Unlocking green money in S-E Asia

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??This week: Private green investment in South-east Asia continued to decline for the second year in a row, according to the latest Green Economy Report by Bain, Temasek, GenZero and Amazon Web Services.

Total green deal transactions in South-east Asia shrank 7 per cent in 2022 to US$5.2 billion. In 2021, the total was US$5.6 billion – down 15 per cent from the 2020 total of US$6.6 billion.

What lies behind that decline, and is it a problem? The short answer: it’s complicated, and yes.

It’s important to start by not overreacting. The amounts were not huge to begin with, so the totals can be sensitive to the presence and absence of large deals. For example, more than a third of the 2020 total included US$2.8 billion from a single deal: an equity raise for Yuan Feng New Energy.

The reported numbers are also historical, and do not reflect new commitments that have yet to be deployed. For instance, more than US$35 billion has been pledged by Europe, Japan, the United States and other international players over the next three to five years to support the decarbonisation of the energy sectors in Indonesia and Vietnam under Just Energy Transition Partnership frameworks.

Stagnant or declining private investment growth in the green sector is, nonetheless, troublesome for South-east Asia, which has high and growing decarbonisation needs. Where demand for financing is upwards, flat or downwards sloping private-sector involvement means missed targets.

That is exactly what the report warned. Of the four largest greenhouse gas-emitting countries in the region – which account for more than 80 per cent of South-east Asia’s emissions – three were assessed by the report to be unlikely to deliver on their Nationally Determined Contributions towards Paris Agreement goals.

The report identified a number of reasons that investments haven’t been flowing:

• High cost of capital and poor returns;
• Policy irregularity and uncertainty;
• Undeveloped innovation ecosystem;
• Poor investor confidence amid limited green growth policies; and
• Uneven levels of economic development between South-east Asian countries.

What’s interesting is that these hurdles exist even though governments in the region seem to have plans to overcome them. In assessing the progress of South-east Asian countries towards their 2030 emissions goals, the report found most had made good progress on setting targets.

But most of the countries were not doing as well when it came to the implementation parts of the task: coming up with concrete roadmaps and building enabling support for achieving those targets. The findings suggest the big challenge for South-east Asia lies in translating its ambitions into action.

Uncertainty about the ability of governments to do what they say makes capital uncomfortable, and could explain why private investment has not been growing as quickly as hoped.

?? Top ESG reads:

1. Indonesian President Joko Widodo pitched the planned capital of Nusantara to attendees at the Ecosperity conference as an opportunity for sustainable investments, but not everyone was buying it.
2. Only half of Asia’s top companies have set net-zero targets, just one of a number of gaps in corporate sustainability reporting identified by PwC and NUS Business School.
3. Singapore must stop demolishing buildings and creating concrete-intensive structures to build more sustainably says the founding director of environmental design consultancy Atelier Ten.
4. The Asia-Pacific chapter of the financial industry group Glasgow Financial Alliance for Net Zero (GFanz) has launched a public consultation that could pave the way for its member banks to finance the early phasing out of coal.
5. South-east Asia’s financial ecosystem is poised to greenlight the financing of coal phase-out, but Singapore’s three banks may need to clear up grey areas in their self-imposed coal policies before they can take part in the hottest area of transition finance.

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