effects of climate change.  Current efforts and pledges fall short of what is needed.  As of September 2024, a total of U$S702 million has been pledged to the fund by 23 contributors.  Countries like France, Italy, Germany, and the UAE have pledged significant amounts, with each contributing at least US$100 million.  According to a UN report, developing countries will need US$300 billion per year by 2030, and US$500 billion by 2050 to adapt to climate change.  The 2022 Adaptation Gap Report indicates that international adaptation finance flows to developing countries are five to ten times below estimated needs. 

The projected loss of GDP due to climate change varies by region and scenario.  According to recent reports, climate change could lead to a 16.9% loss in GDP by 2070.  India alone is projected to face a 24.7% GDP loss.  If no mitigating actions are taken, the global economy could lose up to 18% of GDP by 2050.  If we assume a projected GDP loss of 18% by 2050, considering that as of 2024, the global GDP is approximately US$100 trillion, the projected loss in is US$18 trillion.  These numbers assume high emissions scenarios.  The Loss and Damage Fund does not have near enough to address this, even if we assume that it is only used for infrastructure development to address climate change, which is fanciful.  We are all stakeholders of this planet.  Sustainability finance needs to be democratised.  This presentation is an overview of the issue.  It is not meant to answer the questions in detail, but to continue the conversation, and bring more stakeholders to the table.

Panel 4 of the Executive Leadership Seminar was “VUCA Leadership - Leading during the Storm”

Panel 4 of the Executive Leadership Seminar was “VUCA Leadership - Leading during the Storm”.  VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity.  It is a concept that originated in the military and has since been adopted in leadership and business to describe the rapidly changing, unpredictable, and complex nature of the modern world.  VUCA leadership refers to the skills and strategies leaders need to navigate this VUCA world.  Leaders must be agile and flexible, able to respond quickly and effectively to rapid changes.  Leaders need to be comfortable with ambiguity and able to make decisions without having all the information.  Leaders must be able to analyse complex and interconnected problems, and come up with innovative solutions.  Leaders need to be able to operate in situations where causal relationships are not clear, and interpret ambiguous situations accurately. 

This panel explored the uncertain sociopolitical environment, in light of the challenges of climate change, the onset of the fifth industrial revolution, the increasing adoption of Artificial Intelligence, and developments in finance such as cryptocurrency derivatives.  VUCA leadership is about being prepared for the unexpected, being able to adapt on the fly, and having the foresight to see and the courage to seize opportunities in a complex and uncertain world. 

The panel was moderated by Ms. Wendy Koh, Founder, Executive Coach and Facilitator of Life By Design Coaching.  The panellists were Mr. Eric Tanoto, Founder of the Ark Capital Fund; Tunku Dato’ Dr. Fauzi ibn Abdul Malek Al Haj, Executive Chairman of Monarch Equity Capital, Founder and Principal of TFM Property Consultants, and Former Chief Private Secretary to HRH Sultan of Kedah; Mr. Jeffrey Ong, Senior Director of Azimut Investment Management; Mr. Michael Aw, Founder and Managing Director of 38 Consulting and Former Chief Executive Officer of Mekong Group; and Mr. Zainul Abidin Rasheed, Singapore’s Non-Resident Ambassador to Kuwait, Member, Board of Trustees for Nanyang Technological University, and Senior Advisor to the Board of Stratagem Group.