The world needs transformational change to fight climate change. And it needs it now.
In 2022, we witnessed flooding in Pakistan, wildfires in Europe, droughts in California and a total of 29 major weather disasters each causing damage of over $1 billion, according to Yale Climate Connections, a climate change research website.
In the World Economic Forum’s 2023 Global Risks Report, natural disasters, extreme weather events, failure to mitigate climate change and large-scale environmental damage incidents feature prominently in the top 10 global risks we face in the next two years.
Clearly, climate change is here, it’s happening and it’s having an impact on us all — the good news, then, is that we are finally seeing broad-based efforts to address this global crisis, not just debate it.
The world is mobilizing in the fight against climate change
Despite geopolitical tensions, climate change topped the Bali G20 agenda, forged new dialogue between China and the United States, and has sparked a range of new policy initiatives across the globe, including the US’ Inflation Reduction Act and the European Union’s “Fit for 55” package.
And, most recently, at COP 27 we saw a landmark agreement on loss and damage funding, which put the crucial issue of climate accountability front and center, resulting in stakeholders around the world having to take a hard look at the environmental impacts of their activities and work out how to address them.
Encouraging progress, but still some way to go
After attending the recent World Economic Forum in Davos and speaking with companies, government officials and capital market regulators, it is clear to me that nowhere is the journey toward addressing climate change more important than in the corporate sector.
While recent progress has been encouraging, with 3,152 companies in the Morgan Stanley Capital International All Country World Index already having made net-zero pledges in 2022, compared with 2,891 in 2021, MSCI research shows 54 percent of companies in the MSCI ACW Index have no net-zero target at all and 64 percent of listed companies have no decarbonization target at all.
One of my key takeaways from this year’s World Economic Forum in Davos was that, while investors are putting environmental, social, and governance (ESG) considerations at the forefront of their decision making, disclosure standards are tightening, so bolstering corporate accountability.
Today’s companies will however have to move faster to decarbonize and be more explicit about the progress they are making if we they are to meet societal and investor demands.
For many, decarbonization will be a long journey, requiring time to make the wholesale changes required, including adopting new technologies, improving their environmental management capabilities and fully measuring the range of emissions across their operations and supply chains.
Carbon credits can offer a solution
Carbon credits can offer a solution as companies move towards decarbonization.
On voluntary carbon markets, for example, corporates can purchase carbon credits generated by projects that avoid or remove greenhouse gas emissions — to neutralize or compensate for their emissions. By creating a viable carbon market, carbon credits in turn help drive investment into carbon offset projects, such as in forestry, renewable energy and greenhouse gas capture activities.
Carbon markets have grown rapidly in recent years. Pioneered in Europe in 2005 and now used globally, auctions of carbon credits on carbon markets in the world’s major markets had raised an estimated $141.2 billion between 2017 and 2021; and voluntary markets alone are forecast to raise an estimated $100 billion per year by 2050.
But some obstacles have stood in the way of wider adoption, particularly in Asia. Since the introduction of voluntary carbon credits, a myriad of standards has emerged under various schemes, meaning credits can vary significantly in terms of their governance, scope and eligibility and methodologies.
That means buyers often have difficulty navigating different standards, finding price transparency or defining high-quality carbon credits.
For sellers, this limits access to finance and raises the cost of verification for small project developers. Such obstacles, and a lack of trusted marketplaces, may impede the flow of capital from those making carbon neutral or net-zero commitments into the hands of those with the ability to reduce or remove carbon.
Core Climate, a new carbon marketplace
To meet these challenges and connect capital with climate-related products and opportunities in Hong Kong, the Chinese mainland and globally, Hong Kong Stock Exchange (HKEX) was proud to launch Core Climate, an easy-access, one-stop voluntary international carbon marketplace that includes trading and settlement functions, on Oct 28, 2022.
Carbon credits on the platform are transparent, coming from internationally certified carbon projects and are issued under international standards, such as the Verified Carbon Standard under VERRA. Participants can purchase, sell, settle, store and retire voluntary carbon credits on the platform.
No net-zero without China
Vice-Premier Liu He spoke about the need for cooperation and a global response to climate change at the World Economic Forum. As a capital markets operator and regulator, HKEX believes it is our duty to create the connectivity that facilitates international cooperation.
With its proximity to the Chinese mainland, the world’s largest greenhouse gas emitter, we hope that Core Climate will become an important international hub for facilitating international investors’ access to one of the world’s largest carbon markets, as well as connecting mainland companies and investors with high quality carbon projects around the world.
And China’s commitment to reach carbon neutrality by 2060, as well as the Hong Kong Special Administrative Region government’s pledge to do so by 2050, means HKEX anticipates considerable demand and opportunities for green finance in the region.
Our journey continues
Core Climate is the latest step HKEX has taken in our role as a market operator to develop an ecosystem of sustainable and green investment products to help fund companies on their low carbon transitions.
Additionally, as a regulator we continue to advocate and set standards for ESG disclosure and governance, where ESG practices and reporting are fully integrated into daily business operations.
Finally, as HKEX is a listed company itself, we look to lead by example, such as through our commitment to the Glasgow Financial Alliance for Net Zero, which involves making a net-zero pledge and developing and implementing business plans as part of our strategy, for a low-carbon future.
HKEX believes that successfully addressing climate change will be dependent on what we do now, not tomorrow.
As society looks to leaders to drive and define the speed of climate-action, HKEX is proud to serve as a change agent, innovator and advocate — we are committed to progressing our markets and the communities they support.
With our latest carbon initiative, we are confident that we are creating the channels needed to scale up the solutions we all need to accelerate the net-zero transition. Please join us as we strive to create a prosperous future for all.
The author is the chairman of Hong Kong Exchanges and Clearing Limited.
The views do not necessarily reflect those of China Daily.