The voluntary carbon market is a lynchpin for tech in Indonesia
Published on July 20, 2022
Lauren Blasco is the Head of Environmental, Social, and Governance (ESG) at AC Ventures in Indonesia. A seasoned veteran in her field, she believes building out Indonesia’s voluntary carbon market is a likely catalyst that will deliver a windfall of ESG compliance in Southeast Asia’s largest and most important market.
“I think one of the biggest things that everyone is looking at – and especially looking to Indonesia for – is the voluntary carbon market. It’s something that everyone is waiting for,” explained Lauren in a recent podcast. “Once Indonesia sets regulations for a voluntary carbon market and implements more of a mandate on reporting, it will really put us at the forefront of the conversation surrounding ESG compliance in Southeast Asia.”
As an authority on ESG, Lauren brings an impressive track record to the landscape in Indonesia. Industry players will recognize her as the former Director of Sustainability at Potato Head Group. Prior to that, she held multiple related senior positions such as Executive Director at Clean the World, Guest Lecturer at the National University of Singapore, Adjunct Professor at The University of Hong Kong, and others.
What is the voluntary carbon market?
For those less familiar with the subject, the voluntary carbon market is a decentralized market where private actors voluntarily buy and sell carbon credits that represent certified removals or reductions of greenhouse gasses in the atmosphere. It allows buyers to offset their carbon to meet governmental reporting and company policies.
Due to mounting pressure from governments around the world and from the public at large, multinational companies (and investors) increasingly need to satisfy stringent ESG requirements in their home countries, and the same can be said about how they deploy capital overseas.
A big part of this is related to their carbon footprints. This is the total amount of greenhouse gasses – including carbon dioxide (CO2) and methane – that are generated by their operations.
Voluntary carbon markets allow carbon emitters (such as private companies) to offset their unavoidable emissions by purchasing what are known as ‘carbon credits’ to help them comply with government ESG requirements. Largely, this is done by initiating projects designed to remove or reduce greenhouse gasses from the atmosphere.
For example, a high-emitting coal company could set up some kind of forestry conservation program to earn carbon credits.
Each credit – which corresponds to one metric ton of reduced, avoided, or removed CO2 or an equivalent greenhouse gas – can then be used by a company or an individual to compensate for their harmful emissions, says S&P Global. When a credit is used for this purpose, it becomes an offset. It is moved to a register for ‘retired credits’ and it is no longer tradable.
Where do we stand in Indonesia?
The local government recently passed laws on carbon pricing with the goal of setting up a compliance carbon market. This includes putting in place an emission trading system by 2025 to incentivize emissions reductions, namely in sectors with large carbon footprints.
The government also signed Presidential Regulation Number 98/2021 on Carbon Pricing. This is an important ingredient for implementing a market-based mechanism to reduce emissions.
The country signed multiple pledges at the UN climate talks. These include the Global Deforestation Pledge, the Global Methane Pledge, and the Global Coal to Clean Power Transition. In the run-up to Indonesia hosting the G20 summit this year, the country has also committed to reaching net-zero emissions by 2060 or sooner.
Indonesia is also showing other green policy signals, including revised car emissions tax policies, which will apply lower taxes to low-emission vehicles and zero tax on electric ones. The government is also set to enact a carbon tax in the electricity sector.
These chess moves may conceivably accelerate the nation’s transition from coal to renewable energy if legislators continue to strengthen such policies.
What does this mean for the tech ecosystem?
Indonesia’s digital economy is not exempt from the climate discussion. Increasingly, venture capital (VC) firms are seeing an imperative from their limited partners, and the global community of stakeholders, to make sure their portfolios adhere to a higher standard of ethics, with carbon emissions top of mind.
In the current business landscape, multinational corporations that put money into venture funds need to tick very specific ESG boxes – often related to the levels of carbon emissions produced by a VC’s portfolio.
For this reason and more, Lauren is currently running what are known as net impact assessments across AC Ventures’ portfolio of tech companies.
According to Upright (the gold standard platform for ESG reporting used by global investors), ‘net impact’ is the sum of a company’s positive and negative effects on environment, health, society, and knowledge. Lauren is currently using the tool to establish this type of baseline across the venture firm’s portfolio.
From it, AC Ventures will soon publish Indonesia’s first sustainability report for the tech startup space in partnership with Boston Consulting Group.
“These net impact scores are what will give us a baseline on where our companies are on their carbon emissions and more,” explained Lauren. “Establishing these benchmarks are a first step toward measuring impact across Indonesia’s tech sector as a whole. In the context of our portfolio, having these baselines will put our companies far ahead. When the voluntary carbon market does kick in, offsetting emissions will already be part of our portfolio’s regular activities.”