VCM to help raise capital and spur innovation
PETALING JAYA: The move by Bursa Malaysia to launch the Voluntary Carbon Market (VCM) exchange is a positive move as it will help companies raise capital and spur innovation in low carbon technologies, among other things.
While analysts view the development as a commendable one, they however do not expect the VCM to be a significant contributor to Bursa’s revenue in the short-term.
Hong Leong Investment Bank (HLIB) Research said although the VCM is voluntary, it believes that companies that choose to participate and buy carbon offsets would be able to demonstrate to stakeholders their commitment towards reducing their carbon footprint.
The system would drive corporates to internalise this cost into their business operations, it noted.
“Failure for companies to transition to low carbon practices or failure to demonstrate their commitment to do so, would not only damage their reputation (which in turn impacts revenue), but it could also make it more difficult for them to access capital as debt financiers are increasingly looking at sustainability criteria when providing capital.
“On the other hand, VCM rewards green asset owners and this will incentivise innovation in low carbon technologies.”
Through VCM, HLIB Research said investors will also be able to start using the price signals from the exchange to price-in carbon emission costs to businesses.
“VCM rewards green asset owners and this will incentivise innovation in low carbon technologies. Through VCM, investors will also be able to start using the price signals from the exchange to price in carbon emission costs to businesses,” it added.
During its recent investors’ briefing, the research house said that Bursa Malaysia’s management shared that they do not expect a significant contribution from the VCM in the near term, but definitely sees potential over the longer term.
“While the impending launch of the VCM is a lauded move by Bursa Malaysia in aiding the country’s journey to becoming carbon neutral by 2050, we maintain our fundamental “sell” rating on the stock given the lacklustre average daily trading volume numbers witnessed since last month.
“Our RM5.65 target price is based on a 20 times price earnings (five-year mean) tagged to financial year 2022 earnings per share,” HLIB Research added.
Bursa said it will launch the VCM exchange later this year.
A VCM exchange enables companies to purchase voluntary carbon credits from climate-friendly projects and solutions.
To achieve a lower carbon footprint over time, corporates can use these carbon credit products to voluntarily offset their existing climate impact alongside other internal carbon reduction initiatives.
The stock exchange operator is to adopt the verified carbon standard or better known as “Verra”.
Verra is a widely recognised standard in the VCM, accounting for nearly 70% of voluntary carbon credit issuances globally.
Using Verra standards, carbon credit projects would be subjected to robust assessments that ensure environmental claims are appropriately measured and independently verified, thus preventing greenwashing claims.