Asia's Carbon Markets Strategic Imperatives for Corporations 2025

Driving value chain decarbonization to enhance supply chain resilience and customer engagement Value chain decarbonization is driven by four strategic imperatives Supply chain resilience: Compliance carbon markets impose carbon costs on high-emission, hard-to-abate sectors such as steel, aluminium, chemicals and building materials, with these costs cascading through the supply chain to downstream products. To avoid disruptions from rising carbon expenses, enterprises should transition to a low- carbon supply chain to secure competitiveness. Customer pressure: Pressured by their own carbon market compliance (e.g. scopes 1, 2 & 3 accounting), major brands enforce decarbonization commitments (e.g. Science Based Targets initiative – SBTi), requiring suppliers to reduce emissions to retain partnerships. Export market pressure: Trade policies such as the EU’s Carbon Border Adjustment Mechanism (CBAM) effectively force exporting enterprises (e.g. for photovoltaic components) to align with importers’ carbon footprint requirements to avoid carbon tariffs or market access restrictions. Regulatory requirements: Mandatory carbon footprint rules developed and implemented by countries underpin carbon market functionality, compelling enterprises to cut value chain emissions for transparency and compliance. To address these imperatives, businesses must adopt a two-pronged approach First, strengthen value chain management: A robust value chain management strategy can leverage a comprehensive set of decarbonization levers tailored to value chain partners, ensure traceability, reduce emissions, and build cost- efficient, future-proof supply chains. This strategy includes effective supplier management, strategic volume allocation, enhanced product design and cross-value chain partnerships and innovation (see Case Study 2). Second, respond to evolving customer and consumer demands: As outlined in Figure 13, the impact of carbon markets will be transmitted along the value chain, affecting end consumers. Corporations can capture green premiums by responding to evolving customer needs. A recent Bain & Company survey highlights sustainability as a rising priority for both corporate customers and end consumers: –For corporates, sustainability will become the second-most critical purchasing criterion within three years (see Figure 14). –For consumers, nearly 80% say they have begun shopping sustainably in the last five years and most expect to spend more on sustainable products in the future (see Figure 15). Businesses that effectively respond to these demands via effective commercial and marketing strategies can transform decarbonization into a source of competitive advantage and growth. By integrating these strategies, businesses can navigate the transmission effects of carbon markets, meet stakeholder expectations and position decarbonization as a driver of value chain resilience and market differentiation. Asia’s Carbon Markets: Strategic Imperatives for Corporations 31