Green businesses in Southeast Asia saw a significant 21% rise in investments at $6.3 billion in 2023, as rainmakers flock to cash in on energy efficiency projects.
Renewables and green data centres dominated the overall investment trends in 2023, driven by regulations in Malaysia and Singapore, according to a joint report by Bain & Company, Temasek, GenZero and Standard Chartered. Funding for water treatment and plastic recycling assets also accounted for a lion’s share of investment dollars.
Solar and wind projects in the region reaped a hefty $2.2 billion across 28 deals last year while investments into other renewables and buildings totaled $1 billion each, per data compiled by the report.
Indonesia topped the rank with $1.6 billion, followed by the Philippines which attracted investments worth $1.5 billion in 2023. Malaysia secured around $1 billion in funding, up significantly from about $200 million in 2022, thanks to large-scale green data centres in Johor and Kulai.
“We’ve also seen renewed interest around EVs and mobility across the region… in some countries like Thailand and other places where incentives have led to a significant increase [in interests],” said Bain’s global head of carbon markets Dale Hardcastle in a media briefing in Singapore.
Big-sized green bets in the Asian region were largely made by corporates in 2023 while climate funds put their money in startups. The young sector last year saw increased domestic investment within the region with a consistent decline in foreign investments.
Southeast Asia has presented a potential to generate additional annual net revenue of up to $300 billion from the green economy by 2030, of which half of the amount could derive from what the report dubbed as “13 investable ideas” across four themes: nature and agriculture, power, transport, and buildings.
However, scaling capital flows into Southeast Asia’s green economy remains constrained due to a mismatch between risk-weighted returns and investor expectations as well as emerging market risks, such as currency volatility and political stability.
Kimberly Tan, head of Investments at Temasek-owned GenZero believed that significant acceleration is needed to meet the capital requirement of $1.5 trillion to achieve the 2030 carbon emissions reduction target that the region has committed to.
Besides enhancing regional fiscal incentives and strengthening regional collaboration to further push the green agenda, the report also points to blended finance as a way in which public and private entities in different verticals could mobilise capital into green investments.
“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 derisk commercial opportunities,” said Hong Kong-based Tracy Wong Harris, head of sustainable finance for Asia at Standard Chartered Bank.
By growing available concessional funds, the potential blended finance pool for the region could swell up to 10 times to up to $20 billion annually, “if a common approach is developed,” according to a statement. This would translate into around $2-3 billion in concessional funds used for blended finance in 2025 and beyond for Southeast Asia, said the report.
When asked about the challenges that may hinder the adoption of blended finance or concessional funds, Wong Harris told reporters that the structure of the so-called innovative financing mechanism is more complicated than the mainstream ones in the market, such as green bonds or loans.
“It may take longer [to establish the structure] because you have multiple parties involved and they have different criteria and requirements,” she said,
Southeast Asia in January welcomed the first-ever blended finance fund combining philanthropy, public, and private sector capital when Clime Capital announced the $127 million first close of its latest clean energy fund. Norfund, BII, IFC, FMO, and Swedfund committed to the vehicle as senior equity investors, while Allied Climate Partners, Australian Development Investments, the Global Energy Alliance for People and Planet, and Impact Assets provided the first-loss tranche.
