1.Countries are raising their climate action targets to further promote global energy transition.

In 2025, as mandated by the Paris Agreement, all participating nations must update and submit their Nationally Determined Contributions (NDCs) in alignment with the 1.5°C target. Serving as the overarching goal that defines the ambition and scope of countries by 2035, this update will have a significant impact on various aspects of society and the economy over the next decade. While the degree of target enhancements may vary, the energy transition—moving away from fossil fuels towards renewable energy—will be further advanced in both breadth and depth.

Irrespective of the market in which they operate, NDCs play a crucial role as a primary benchmark for long-term planning in low-carbon transition, particularly for industries within the energy sector.

2. Global carbon market is expanding.

By 2025, the global carbon market is anticipated to experience growth and advancements in terms of scale, mechanisms, liquidity, and standardization. This includes the expansion of existing domestic carbon markets and the introduction of new markets in countries such as Turkey, Colombia, New York State in the U.S., along with plans for implementing carbon taxes in Taiwan, China, Indonesia, Thailand, Morocco, and Denmark. As part of the current round of NDC updates, more nations may outline their intentions to engage in international emission reduction transfer/trading mechanisms under Article 6 of the Paris Agreement, although regulatory frameworks still necessitate further refinement.

Whether in the voluntary carbon market or the emerging international mechanisms under Article 6 in the future, the carbon market is presently undergoing a phase of rule-making and enhancement concerning methodology, regulatory standards, quality, and market integrity. The expansion of carbon markets will offer additional avenues and incentives for corporate involvement. Nonetheless, companies may need to more precisely and clearly define the role of carbon offsets in their climate strategies, while ensuring accurate disclosure and effective quality management.

3. The pressure of climate compliance in markets such as the European Union is increasingly disseminated and cascaded through the supply chain.

By 2025, the European Union's Corporate Sustainability Reporting Directive (CSRD), new Battery Regulation, and Carbon Border Adjustment Mechanism (CBAM) will move into their implementation phases, imposing heightened compliance and transparency standards on export-oriented enterprises. These mandates will compel exporting firms to place a greater emphasis on the carbon emissions, environmental, and social risks embedded within their supply chains, ensuring the stability and sustainability of these chains. Consequently, compliance pressures and transition incentives will also extend to entities such as raw material suppliers and recycling enterprises. Furthermore, the potential introduction of similar mechanisms in other countries or markets in the near future demands vigilant monitoring.

Companies must carefully monitor the stability of raw material supplies affected by the policies and concentrate on sustainable supply chain management. This includes assessing the environmental impacts across various stages of the life cycle, spanning from raw material procurement and production to manufacturing and product recycling.

4. Enhanced Guidance on the Circular Economy Driving Sustainable Practices.

To further advance the guidance on the circular economy, numerous countries and regions, such as the European Union, Canada, California, and China, have sequentially introduced directives, regulations, and policies pertaining to this sustainable model. These initiatives encompass crucial sectors like plastic products and packaging, electrical and electronic goods, and power batteries. They extend from end-of-life waste management and recycling to the initial stages of the product life cycle, encompassing design, production, and sales processes. During the INC-5 meeting in Busan, South Korea, held at the conclusion of last year, the management of waste plastic emerged as a pivotal aspect in combatting plastic pollution. This issue garnered widespread agreement among nations, laying the groundwork for enhanced international collaboration.

In addition to emphasizing compliance requirements for key sectors outlined in these policies, national regulations are also focusing on promoting innovation and investment in circular economy practices. These efforts aim to stimulate the adoption of sustainable production and consumption patterns, fostering a more resource-efficient and environmentally conscious approach to economic growth.

5. Global sustainable disclosure requirements are tightening.

By 2025, climate disclosure frameworks in major global markets will transition into a phase of implementation. The mandatory disclosure scope of the European Union's Corporate Sustainability Reporting Directive (CSRD) will broaden, introducing stricter requirements for sustainable information disclosure. The IFRS S1 and S2 standards, released by the International Sustainability Standards Board (ISSB), will see increased adoption across various jurisdictions, fostering the harmonization of global climate-related information disclosure standards. In the United States, although the effective timing of climate disclosure rules has faced uncertainty under the Trump administration, institutional investors will persist in integrating ESG investment strategies. This integration will necessitate portfolio companies to disclose greenhouse gas emissions, climate risks, and transition plans to further enhance investment returns.

In the Asia-Pacific region, exemplified by countries like Singapore, Hong Kong, Japan, and South Korea, ESG disclosure requirements are set to undergo further refinement and enhancement. This will bolster the evaluation and disclosure of climate change risks. The alignment of global regulations will significantly bolster corporate transparency, accountability and risk management, driving companies towards more sustainable and responsible practices.

Moderate Certainty/To Be Observed

6. Climate risks rise and global resilience push intensifies across the globe.

From China to the United States, Europe to Southeast Asia, Africa, and Latin America, the escalation of climate-related disasters in 2024 and the onset of the "boiling era" have accelerated efforts to bolster resilience domestically and internationally. Addressing critical issues such as improving climate adaptation in key sectors like agriculture, health, and infrastructure, as well as catering to the needs of vulnerable populations, are paramount in policy formulation and implementation. By 2025, the allocation and velocity of funding deployment by various nations will be under scrutiny.

