South-east Asia’s green leap needs support from Singapore’s private sector

SOUTH-EAST Asia is at a vital tipping point when it comes to tackling climate change.

Home to many of the world’s fastest-growing economies, if South-east Asia’s consumer class more than doubles over the next 30 years, as expected, the region will see a vast increase in the consumption of cars, air-conditioning, larger homes and higher protein diets.

This is cause for celebration as hundreds of millions rise into prosperity for the first time. For the climate agenda, it should not necessarily be cause for alarm – but it does require an immediate, coordinated response.

If current carbon-intensive technologies continue to be used as they are today, the region’s rising incomes and changing consumption habits will translate to dramatic increases in emissions in the coming decades. Fortunately, new technologies are now available that can meet the changing demands of South-east Asia’s burgeoning middle class, without the enormous greenhouse gas emissions of the past.

What is even more encouraging is that, for the first time, dozens of these green technologies cost less than incumbent technologies over the course of the product’s service life.

Examples include solar irrigation systems and e-mobility products, such as electric three-wheelers, which reduce energy consumption and operating costs over time, often offsetting the initial investment, and thus creating attractive investment opportunities and pathways for green development that are cheaper than traditional carbon-intensive alternatives.

This so-called “green discount” presents a golden opportunity for South-east Asia’s emerging markets to effectively leapfrog a generation of polluting, expensive technology and infrastructure, creating enormous prosperity and millions of new jobs, as well as accelerating the global race to net zero.

Yet, CGAP’s latest report with LeapFrog Investments and Temasek reveals that these solutions are not yet being widely adopted, signalling a huge unfulfilled potential in the region.

The key to scaling up investments in these technologies could lie, in part, with mobilising more private capital, especially from regional financial hubs like Singapore.

Four key sectors in particular stand out as offering dozens of investible opportunities that could generate market rate returns and support the region’s green transition – energy, mobility, the built environment and agriculture.

All four of these sectors are typically very carbon intensive in emerging markets, due to the proliferation of older, inefficient technologies like diesel generators, poor insultation and polluting woodstoves, offering enormous opportunities where the price of green goods and services outcompetes incumbent technologies.

To build the green business models of the future and support a “green leap” in emerging markets, global capital markets will need to swiftly allocate funds into investments across these four sectors.

But to mobilise this investment in the first place, there is a need for a greater understanding of which products and services will generate market-required returns. A green discount analysis is one way for companies to assess this, by identifying areas where the price point for green alternatives is already competitive.

Another barrier that has to be overcome is the upfront cost. Despite an emerging green discount, the upfront cost to purchase green technologies can often be higher than the alternatives, with the cost savings only coming over time from greater reliability and lower maintenance; this can act as a barrier to entry for low-income households and businesses which simply cannot afford the initial outlay.

Again, private capital could make a big difference here. By supporting financial service providers with access to affordable capital, investors can enable them to design and scale inclusive financial products and services that help low-income customers to afford green technologies in the first place, such as pay-as-you-go financing and credit products for purchases that protect against climate shocks, to name but a few.

Carbon markets – whereby revenues from the sale of carbon credits can be used to lower the upfront cost of technology, subsidise operations, or even provide additional income to users – could be another solution, with huge potential to incentivise adoption and use of new, cleaner technologies.

In these ways, and more, private-sector involvement and capital will be critical for South-east Asia to seize the opportunity to make the green leap. But it will need support from a range of other stakeholders in turn to succeed.

Government support – through both effective and intentional policies and meaningful public/private sector partnerships – will be vitally important to create enabling business environments.

For countries in South-east Asia with higher risk premiums, where the green discount does not yet exist, there is also a need for de-risking instruments like blended finance, first loss guarantees and concessional capital, to make green investments commercially feasible and to continue to attract investments.

As South-east Asia stands at this critical crossroads between rising emissions and the opportunity to make a green leap, the course of action taken by Singapore’s private sector, along with governments and other stakeholders in the coming months and years will determine the region’s climate trajectory.

There has never been more at stake, and collaborative action that directs more private capital to grassroots climate mitigation and adaptation efforts will be essential for the region’s success.

The writer is CEO of CGAP, a global partnership of more than 35 organisations, housed within the World Bank, that works on research into how inclusive finance can tackle world poverty