A good investment strategy is essential for long term success, but investing is only part of the equation. Asset allocation is also crucial because it allows you to maximise the returns from your investments. By apportioning your portfolio among different asset classes according to specific financial goals and risk tolerance, you are able to balance the risks and rewards while achieving your overall objectives effectively.
When it comes to asset classes, people can typically recognise real estate, equities and cryptocurrencies as the main groups in the mix. However, nature is emerging as a new asset class in the last couple of years propelled by the growth of carbon markets, new technological inventions and more. Today, carbon markets have grown to a market value of USD 270 billion as more enterprises purchase carbon credits to boost their efforts in decarbonising to tackle the issue of global climate change. This makes carbon credits a profitable financial instrument as more businesses move towards building a low-carbon economy.
The Impact of Carbon Emissions
Global warming has impacted the planet’s overall temperature for over a century, with carbon emissions like carbon dioxide and methane at the forefront of this development. With human activities such as deforestation and the burning of fossil fuels influencing the climate devastatingly, the world is now warming faster than ever before. Increased temperatures do not mean that we just have to brave the heat on sweltering days, it is a crisis that actually poses many threats to human lives and other living organisms on Earth. It brings about severe consequences such as heat-triggered conditions and natural disasters that result in food and water scarcity. Since the 1880s, the combined land and ocean temperatures have been increasing at an average rate of 0.14 degree celsius per decade and will continue to accelerate if efforts are not made to be more sustainable.
That being said, a hundred corporations across the world in the energy sector account for 71% of emissions related to fossil fuels and cement production, meaning that they are the entities that hold the most power to prevent this climate crisis from worsening. While many businesses have taken the necessary steps to significantly reduce their impact on the environment, there is still much to do to achieve net zero emissions in the future.
Governments of countries like Singapore, the United Kingdom and New Zealand have also introduced a carbon tax whereby emitters are required to pay for each tonne of carbon emissions that they release into the atmosphere. This has significantly reduced emissions as companies switch fuels, adopt new technologies or use other strategies to avoid paying hefty tax fees. With carbon emissions being a part of any economic activity – be it driving a vehicle or constructing a building – a carbon tax can discourage businesses from causing carbon pollution by placing a financial burden on them, and act as an incentive for them to make more environmentally-conscious decisions.
An example of another great way for enterprises to participate in the solution to climate change comes in the form of carbon credits. They were devised as a mechanism to reduce the overall greenhouse gas emissions by creating a market in which companies can trade in emissions permits. The idea behind carbon credit trading is simple, yet effective. Businesses are encouraged to take steps to lessen their carbon footprint, which they can then convert into carbon credits at a later date. Carbon markets enable emitters to obtain a reliable and predictable source of funds for reducing their carbon emissions, whilst creating a clear incentive for other companies to also reduce their emissions. In turn, this helps to achieve greater overall reductions in global greenhouse gas emissions, thus improving their sustainability performance, and helping to contribute to the mitigation of climate change.
Indonesia’s Commitment to Net Zero Emissions
To create a more sustainable future, Indonesia has pledged to reduce their greenhouse gas emissions by 29% by 2030. To achieve this target, many enterprises in the country have already shown their support and commitment by announcing several strategies in place to reduce their carbon footprint. Perusahaan Listrik Negara (PLN), Indonesia’s biggest utility company, is also actively participating in this journey to meet Indonesia’s environmental goals. It aims to phase out fossil fuels by 2060 to reach carbon neutrality, marking a huge shift in the country’s energy policy that has relied heavily on fossil fuel power generation for decades. This crucial first step sends a sign to other local and global corporations alike that in order to build a low-carbon economy, emitters will need to facilitate this transition through carbon emissions reduction. Furthermore, Indonesia has also introduced a carbon trading policy comprising results-based payments for initiatives that result in carbon reduction as well as a cap-and-trade system where the pollution level is limited and allowances can be traded by business entities within the country and cross-border.
As a firm supporter of Indonesia’s sustainability goals, Asia Pulp and Paper (APP) Sinar Mas has also dedicated its efforts to reducing their greenhouse gas emissions to fight against climate change. Asia Pulp and Paper shared its key updates from the updated Sustainability Roadmap Vision 2030 at the Stakeholders Advisory Forum (SAF) 2022 which highlighted that compared to 2018, the company has reduced its emissions by 13%. This is a significant achievement that will help mitigate the impacts of climate change. In addition, the Indonesian pulpwood giant was even named the most sustainable company within the pulp and paper industry earlier this year. Asia Pulp & Paper has made substantial efforts to combat this global crisis, and will continue doing so to build a more sustainable future and create a lasting change in time to come.