US$2t in investments needed over next decade to green South-east Asia's infrastructure: report

SOME US$2 trillion (S$2.7 trillion) in sustainable infrastructure investment is needed between 2021 and 2030 if South-east Asia is to achieve climate and sustainable development goals, according to a report produced by Bain & Co, Microsoft, and Temasek.

These funds are needed for investments into infrastructure for renewable energy, energy-efficient buildings, greener transportation, the treatment of water and wastewater, rail networks, and the processing of waste.

The report, entitled Southeast Asia's Green Economy: Opportunities on the Road to Net Zero, highlighted significant gaps and opportunities in the region's green journey.

Last year, US$8.7 billion in capital was deployed into green assets. That figure represents a 6 per cent annual growth since 2016. But the report also noted that the growth rate for capital deployed lags the growth rate for funds raised.

For instance, US$11.9 billion in green debt was issued last year - representing annual growth of 151 per cent since 2016.

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"Green fundraising and capital deployment are picking up in the region, but we have a long way to go," said Steve Howard, chief sustainability officer at Temasek.

The big gap implies opportunities for the private sector. The report also cited Asian Development Bank forecasts that 40 per cent of infrastructure investments will need to come from the private sector.

"The road to net-zero will have transition costs, but in return there will be significant opportunities, both economic and social, if the private, public and philanthropic sectors work together to unlock the region's full potential," said Mr Howard.

Sectors that have attracted more capital are energy solutions, green buildings and construction, waste and water, as well as sustainable materials.

These sectors are well established and are likely to continue growing, but the report also highlighted two "nascent but promising" themes for investment are sustainable food systems and the conservation and restoration of nature.

The former covers alternative proteins, aquaculture and sustainable agriculture, with opportunities coming from the prioritisation of food security, changing consumer preferences and the advent of technologies to increase yields and lower costs.

The latter covers "nature-based solutions" for the conservation and restoration of ecosystems. This sector is currently getting only "limited private investments" but could get exciting as the market for carbon credits and catalytic financing matures. Catalytic financing helps to de-risk high-impact investments in the hopes of attracting private funding.

The report also highlighted several barriers that impede green capital flows. Among them: inconsistent government policies, high transaction and compliance costs, as well as complex and evolving standards.

Industry executives interviewed for the report also highlighted the low quality and high risk of assets, and organisational hurdles such as a lack of sponsorship and misaligned incentives. Said one sustainability director at a South-east Asian government investment company: "There is a surplus of interested capital chasing scarce quality assets in the region."

To overcome these barriers, the report recommended strengthening of government support and policies, using new financing structures such as blended financing, introducing digital platforms and data-enabled solutions, and streamlining metrics and operating principles.

"South-east Asia presents specific conditions which provide both challenges and opportunities for a full-scale sustainability transformation," said Dale Hardcastle, a partner in Bain & Co's Singapore office and a co-director of the firm's Global Sustainability Innovation Center.

"The region needs to act now and take three steps to translate these opportunities into tangible results: define its road to net-zero, catalyse the journey and outcomes together, and unlock capital flows."

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