The World Economic Forum’s suggestion that the battle for net zero may be won or lost by corporate Asia emphasises the importance of helping companies reduce their environmental impact across a region that generates around half of the world’s total carbon emissions.

According to PwC, developing Asia Pacific economies could lose 24% of GDP due to the effects of climate change by the end of this century in the absence of a significant reduction in emissions. Worryingly, the current rate of decarbonisation is nowhere near fast enough – the region reduced its carbon intensity by just 2.8% in 2022, a long way short of the 17.2% required to limit global warming to 1.5°C above pre-industrial levels.

A sustainability survey conducted by Schneider Electric in mid-2023 found that although 94% of companies in Asia had established sustainability goals or targets, less than half had implemented comprehensive sustainability strategies.

Lack of awareness and commitment to sustainable practices reverberates across the region, emphasising the need for accessible information and education on sustainability issues as many companies have yet to set their sights on net zero goals suggests Sandeep Chandna, Chief Sustainability Officer at Indian multinational information technology services and consulting company Tech Mahindra.

“We recognise our responsibility to drive positive change and are committed to leading this charge, with our top priorities being achieving net zero emissions by 2035 and increasing renewable energy sourcing to 90% by 2030,” he says.

The company has already made strategic investments in power purchase agreements, energy efficient technologies, water conservation and biodiversity initiatives.

Irene Thng is Group Treasurer at Melbourne-based Toll Group, which provides shipping, transport and supply chain services across 450 sites in Asia Pacific. “More developed markets will continue to take the lead on sustainability,” she says. “The main challenge is cost. Sustainability projects come with a price – electric trucks are more expensive than fossil fuel-powered vehicles and environmentally friendly packaging costs more than plastic bags. Consumers expect their suppliers to be in the sustainability game but do not wish to pay the additional costs involved.” Thng refers to improving efficiency as an option for companies looking to offset additional costs and to this end recommends undertaking process reviews.

In a recent interview with corporate renewable energy initiative RE100, Taiwanese semiconductor manufacturer TSMC explained that it was investing in long-term, diversified renewable energy, building solar power systems to generate zero carbon energy for use in its manufacturing facilities – taking advantage of renewable energy policies from the government.

However, Chairman Mark Liu told the company’s 2023 shareholders meeting that Taiwan needed to look at opportunities to develop faster to benefit from what he described as the “enormous business potential” of renewable energy, including supporting the use of renewable electricity by corporates, implementing policies to reduce the cost of renewable energy development, and improving the investment environment.

The need for sustainability has to be balanced against immediate economic considerations to ensure companies in Asia are not disproportionately impacted by net zero targets.

A 2023 report from Deloitte acknowledged that most Asian SMEs are focused on survival and short-term profitability rather than long-term sustainability and opportunities in a green economy, citing a lack of strong leadership to drive the business case, expertise, resources and funding as the key barriers.

The report suggested businesses look at options such as environmental loans linked to sustainability targets and impact funds that invest capital in businesses or projects that generate positive social and/or environmental impacts.

An October 2023 report from the Asian Development Bank refers to an estimate that 43% of the workforce in Asia Pacific is employed in industries that are vulnerable to climate extremes or the transition to a low carbon economy.

PwC believes Asian corporates need to take double materiality considerations into account and mobilise every business function towards achieving net zero transformation from production, procurement and finance to marketing, technology and HR. The firm advocates prioritising progress over perfection, noting that sustainability and net zero are complex issues with constantly evolving standards, regulations, frameworks, expectations, technology and science and that thriving in this environment requires a shift in mindset towards a consistent, incremental and fluid approach.

According to PwC, viewing sustainability through the short-term lens of regulatory compliance underestimates the long-term financial benefits of integrating sustainability into company strategy, operating models and processes. It also states that micro, small and medium-sized businesses will require substantial support to effectively make the transition to net zero.

There is also some evidence of muddled thinking among Asian business leaders. The vast majority of respondents to the Schneider Electric survey believed that pivoting toward a more sustainable business strategy would lead to business growth, but only 37% had chosen to invest in sustainable business practices as a means of pursuing growth.

Businesses should set clear, ambitious climate goals – whether that is using renewable electricity across their operations, ensuring their corporate fleets are electrified, improving energy efficiency, or decarbonising industrial products like steel and concrete. These businesses then must push governments for more supportive policies that will help them meet their climate obligations as well as being a huge stimulus for a green economy and export growth.

