UK institutional investor flags challenges of renewables switch in Asia

Investors must be mindful of potential social and economic fallout from a sudden shift to renewables in Asia, according to the Asia head of the development institution.
UK institutional investor flags challenges of renewables switch in Asia

Investors focusing on promoting renewables must carefully consider the social and economic costs of moving too quickly in economies still highly geared to fossil fuels, Srini Nagarajan, head of Asia at British International Investment (BII), the UK’s £8.1 billion ($9.7 billion) development institution, told AsianInvestor.

He emphasised the need for a “just transition”, supporting decarbonisation efforts across the region, with an appreciation that rushing the process could have severe economic consequences.

“Climate finance is a very big topic in South and Southeast Asia, with many countries in the region depending heavily on fuels such as coal, including through exports,” he said.

In Indonesia, the largest country in Southeast Asia, the share of coal in the national energy mix increased from 35% in 2000 to 62% in 2022, according to Ember, an energy think tank based in the UK. 

Srini Nagarajan

“If you simply dispense with fossil fuels, that will affect growth; you have to find solutions that don’t rock the boat but still move countries towards an energy transition that is sustainable and inclusive,” he said.

As the UK government’s primary vehicle for delivering climate finance globally including in Indonesia and Vietnam, BII’s investment efforts typically take place alongside government-level support on accelerating the energy transition journey.

Nagarajan pointed to recent partnerships with the governments of Indonesia in November 2022 and Vietnam in December 2022, in which the UK government had played a role, among others. 


Nagarajan said that as part of BII’s investment strategy, it was prepared to hold controlling stakes in businesses where this was needed to achieve an effective outcome in desired geographies.

In 2018, BII invested $100 million via a direct equity investment to launch Ayana Renewable Power, an independent solar and wind generation company developing green energy infrastructure in India and South Asia.

India’s National Investment and Infrastructure Fund, a quasi-sovereign wealth fund with more than $4.3 billion in assets under management (AUM), has subsequently taken a stake in Ayana.

“Our involvement has helped mobilise $500 million here. Our initial engagement helped ensure a well-governed platform, and to build synergies between markets across Africa and South Asia,” he said.

Development institutions often struggle to attract private capital to the sectors or projects they focus on. At the heart of BII’s investment strategy is the belief that investments should facilitate, rather than exclude, private investments, according to Nagarajan. “We are very sensitive to crowding out private capital. We want to be additive, not substitutive — crowding in, not crowding out,” he said.


One benefit of having large or controlling stakes in businesses is BII’s ability to speed the development of ESG policies, which are often in their infancy, according to Nagarajan.

“We have established ESG committees in most companies in which we are invested. Often, we are starting from scratch. They already exist in some cases, but typically not in the form or substance that we expect. It is important to embed ESG policies in the day-to-day risk management of these companies,” he said.

As part of ESG capacity building, BII supports community programmes led by companies in which it is invested.

In India, RBL Bank in India and BII led the roll-out of a financial literacy programme in villages in low-income states across the country.

Ayana runs free skilling centres around where its renewables projects are located to train local people, particularly women, in the skills required by companies facilitating the transition away from fossil fuels.

BII has also targeted the adoption of anti-bribery measures, across companies in which it is invested.

To illustrate BII’s progress in facilitating a just transition with its investments, Nagarajan pointed to Globeleq, Africa’s leading independent power producer, with assets in Cote d’Ivoire, Cameroon, South Africa, Mozambique, Tanzania, Kenya, and Egypt.

BII took a 70% stake in the company in 2015, alongside Norfund, the $2.5-billion Norwegian development finance institution, which owns 30%.

Since then, Globeleq has nearly doubled in size. Eight of the nine assets that Globeleq has added to its portfolio during this time were renewables.

BII invests across three areas: climate; financial services; and innovative and start-up businesses in the technology, industrial, and service sectors.

Currently in Asia, 38% of BII’s investments are held via funds, 34% are direct equity investments, and 28% are direct debt investments. 

BII’s investment strategy is largely agnostic when it comes to asset class, Nagarajan noted. “We are much more sector focused, rather than asset class,” he said.

This story has been updated througout on July 11.


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