Total green investments in Southeast Asia dropped 7% to $5.2 billion last year from $5.6 billion a year earlier, according to a report released by Bain & Company, Temasek, GenZero, and Amazon Web Services.
The figure was also lower than the $6.6-billion green deals registered in 2020, the report, Southeast Asia’s Green Economy 2023 Report: Cracking the Code, showed.
The region needs at least $1.5 trillion of cumulative investment in energy and nature sectors to reach nationally determined contribution (NDC) targets by 2030.
Notably, while foreign investors continue to account for more than half of the private green investments in the region, their share fell to 55% in 2022 from about 66% in 2020 and 56% in 2021.
The report also noted that renewable energy continues to be investors’ favourite theme as the share of renewable investments remained stable at 70-75%.
Over half of the green investments in the region went to Indonesia and Singapore, which have seen steady growth over the last couple of years, whereas the rest of the region experienced fluctuations driven by large one-off deals in the Philippines and Thailand.
In 2021, Japan’s Jera Co acquired a 27% stake in the Philippines’ Aboitiz Power Corp from its parent Aboitiz Equity Ventures for $1.58 billion, accounting for 55% of the total transaction amount in the Philippines that year.
With the decline in green investments, the report said governments across Southeast Asia will have to speed up to meet the target of reducing greenhouse gas emissions in the region by 33%.
Since the publication of the 2022 report, four SEA countries – Indonesia, Singapore, Thailand, and Vietnam – have committed to material emission reduction targets by 2030.
Eight out of 10 Southeast Asian countries have set carbon neutrality goals, while seven of them are either considering or have implemented carbon pricing mechanisms.
Dale Hardcastle, Global Head of Carbon Markets and Director of the Global Sustainability Innovation Center at Bain & Company, based in Singapore, said the region’s governments need to focus first on proven solutions to balance rising energy demand while reducing carbon emissions.
“The everything, everywhere all at once mantra is not going to get the job done nor build the clarity needed to scale investment and impact,” he stressed.
Commitments increased but less capital deployed
Green investment commitments increased in 2022, but less capital was deployed, the report noted. The UK, US, Japan, and other international partners committed $35 billion over the net 3-5 years to help Indonesia and Vietnam phase out fossil fuels. Singapore also committed $17 billion to combat climate change under the 2030 Green Plan.
On the corporate side, PTT Group announced a $7-billion allocation to fund green hydrogen projects, including the construction of a hydrogen plant in Thailand. CATL also committed to investing $6 billion in Indonesia over the next three years for six electric vehicle battery projects. In Malaysia, Petronas is expected to commit at least $2 billion for clean energy projects this year.
The report highlighted that the nature and energy sectors, which contribute to 85% of SE Asia’s total emissions reduction targets, will be most critical to the region meeting its NDC goals.
The report said collective action could result in up to $2 trillion of new investments to meet the 2030 NDC targets in the region. Deploying cleaner energy sources and low-carbon materials to meet growing customer demand for greener goods could also result in further revenue, it added.
Longer term, the report said economies should consider initiatives to invest in today but not at the expense of proven actions.
Some of these solutions will deliver the highest impact post-2030 when commercial viability increases, such as regional power grid infrastructure, NBS and carbon services workforce development, hydrogen and derivatives as energy sources, carbon capture, utilization and storage across all sectors.
“Despite the uncertainties, there is much that can be done in the ‘here and now.’ There are several actions that are ‘no regrets’ moves and tap proven levers for decarbonisation across various industries,” said Satish Shankar, regional managing partner, Asia Pacific, at Bain & Company.