That is the view of Mike Peirce, Executive Director of Systems Change at The Climate Group, who refers to a lack of political will in many countries across Asia to truly capitalise on the potential of net zero transition.

“Our latest RE100 annual report found that seven of the ten most challenging markets to source renewable electricity are in Asia,” he says. “South Korea and Japan are consistently rated as the most challenging, mainly because of a policy environment that is insufficiently supportive of renewables. You often hear that countries in Asia have challenges around their geography, meaning they can’t capitalise on renewables. But that simply isn’t true.”

Victor Tay, group CEO Global Catalyst Advisory says it is possible that Asian companies are disproportionately affected by net zero targets, referencing US and European corporations that have outsourced carbon intensive programmes such as manufacturing, logistics, chemical production or mining extraction to this part of the world.

“Moving towards net zero targets will increase costs to these Asian businesses unless their clients are open to share the cost of implementation,” he says. “We have seen customers abandon outsourced vendors because of escalating sustainability costs, which was cited by the Indian prime minister at COP26 as a climate justice issue. For global sustainability to succeed, the greening of the value chain needs to be an international initiative and not just the responsibility of a regional or outsourced vendor.”

He also notes that many companies that disclose their direct and indirect emissions do not report emissions that are a result of activities from assets not owned or controlled by the reporting organisation, but that the organisation indirectly affects in its value chain – which are usually by far the biggest part of a company’s climate footprint.

“We have seen Asian businesses adopting simple but pragmatic solutions like installation of alternative energy technologies such as solar panels for production facilities,” says Tay. “More advanced companies are greening their value chain by demanding that vendors adopt sustainable and low carbon intensive technologies.”

Another important factor is that across many emerging Asian economies, micro, small and medium-sized enterprises play a vital role in elevating a country’s employment and economic output. These enterprises often sit within the value chain of larger private sector companies and have limited resources and in-house expertise to pursue a green transition agrees Petra Christi, Senior Analyst at the Climateworks Centre.

“Inclusive and adequate knowledge transfer around climate change and sustainability remains a challenge in some countries in Asia,” she says. “As a jurisdiction moves forward in developing green policies, capacity building becomes necessary for providing an integrated understanding of sustainability, climate-related disclosure, and sustainable finance opportunities.”

To improve their emissions calculations and disclosures and build the technical knowledge needed to comply with international mandates, Christi recommends companies set a long-term net zero target or a near term science-based target in line with best practice standards.

“This undertaking is important, although it should be noted that it will take substantial work with suppliers in order for companies to incorporate sustainable practices and accurate measurement of emissions,” she says. “Asia’s importance to the global goal of limiting warming to 1.5 degrees Celsius cannot be overstated and while the region’s raised climate ambition has been partially translated into action, support is urgently required to keep Paris Agreement alignment within reach.”

Smaller businesses in Asia will find applying net zero commitments in their businesses more challenging than their counterparts in other parts of the world due to structural and systemic realities, as well as quality of energy infrastructure in the region suggests Melvie Espejo, Research Director Sustainable Strategies and Technologies at IDC Asia/Pacific.

IDC research on future trends in sustainability and the use of technology in Asia Pacific indicates that these structural and energy sector realities drag enterprise decarbonisation efforts in the region by at least one year compared to the rest of the world.

“But while meeting decarbonisation targets is disproportionately harder for companies in Asia, they also stand to gain the most from net zero,” she says. “They may choose not to commit to the world’s net zero goals but they will still be affected and will still have to pay for the climate change impact these commitments are trying to prevent.”

“Doing something now – such as investing in mitigation and prevention strategies and technologies to protect current and future margins – although hard is the better (and cheaper) option for business owners and leaders,” adds Espejo. She agrees that the main challenges facing Asian companies when it comes to sustainability are lack of support and information and recommends creating a roadmap that translates sustainability objectives and goals into actionable items segregated by people, process and technologies with timelines and measures of success. “Much like a company strategic plan, this roadmap should state which department(s) needs to be involved, delineation of responsibilities, and milestones and metrics of successful implementation,” says Espejo. “It should also be the basis for technology investments and aligned with existing digital transformation plans.”

Sustainability asks questions of how much treasurers know about their business from raw materials purchasing and what and how they sell to who is buying their product/service and how it is disposed of after consumption. “By having a firm grip on your company’s data you can commit to realistic sustainability goals, plan better and also identify the low hanging fruit that can give your company sustainability outcomes in the least possible time and for the least amount of investment as well as the projects you need to undertake now but will take a period of time to show outcomes,” concludes Espejo.