Local investors needed to combat climate change in Asia

THE climate crisis is intensifying and compounding an already challenging economic environment of high inflation and pressure on national budgets. With an estimated financing gap of over US$800 billion a year in developing Asian countries for climate mitigation and adaptation, there is a critical need to mobilise private-sector capital towards climate action at scale. For this to happen, we need to strengthen and grow domestic capital markets in Asia.

Asean and India account for about half of the financing gap mentioned above. Both have shown strong gross domestic product growth over the last decade, with good savings and investment rates, and sound banking and financial sectors. The domestic capital pool of money from bank deposits, sovereign wealth funds and public pension funds is estimated at around US$7 trillion. There is a massive opportunity to mobilise these local sources of capital towards achieving the region’s climate finance needs.

Local capital participation has distinctive advantages. It has a deeper and more nuanced understanding of local investment landscapes, and provides confidence to foreign investors, thus reducing risk perceptions and risk premiums.