SE Asia decarbonisation to create up to $150bn in investment plays
Investable opportunities that can be monetised and have an impact are emerging in Southeast Asia's decarbonisation journey, a newly launched report co-authored by Temasek said.
The report identified 13 decarbonisation ideas for Southeast Asia, representing economic opportunities of up to $150 billion.
The report was co-authored by Temasek, GenZero, Bain & Company, and Standard Chartered and was released on the sidelines of Singapore state investor Temasek’s annual sustainability-focused event, Ecosperity. The event runs from April 15 to 17.
Kimberly Tan, head of investments at GenZero -- the climate investment arm of Temasek --emphasised the need to step up investments given the intense pressure the region faces due to climate change.
“One of the most vulnerable regions to climate change, Southeast Asia is experiencing a significant increase in greenhouse gas emissions driven by economic development," Tan said.
"While climate investments increased by 20% to $6.3 billion in 2023, significant acceleration is needed to meet the $1.5 trillion required to achieve 2030 emissions targets.”
Renewed interest in electric vehicles, as well as growing demand for green data centres were the main drivers of the 20% increase in climate investments in 2023.
Malaysia and Laos were the two biggest country recipients of green investments, with investments soaring 326% and 126%, respectively.
MARKET READY
The thirteen ideas cut across a range of sectors from nature and agriculture to power, industrial and waste, buildings, and transportation and include investment areas like regenerative and precision agriculture, utility-scale solar and wind power, forest, and peatland conservation etc.
Each of these "market-ready" ideas has the potential to reduce carbon emissions by over 100 metric tonnes of carbon dioxide equivalent per year (MtCO2e/year), with immediate emissions reductions achievable within the next year, according to the report.
“Finding these investable opportunities that are accessible, addressable, and impactful in terms of emissions reduction is necessary as the financing gap challenge continues to exist,” said Singapore-based Dale Hardcastle, director of global sustainability innovation center at Bain & Company.
While it can take seven to ten years for investments in these thirteen areas to yield positive cash flow and be ready for public market investments, the technology risk is significantly lower compared to many other technologies, the report highlighted.
"We need to start with what we can do here and now and not miss the opportunity at hand," added Hardcastle
THE LONG HAUL
The importance of carbon markets was also highlighted by various panels at Ecosperity.
“We recognise the potential that carbon markets have in channeling financing to support the scaling and adoption of sustainable solutions and practices in Southeast Asia," GenZero’s Tan noted.
Read also: Temasek's GenZero: Carbon finance's big opportunity for EMs
The report identifies a five-step approach to drive the pace of change via carbon markets.
This includes setting up domestic carbon markets; establishing global/ regional carbon, market connectivity; connecting data from separate registries to avoid double counting; including a broader range of emission reduction and removal approaches; and institutionalising capability-building initiatives to upskill the community and bring specific expertise.
Marat Zapparov, CEO of Pentagreen Capital, underscored the importance of innovative financing mechanisms like blended finance for utilising catalytic capital to mitigate risks, lower the high cost of capital, and tackle other investment barriers to enhance the feasibility of decarbonisation projects’ feasibility, and attract more private capital.
Pentagreen Capital is a Temasek and HSBC-backed asset owner with a remit to provide long-term financing to marginally bankable projects.
Blended finance is a financial structuring approach that combines concessional funds with commercial capital to address new innovative ideas to solve socio-economic challenges.