Bain & Company, GenZero, Standard Chartered and Temasek have in their recent report highlighted top 13 decarbonization investment ideas in Southeast East Asia which present $150 billion green economy market opportunities.

The parties said in their “Southeast Asia’s Green Economy 2024 – Moving the needle” report that they first assessed 94 investable decarbonization ideas for Southeast Asia by abatement impact and deployability, based on six priority decarbonization opportunities including improved farming practices, nature-based solutions, green fuel source, process optimization, greener transport and energy efficient building.

Out of this pool, the top 13 investable ideas across four sectorial themes – nature and agriculture, power, transport, and buildings – were identified.

If materialized, these 13 ideas could generate $150 billion annual revenue by 2030, said the report.

“As one of the most vulnerable regions to climate change, Southeast Asia is experiencing a significant increase in greenhouse gas emissions driven by economic development,” said Kimberly Tan, Head of Investments at GenZero.

“While climate investments increased by 20 percent to $6.3 billion in 2023, significant acceleration is needed to meet the $1.5 trillion required to achieve 2030 emissions targets.

“Amidst global competition for climate investments, countries which take the lead in charting out their decarbonization roadmap through clear policy frameworks, supportive regulations and concrete financing plans will be better positioned to attract private investment and accelerate their transition,” she added.

The report also highlighted five accelerators to expedite the green transition in the region: (1) a more comprehensive set of policy incentives, (2) innovative finance mechanisms, (3) scaling corporate investment, (4) cluster/ pilot developments and (5) regional collaboration.

According to the report, Southeast Asia is making progress on policies for the green economy, but the region’s fiscal incentives remain limited and dispersed.

It mentioned that the US Inflation Reduction Act (IRA) as a prime example of accelerating green investment in the US and for global players.

The report opined that Southeast Asian governments should focus where strategic impact and acceleration is greatest to define their own ‘fit-for-purpose IRA for the region that strengthens green competitiveness’.

Notably, it said the region’s fiscal incentives directed towards fossil fuels amounted to $117 billion in 2022, compared to $26 billion for renewables.

It said this presents opportunities for the region to focus on green opportunities to capture advantages, by accelerating critical industries, strengthening green exports, promoting nature conservation, catalyzing grid infrastructure, incorporating programs to skill the workforce for new green jobs, and fostering the transition to sustainable agriculture.

The report also highlighted that regional collaboration is fundamental to push the green agenda further, according to the report.

For instance, it said a regional cross-border grid would unlock greater access to renewables for the region and increase energy security with effective utilization and resource sharing.

It also said growing a high integrity voluntary carbon market could unlock and scale supply of nature-based solutions through cross-border carbon market funding and boost investor confidence and corporate demand by capturing full value of credits.

It also noted expanding the ASEAN Taxonomy could help regional stakeholders align on definitions of credible transition and green finance, which improves investor confidence and increases green capital inflows.

It said that joint effort among governments, corporates and investors to play their respective parts is also equally important,.

“Southeast Asia has an outsized role to play in the global net zero ambition,

“However, the region faces the dual, often conflicted challenge of meeting the rising need for affordable and reliable energy while simultaneously cutting emissions,” said Kyung-Ah Park, Head, ESG Investment Management & Managing Director, Sustainability at Temasek.

“To seize the green growth opportunity and accelerate the transition in a just and inclusive manner, we need radical collaboration across the public and private sectors, as well as harness the breadth of financial toolkits to catalyze investment flows for sustainable infrastructure and collectively raise the bankability of such projects,” she added.

The report also showed Southeast Asian funds and banks are starting to address financing challenges via innovative mechanisms, and one example is blended finance.

It is noted that blended finance is a structuring approach that combines catalytic capital to attract more commercial capital from the private sector.

By leveraging catalytic capital to help de-risk projects, reduce high cost of capital, and address other investment barriers, the blended finance structuring approach of combining catalytic capital to attract more commercial capital from the private sector helps to increase the bankability of projects and crowds in mainstream capital to unlock greater decarbonization opportunities in the region.

The report said scaling concessional capital and other enablers can unlock an additional pool of up to $20 billion for blended finance per year if a common approach is developed for Southeast Asia.

“ASEAN requires an additional $1.5 trillion by 2030 to support the transition, but the region offers great potential for climate action at scale,

“To tap into growing opportunities, we need a coordinated and collaborative approach that builds an ecosystem where private investors and public entities can come together to act against the worst effects of climate change, leveraging catalytic capital to lower the cost of investment and de-risk commercial opportunities,” said Tracy Wong Harris, Head of Sustainable Finance Asia, Standard Chartered Bank.

According to the report, Southeast Asia requires$1.5 trillion in cumulative investment in the energy and nature sectors to reach nationally determined contribution targets by 2030. However, only 1.5 percent has been invested to date.

It is noted that 2023 saw a notable 21 percent year-on-year uptick in green investments in the region to $6.3 billion, reversing the downward trend in previous years.

Corporates invested in large-size deals while climate funds invested in start-ups. In addition, there were more domestic investments within the region with a consistent decline in foreign investments.

While power, and in particular renewables, remained the largest green investment theme in 2023, it is the increase in investments in green data centers driven by energy efficiency regulations in Malaysia and Singapore, as well as investments in waste management towards water treatment and plastic recycling in the region that drove the largest investment dollars.

By country, Malaysia and Laos made the biggest year on year jump in green investments, 326 percent and 126 percent respectively.

Malaysia attracted large-scale green financing for data centers in Johor and Kulai, while a large-scale project to unlock Laos’s renewable potential is being carried out by foreign investors

Meanwhile, to better help Southeast Asian markets track their decarbonization progress, the report unveiled the region’s first SEA Green Economy Index which examines how each country is progressing across five metrics with varying weightage totaling 100 percent – ambition (20 percent), progress (25 percent), roadmap (20 percent), accelerator (25 percent), and investment (10 percent).

The index shows that Southeast Asia has made some encouraging moves to reduce greenhouse gas emissions, with Singapore and Vietnam making the most progress over the last year.

Eight out of ten countries have net zero targets, and while they have remained the same as the previous year, more than half of the region’s top emitting corporates have set net zero or emission reduction targets, 15 more compared to 2023.

In addition, seven countries have shown progress in adopting renewable energy and electric vehicles, preserving forestland, and enhancing health of cropland soil.

The report reckoned that Translating ambition to action and results will take time.

It said Southeast Asia is still in early adoption and has the opportunity to capture proven and the most cost effective decarbonization initiatives.

In 2024, it said the region needs to double down on the top 13 investable ideas, leverage on the key accelerators to unlock these ideas and ensure better cooperation among governments, corporates, and investors.

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