Innovative financing mechanisms can ratchet up climate ambition in these times

TO REDUCE emissions, achieve sustainable growth and deliver the objectives of the Paris Agreement, South-east Asia requires an annual average investment of US$171 billion to US$185 billion from 2026 to 2030. The imperative of submitting more progressive Nationally Determined Contributions (NDCs) this year and fulfilling them is likely to push this figure higher.

While the New Collective Quantified Goal on Climate Finance aims to scale up finance in emerging economies to US$1.3 trillion per year by 2035, geopolitical tensions, investment barriers, limited fiscal space, low volume of private capital flows and high sovereign debt levels emerge as prominent roadblocks across many emerging markets and developing countries (EMDCs).

More recently, the change in the US administration spells profound shifts in global climate priorities, with potential implications for financial commitments and international cooperation.

Against this backdrop, as the urgency around climate action intensifies, collaborations and innovative financing mechanisms are emerging as potential solutions to bridge funding gaps, fulfil international commitments, and build a resilient and energy-secure future.

Mechanisms to mobilise climate finance

The complexities associated with the global economic landscape mean that radical collaboration is essential for boosting efforts to mobilise climate finance.

An example of one such collaborative initiative is the Energy Transition Acceleration Finance Partnership – a US$600 million fund being set up in Singapore jointly by the Monetary Authority of Singapore, Asian Development Bank and Global Energy Alliance for People and Planet (GEAPP).

Managed by Clifford Capital Asset Management, the platform aims to raise some US$2 billion in concessional and commercial capital to de-risk projects, create a pipeline of bankable projects, and crowd in capital to finance energy transition projects across Asia.

The initiative marks a significant step towards increasing private investments that are crucial for funding more ambitious NDCs. A public-private-philanthropic partnership (4P) model can significantly enhance collaboration to address investment barriers in EMDCs. Going beyond the scope of conventional 3P models, the 4P approach leverages philanthropic capital to de-risk investments, align long-term objectives and provide catalytic funding where market incentives fall short.

Philanthropic actors play a unique role by acting as a bridge between public and private players, offering financial, technical and advisory support to sustain momentum throughout a project’s life cycle. By injecting concessional capital into pooled funds managed by development finance institutions, multilateral development banks and governments, philanthropies help mitigate market risks, lower investment thresholds and build market capacity.

To maximise impact, accountability as well as transparency, monitoring, evaluation and learning mechanisms will be essential for capturing insights and scaling best practices from 4P models across EMDCs.

Need for a 4P model in South-east Asia

South-east Asia’s growing population, surging energy demand and heightened vulnerability to climate risks make the transition to sustainable energy sources both a necessity and an urgency. While the region has already established ambitious targets, achieving them requires significant investments in clean energy – four times the 2022 level of US$30 billion.

Historically, investments in energy transition projects have been primarily driven by the public sector. However, with shifting global priorities and geopolitical uncertainties, funds are increasingly being diverted to respond to crises. For instance, in 2023 alone, official development assistance to Ukraine grew 9 per cent to US$20 billion, including US$3.2 billion in humanitarian aid.

This evolving geopolitical landscape underscores the need for new approaches to financing South-east Asia’s energy transition. With the 2030 timeline fast approaching, greater participation from the private sector becomes critical to scaling and expediting large-scale deployment of green energy solutions. However, this engagement is being held back due to the limited availability of bankable projects, high-risk perception and inadequate support for small-scale innovators and enterprises.

Philanthropies can bridge these funding gaps by enabling strategic collaborations to unlock funding, and technological, regulatory and technical support. Philanthropic intervention can de-risk investments, build a pipeline of bankable projects, provide comprehensive and rapid blended finance, influence decision-making and facilitate cost reduction.

Several such endeavours are already underway, including British International Investment’s partnership with Dutch developmental bank FMO and Swiss fund manager SUSI Partners to develop a new utility-scale renewable energy platform that will build 500 megawatts of clean energy projects across South-east Asia. Over US$1 billion has been pledged under the Philanthropy Asia Alliance, an alliance of over 80 global partners launched by Temasek Trust.

The first blended finance fund combining private, public and philanthropic capital in South-east Asia, the Southeast Asia Clean Energy Fund II is another initiative. GEAPP is one of the supporters of the fund. Bringing together diverse stakeholders in such endeavours will be key to reducing emissions and increasing green energy capacity – key priorities of many NDCs.

Complex issues like climate change require collaborative solutions. Joint ventures by public, private and philanthropic institutions will be pivotal to garner more funds for climate action and achieve NDCs. South-east Asia – with its energy demand, collaboration-based renewable energy projects and ambitious net-zero targets – presents an opportunity for enabling a sustainable energy transition via a 4P model. By mobilising capital this way, the region can create a road map for attracting climate finance and fulfilling NDCs before COP30.

The writer is vice-president, South-east Asia, Global Energy Alliance for People and Planet