In this issue: In this issue: Poor progress on translating targets into action is hindering sustainable investments in South-east Asia, while an influential financial industry group moves closer to greenlighting coal phase-out.

Ecosperity Week

Getting the green money to flow

Private green investment in South-east Asia continued to decline for the second year in a row, according to the latest Green Economy Report by Bain, Temasek, GenZero and Amazon Web Services.

Total green deal transactions in South-east Asia shrank 7 per cent in 2022 to US$5.2 billion. In 2021, the total was US$5.6 billion – down 15 per cent from the 2020 total of US$6.6 billion.

What lies behind that decline, and is it a problem? The short answer: it’s complicated, and yes.

It’s important to start by not overreacting. The amounts were not huge to begin with, so the totals can be sensitive to the presence and absence of large deals. For example, more than a third of the 2020 total included US$2.8 billion from a single deal: an equity raise for Yuan Feng New Energy.

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The reported numbers are also historical, and do not reflect new commitments that have yet to be deployed. For instance, more than US$35 billion has been pledged by Europe, Japan, the United States and other international players over the next three to five years to support the decarbonisation of the energy sectors in Indonesia and Vietnam under Just Energy Transition Partnership frameworks.

Stagnant or declining private investment growth in the green sector is, nonetheless, troublesome for South-east Asia, which has high and growing decarbonisation needs. Where demand for financing is upwards, flat or downwards sloping private-sector involvement means missed targets.

That is exactly what the report warned. Of the four largest greenhouse gas-emitting countries in the region – which account for more than 80 per cent of South-east Asia’s emissions – three were assessed by the report to be unlikely to deliver on their Nationally Determined Contributions towards Paris Agreement goals.

The report identified a number of reasons that investments haven’t been flowing:

• High cost of capital and poor returns;

• Policy irregularity and uncertainty;

• Undeveloped innovation ecosystem;

• Poor investor confidence amid limited green growth policies; and

• Uneven levels of economic development between South-east Asian countries.

What’s interesting is that these hurdles exist even though governments in the region seem to have plans to overcome them. In assessing the progress of South-east Asian countries towards their 2030 emissions goals, the report found most had made good progress on setting targets.

But most of the countries were not doing as well when it came to the implementation parts of the task: coming up with concrete roadmaps and building enabling support for achieving those targets. The findings suggest the big challenge for South-east Asia lies in translating its ambitions into action.

Uncertainty about the ability of governments to do what they say makes capital uncomfortable, and could explain why private investment has not been growing as quickly as hoped.

Indonesia makes its pitch

Indonesia was well in the spotlight during the Ecosperity conference, with President Joko Widodo headlining the country’s presence at the event. The Indonesian contingent was unified by a simple message to sustainability investors: We have lots of opportunities for you, and we’re open for business.

Beyond that message, however, the tone seemed to split depending on which initiative was being touted. Those pushing for Nusantara, the new capital the President wants to create on the island of Kalimantan as a replacement for overcrowded Jakarta, seemed friendlier, with lots of investment and business-friendly promises.

But Luhut Binsar Pandjaitan, Indonesia’s Coordinating Minister of Maritime and Investment Affairs, was talking about financing coal transitions, and he wasn’t there to help anyone get a better return on their investments. The minister said during a panel that his country had a right to aspire to greater wealth and higher quality of life, and that it wouldn’t be just or fair to expect Indonesians to pay commercial rates to decarbonise their energy sector. It’s a point that Indonesia has raised before, and it reflects the challenges in implementing decarbonisation initiatives such as the Just Energy Transition Partnership coal phase-out programme for Indonesia.

The minister’s invocation of the country’s right to a brighter future is a powerful one, and highlights the need for a “just” transition in South-east Asia. Even so, Indonesia’s government might not win many converts by placing all the blame on others. The country’s fossil fuel-friendly policies and subsidies, for instance, make it harder for renewable energy investments to achieve attractive-enough returns. While it is true that concessionary capital is necessary to finance transition in developing countries, those countries have to do their parts as well to assure investors their money will not be wasted.

Other Ecosperity Week reads

• Asia-Pacific’s top companies need to address crucial gaps in sustainability reporting

• Stop structural gymnastics, avoid demolishing buildings, Singapore urged

Singapore & South-east Asia

New phase for coal phase-out

The Asia-Pacific chapter of the Glasgow Financial Alliance for Net Zero (GFanz) has launched a public consultation on proposed guidelines for the early phase-out of coal.

The proposal is for a three-step process to, first, ensure the credibility of relevant energy transition and coal phase-out commitments and plans; second, optimise impact along climate, financial viability and socio-economic lines; and third, adhere to accountability and transparency principles in alignment with the GFanz net-zero transition planning guidelines.

The general expectation is for most, if not all, of the proposal to survive the consultation. Along with a parallel consultation expected in Singapore for the country’s sustainable finance taxonomy, and the March addition of coal phase-out to the Asean Taxonomy, banks in Singapore that are working on coal phase-out projects will soon have regulatory cover at the local, regional and industry levels.

The only thing left could well be their own bank policies. An investigation by The Business Times correspondent Janice Lim found that the three Singapore banks’ self-imposed coal policies might prevent them from financing coal phase-out projects even if GFanz and the taxonomies give the green light. Some irony there, given DBS co-led the GFanz work stream on the coal phase-out proposal.

The Singapore banks may need to review their coal policies and figure out how to make provisions for phase-outs if they want to pursue the new hot area in transition finance.

Other Singapore & South-east Asia reads

• Climate Impact X opens new chapter as carbon exchange goes live

• City Energy and Senoko Energy to explore import and supply of hydrogen in Singapore

Other good reads

• Better risk management, governance structure to improve ESG at private banks: WWF study

• Global carbon markets face upheaval as nations remake the rules