There's a common misconception that data on environmental practices in the APAC region is sparse or inadequate, especially amongst emerging market participants. This simply isn’t true.
In our latest analysis, we shed light on some interesting biodiversity and climate findings from two economic powerhouses, China and Japan, whilst looking at the wider APAC region and Emerging Markets for wider context.
Our coverage:
We took some of the largest AUM tracker funds as proxies for the regions in question:
Name | Proxy for | Impact Cubed Coverage |
abrdn Japan Equity Tracker Fund | Japan | 98.95% |
VanEck Emerging Markets Fund | Emerging Markets | 99.74% |
Vanguard Pacific Stock Index Fund | APAC | 98.62% |
Global X CSI 300 ETF | China | 99.95% |
Let's start with Biodiversity
To understand the biodiversity impacts, we used our biodiversity dataset which examines four key drivers of biodiversity loss as defined by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES): land and sea use change, climate change, natural resource exploitation, and pollution.
Land and Sea Use Change:
Emerging Markets: Emerging Markets show a relatively lower negative alignment compared to China and the wider APAC region in general. This suggests that these regions, while still developing, are not engaging in the same extensive land exploitation and urban expansion as seen in China.
Japan: Despite being a developed nation, Japan's land and sea use change impact is less severe than China’s but still notable. This indicates ongoing challenges in balancing development with conservation efforts.
China's rapid economic growth and industrial expansion have led to significant land and sea use changes. For example, the Belt and Road Initiative – which is nearing $8Trillion investment, have led to extensive land use changes. China Vanke Co., Ltd. is one of the leading companies under scrutiny. Recently, the company has faced considerable financial pressure too, prompting the Chinese government to step in and provide support.
Pollution:
Emerging Markets: Emerging Markets display a less severe negative alignment in pollution compared to Japan and China. This could be due to lower levels of industrial activity and fewer large-scale manufacturing operations that typically contribute to high pollution levels.
Japan and China: Both countries exhibit significant negative alignment in pollution. Despite Japan's advanced economy and technological capabilities, the high pollution levels suggest a gap in effectively implementing and investing in pollution control measures.
Despite being a technologically advanced and economically developed nation, Japan faces significant pollution challenges. For example, marine pollution is a significant contributions from agricultural runoff, untreated sewage, and plastic waste. Japan is one of the world's top consumers of plastic, with only 21% of plastic waste being recycled. This has led to high levels of plastic pollution in marine environments, severely affecting marine species and coral reefs, which are crucial for biodiversity and tourism.
Natural Resource Exploitation:
Emerging Markets: The negative alignment is relatively mild, indicating lesser exploitation of natural resources compared to more industrialized nations.
Japan and China: Both show higher levels of natural resource exploitation, driven by industrial activities and economic development needs.
Climate Change:
General Observation: The positive alignment across regions indicates incremental progress in integrating climate-positive practices within economic activities. However, this metric shows lesser variance between regions.
Emerging Markets, while still developing, exhibit relatively lower negative impacts in land and sea use change and pollution due to lesser industrial activity. In contrast, China's rapid economic growth and extensive infrastructure projects, such as the Belt and Road Initiative, have significantly strained its natural resources and biodiversity. Japan, despite its advanced technological and economic status, faces substantial challenges in pollution control, particularly marine pollution due to high plastic waste and inadequate recycling.
What about more climate-centric impacts?
Commitment to Science-Based Targets Initiative (SBTi) Goals
A primary marker of a region's commitment to mitigating climate change is the proportion of its investments in companies with SBTi-approved goals. Japan leads with 43.8% of its investments aligned with these targets, reflecting significant strides towards integrating climate science into business practices. In comparison, APAC has 35.6%, while Emerging Markets and China lag behind with only 6.1% and 4.6%, respectively. This disparity highlights the urgent need for accelerated efforts in these regions to align with global climate goals.
Revenue from Climate Impact Solutions
Revenue from climate impact solutions is basically a measure of how much revenue comes from climate mitigating products and services. Japan leads in this area, with 10.6% of its revenue derived from climate impact solutions - supported by initiatives like the Green Growth Strategy and substantial investments in green projects through the Green Innovation Fund. China follows with 8.6%, reflecting significant strides in adopting sustainable practices despite its substantial reliance on coal. China's investment in renewable energy has been substantial, with clean energy accounting for a growing share of its electricity generation.
The broader APAC region shows a notable commitment with 8.1%, driven by various national policies and international collaborations. Emerging Markets, while lagging behind at 5.4%, highlight significant potential for growth. These regions are starting to adopt more sustainable practices, but require targeted investments and supportive policies to fully realize their potential in contributing to global climate goals (World Economic Forum) .
Percentage of Total Energy from Renewable Sources
Emerging Markets are at the forefront of renewable energy adoption, with 32.9% of their total energy now sourced from renewables. This leadership reflects significant investments in renewable infrastructure, driven by the need to bolster energy security, reduce fossil fuel dependence, and meet climate targets. Countries within these markets are rapidly adopting technologies like solar and wind power, often supported by international financing and favourable policies. This trend underscores the pivotal role emerging economies play in the global transition to sustainable energy systems (IEA).
China follows closely with 25.3% of its energy from renewables, a surprising statistic given its reputation as one of the largest coal consumers. China's success in scaling renewable energy can be attributed to its massive investments in solar and wind power, backed by robust policy frameworks and substantial financial commitments. In 2023, China added solar capacity equivalent to the total global additions from the previous year, highlighting its commitment to reducing coal dependence and leading in the clean energy race.
APAC and Japan, with 23.3% and 22.4% renewable energy respectively, also demonstrate significant progress. Japan's steady increase in solar and wind adoption reflects its strategic focus on diversifying energy sources and enhancing sustainability. Despite these advancements, the gap between China and Japan in renewable adoption is notable, challenging common perceptions and emphasising the dynamic nature of the energy transition landscape.
Conclusion
The renewable energy transition in Asia is nuanced and multifaceted. China's extensive investment in renewable energy infrastructure highlights its potential to transition away from coal, a move supported by robust policy frameworks and significant financial commitments. Conversely, Japan has made steady advancements in solar and wind energy adoption, reflecting a strategic focus on sustainability and technological integration.
However, the story is not solely about energy transitions. Biodiversity impacts provide a broader context. Emerging Markets exhibit relatively lower negative impacts on land and sea use change and pollution due to lesser industrial activity, compared to China and Japan. This suggests that while these markets are developing rapidly, they are not yet engaging in extensive land exploitation and urban expansion.
We’ve seen that China's rapid economic growth, exemplified by initiatives like the Belt and Road, has significantly strained its natural resources and biodiversity – and whilst Japan has a more advanced economy, it also faces significant pollution challenges, particularly marine pollution due to high plastic waste and inadequate recycling efforts.
Where to begin?
Contrary to common misconceptions, robust data for emerging markets and the APAC region does exist. One of our investment solutions, SmartESG, can leverage nuanced insights such as this, to create a more efficient investment frontier – enabling investors to create more impactful and risk-optimised strategies.
Click here to find out more about our investment solutions.
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