Carbon pricing as a term – and tool – is becoming increasingly more prominent. The World Bank defines carbon pricing as an instrument that captures the cost of greenhouse gas emissions, such as the cost of healthcare from heat waves and droughts, and the loss of property from flooding and sea level rise. Carbon pricing ties these costs to the source of the emissions, usually in the form of a price on the carbon dioxide emitted by the source.
Yet across ASEAN, many countries have yet to implement carbon pricing at scale. You could be forgiven for thinking that your business slips through the cracks of global climate regulation. If your government doesn’t tax carbon and you’re not a large emitter, how could it affect you?
But the reality is quickly changing, especially for exporters. Whether you’re a garment supplier in Cambodia, an electronics assembler in Malaysia, or a packaging firm in Vietnam, you may already be exposed to the rising cost of carbon. Global supply chains are global, and an increasing number of buyers around the world are subject to their own countries’ carbon pricing.
Large importers in the EU, US, and Japan are starting to face financial or reputational costs for the carbon embedded in the products they buy. This may mean that they start to look to suppliers to track and reduce emissions; or perhaps those suppliers are forced to pay a carbon tax at the border. In this emerging system, carbon is no longer a domestic cost, it is getting priced into trade.
How Carbon Pricing Is Creeping Down the Supply Chain
Costs on the border – CBAM: We’ve previously explored the impact the EU Carbon Border Adjustment Mechanism (CBAM) is having on global supply chains. It charges importers for the carbon embedded in certain products; currently steel, aluminium, cement, fertilisers, hydrogen, and electricity.
CBAM is currently in its mandatory phase, but this changes in January 2026; importers must begin paying for emissions that exceed EU benchmarks. According to a report from the New Climate Institute, Vietnam, Indonesia, and Thailand are at particular risk of exposure to CBAM; Between USD 0.7-1.1 billion of annual exports to the EU from each of these three countries may fall under the coverage of CBAM.
A new flashpoint – Scope 3 emissions: Most carbon pricing discussions focus on emissions that occur within a company’s own operations (Scope 1) or from the electricity it consumes (Scope 2). However, there is a growing focus among global buyers on Scope 3 emissions: those that occur upstream and downstream in the value chain. This includes everything from the raw materials a company purchases to how its products are used and disposed of.
The international business community is increasingly aware of the reputational and compliance risks associated with Scope 3, but major tensions remain about what to do with those emissions.
Offsetting these emissions, i.e. buying carbon credits to cancel them out, has become a commonplace tactic but is facing growing regulatory scrutiny, investor scepticism, and NGO pushback. Companies are expected to prioritise measurable, in-house reductions, and any offsets used must be high-quality, additional, and independently verified, ideally aligned with emerging global standards like the ICVCM Core Carbon Principles.
Meanwhile, some NGOs and environmental watchdogs, such as Carbon Market Watch, argue that companies must take responsibility for all emissions linked to their operations, including Scope 3, and that offsetting is a form of greenwashing.
Many companies regard Scope 3 as out of their control, and therefore a lower priority. In ASEAN markets, most SMEs and mid-sized firms are unaware of the Scope 3 reporting expectations that are already baked into procurement systems in the EU, US, and Japan. Many companies will likely rely on offsets as their primary climate strategy, in some cases without full understanding of the reputational risks involved if those credits are later found to be flawed. This creates a silent vulnerability: suppliers may be being asked for emissions data they’ve never gathered, under buyer expectations they’ve never heard of.
A High Exposure Case Study: Electronics
The electronics sector is a pillar of ASEAN exports and a hotspot for rising carbon accountability. The sector illustrates how carbon costs are filtering down to Southeast Asian exporters, even when they are not directly subject to carbon pricing at home.
Thailand and Malaysia are key players in the global electronics supply chain. Both countries host numerous manufacturers that supply components to major original equipment manufacturers such as Apple, Dell, and Samsung; all of which have committed to net-zero targets and published detailed supplier sustainability guidelines.
As a result, carbon accountability is becoming a procurement issue. Suppliers are increasingly required to:
- Disclose their Scope 1 and 2 emissions.
- Demonstrate decarbonisation efforts or renewable energy sourcing.
- Provide data for buyers’ Scope 3 disclosures.
Even mid-sized component suppliers, who previously flew under the radar, are now being assessed on carbon intensity.
The challenge is especially acute for SMEs that rely on electricity from national grids still dominated by fossil fuels. For instance, Malaysia’s power mix was 86% fossil-based as of 2022, with coal and natural gas the primary sources. As a result, even energy-efficient factories may appear carbon-intensive in EU or U.S. buyer audits.
Without the tools to measure and report emissions, these suppliers risk being downgraded or delisted by buyers who are aligning with increasingly strict ESG benchmarks.
Are ASEAN businesses Ready?
For most ASEAN businesses, particularly SMEs, carbon disclosure isn’t yet a regulatory requirement. But it’s becoming a commercial expectation and many firms are unprepared.
- Lack of tools: Most SMEs don’t track their emissions. Energy use may not even be digitised.
- Limited internal expertise: Sustainability teams are rare. Staff often lack time or training to manage carbon data.
- Infrastructure barriers: Access to affordable renewables or clean manufacturing processes is inconsistent across the region.
- Assumption of exemption: Many SMEs believe carbon accounting applies only to multinationals or large emitters, not them.
Businesses may be being caught off guard when global buyers demand emissions data as part of procurement. Without the ability to respond, they risk losing contracts, or absorbing unexpected costs passed down from carbon-pricing schemes like the EU CBAM.
Practical Steps to Take Now
The good news: SMEs don’t need to overhaul their operations overnight. Small, low-cost steps now can reduce risk and build credibility.
1. Estimate your emissions
Start simple. Use tools from providers such as GHG Protocol and Watershed, among others. Focus on key sources like electricity, fuel, and logistics.
2. Engage buyers proactively
Ask: “Do you need emissions data from suppliers?” and “What are your Scope 3 reporting goals?” Understanding expectations early allows you to prepare rather than react.
3. Improve energy efficiency
Common upgrades such as LED lighting, efficient motors, or heat insulation, cut both costs and emissions. Some countries offer subsidies or tax deductions.
4. Be strategic with offsets
Offsets should be high-quality, independently verified, and used only for unavoidable emissions. Increasingly, global buyers want real reductions first, and may not accept offsets as a substitute.
5. Join support schemes
By joining our network of ASEAN business leaders, you can learn from others, share your lessons, and ensure you remain ahead of the cursive. To learn more or express interest, get in touch.
Carbon Is a Business Cost, Whether You Price It or Not
Carbon pricing isn’t waiting for your government to act; it’s already arriving through contracts and tenders, and creeping costs through supply chains. You don’t need to be part of a carbon market to be affected by one. If your buyer sells to the EU or a listed firm tracks Scope 3 emissions, your business may already be being measured, even if no one has told you yet.
The firms that prepare now – by understanding their emissions, asking the right questions, and getting the basics in place – will be seen as credible, low-risk partners. Those that delay may not see the cost coming until they lose a bid or a buyer silently moves on.
This isn’t about politics or climate targets; it is about resilience, market access, and future-proofing your business.