The financial repercussions of climate-related physical risks on businesses are becoming more apparent. Companies with operations abroad must incorporate risk management strategies into their planning processes for production, procurement, safety, and other operational facets. Simultaneously, the increasing emphasis on resilience could shape market preferences in regions facing elevated climate risks, as evidenced by the UAE's investment in drainage systems following severe rainfall.

7. The sustainability of natural resource-dependent industries such as agriculture, forestry, and animal husbandry is garnering increased attention worldwide.

With the growing international consensus on biodiversity governance, the policy landscape surrounding nature-related sectors like agriculture, forestry, animal husbandry, and fisheries is progressively evolving. Nations are expanding their designated ecological conservation areas, and there is a heightened focus on the sustainable utilization of marine resources.

COP16 has underscored the significance of sustainable agricultural practices, mandating that the production of agricultural and forestry commodities adhere to elevated environmental and social standards. This necessitates that producers of commodities like palm oil and soybean meals mitigate their adverse environmental impacts, such as deforestation and wetland destruction, while also prioritizing biodiversity conservation and respecting the rights of local communities. The upcoming 2025 UN Climate Conference in Belém, situated in the Amazon region of Brazil, is poised to provide Brazil with a platform to advance its rainforest protection agenda.

In the marine sector, efforts are underway under various international agreements to expand and enhance marine protected areas, bolster pollution management measures, and reinforce regulatory supervision. These advancements will have implications for industries such as marine fisheries, port shipping, and offshore oil and gas development. Enterprises are urged to align with heightened sustainability production standards and market demands, ensuring traceability for key commodities like palm oil and soybean meals while fortifying supplier management systems.

8. Reform and expand financial standards.

In 2025, with the enhancement of classification standards and technological pathways for transition finance, the financial sector expected to undergo a more standardized global evolution. Internationally, the EU Taxonomy for Sustainable Finance is set to refine and expand its technical screening criteria for transition activities, further shaping the landscape. Transition finance frameworks in various markets are progressively maturing, exemplified by initiatives such as the Monetary Authority of Singapore (MAS) Transition Credits framework and the Hong Kong Monetary Authority (HKMA) transition finance support programs. These initiatives offer clearer financing directives for facilitating the low-carbon transition of high-emission industries.

On the domestic front, China's transition finance standard system, spearheaded by the People's Bank of China, is taking form, initially targeting key sectors like coal power and steel. This system will harmonize with the existing 17 local transition finance catalogs, fostering a more cohesive approach. It will provide high-carbon industries, particularly those deemed "hard-to-abate," with defined transition pathways and financial guidance. Transition products such as transition loans and bonds are poised for significant growth opportunities. However, the challenge of "greenwashing" looms over transition finance. Hence, the establishment of robust transition assessment standards and the delicate balance between transition support and environmental integrity will be pivotal focal points in policy development.

9. Can the global plastic limit target 2025 be achieved?

The failure of the Busan conference to reach a global agreement on plastic reduction targets underscores the deep divisions among countries. The High Ambition Coalition, comprising the EU and Kenya, actively advocated for a worldwide target to curtail plastic production, while nations with significant petrochemical industries such as Saudi Arabia and Russia vehemently opposed such measures. The final outcome hinges on the progress of follow-up negotiations in 2025 and the level of coordination and compromise among the involved parties.

The uncertainty surrounding the negotiations introduces challenges for plastic product manufacturers in crafting long-term development strategies and investment decisions, heightening business risks. In the absence of a consensus, there may be notable disparities in national policies and measures for controlling plastic pollution, potentially leading to the imposition of new trade barriers by certain countries concerning plastic pollution management. Conversely, the attainment of an agreement would offer vital direction for corporate medium- to long-term planning leading up to 2030.

It is advisable to closely monitor key issues in the INC negotiations, such as reducing plastic production, regulating hazardous chemicals, and enhancing waste plastic management. Should a consensus or agreement be reached, companies must swiftly adapt their production scales, product formulations, and recycling strategies to align with the new international standards and requirements.

Wild Card

10. The intertwining of geopolitical dynamics and technological advancements continues to influence the global climate governance landscape.

Ongoing geopolitical conflicts and regional disputes are poised to impact the availability of critical resources such as energy and minerals. Simultaneously, the integration of AI in climate governance introduces new variables. Geopolitical tensions have the potential to exacerbate data fragmentation, hindering cross-border climate data exchange and affecting the development of AI models.

On the other hand, global data governance is undergoing a diversification process. At the international level, regulatory frameworks like the EU AI Act and the OECD Data Governance Framework are imposing stricter guidelines on AI applications within the climate sector. In parallel, China is enhancing data governance by integrating corporate data resources into balance sheets, a move expected to improve the quantification and standardized management of climate data. AI technology is poised to enhance the accuracy of climate risk assessments, optimize energy system operations, and expedite innovation in low-carbon technologies.

The disruptive emergence of Deepseek is already reshaping the technological landscape. A potential easing of geopolitical tensions could not only diminish the geopolitical premium on resource supplies but also foster deeper collaboration in climate technology. This could enable AI to play a more significant role in climate governance, facilitating enhanced cooperation and innovation in the field.