Southeast Asia has a golden opportunity to leapfrog over the low-performing, polluting, resource-inefficient technologies and practices of more developed countries. Infrastructure and industrial models for the region are still being developed. This, combined with the region’s relative stability and rapid economic growth, will help it attract investment that ties environmental performance to economic growth. While governments of Southeast Asian countries are adopting green initiatives to develop infrastructure, there is a long road to create a sustainable one.
In a notable move, Southeast Asian governments, the Asian Development Bank (ADB), and major development financiers recently launched the ASEAN Catalytic Green Finance Facility, a new initiative to spur over $1 billion in green infrastructure investments across Southeast Asia. The new facility provides loans and the necessary technical assistance for sovereign green infrastructure projects such as sustainable transport, clean energy and resilient water systems. The facility will mobilise a total of $1 billion, including $75 million from the ASEAN Infrastructure Fund (AIF), $300 million from ADB, €300 million ($336 million) from KfW, €150 million from the European Investment Bank (EIB) and €150 million from Agence Française de Développement. Through the ASEAN Catalytic Green Finance Facility, ADB will support ASEAN governments in developing green and climate-friendly infrastructure projects.
Indonesia
One of Indonesia’s highest priorities is the development of sustainable and efficient infrastructure that serves the entire population, promotes prosperity and creates resilience to the impact of climate change. Accordingly, it is undertaking reforms to support investments in infrastructure, including the development of green financial tools to attract capital looking for sustainable investments. Indonesia’s issuance of the world’s first sovereign green sukuk in early 2018 is a promising step in this direction. Initially, the sukuk issue targeted to raise an amount of $500 million-$1 billion with a coupon of 4.05 per cent. The deal was hugely oversubscribed. Ultimately, it was upsized to $1.25 billion and priced very favourably at 3.75 per cent.
Apart from the world’s first green sovereign sukuk issue, Star Energy Geothermal (Wayang Windu), in April 2018, issued a labelled green bond under a Green Bond Framework, having previously issued vanilla bonds to finance the Wayang Windu geothermal plant. US and British investors subscribed to over half the amount of the 15-year, $580 million green bond. Even though green bond financing is in its infancy in Indonesia, policy changes, the release of the green bond and green sukuk guidelines and the issue of bonds mentioned above demonstrate an increasing understanding and commitment to green finance, and green debt securities in particular.
The government’s key development strategy, the National Medium Term Development Plan (2015-19), aims to develop billions of dollars of new public works projects in transportation, energy, water, waste and information and communication technology. While not all of these projects would be considered green, the plan specifies that infrastructure should aim to be environmentally sustainable. Overall, approximately $400 billion worth of infrastructure is needed for the National Medium Term Development Plan (2015-19) to be realised with the 2018 budget allocating Rp 409 trillion (approximately $29.7 billion) to infrastructure development, including green infrastructure such as 639 km of railway lines. Since all infrastructure needs cannot be covered by the budget alone, the government has developed a policy framework that promotes leverage financing to support more participation from the private sector, with an increased focus on green finance.
In a bid to further develop green infrastructure in support of climate change mitigation, the Indonesian government signed an agreement with the EIB in October 2018 to mainstream the implementation of the green economy. The country will use strategies such as implementing renewable energy and green financing mechanisms and initiating a low-carbon development programme. Areas of potential collaboration encompass renewable energy, transport (including urban transport and waterways), efficient energy generation, waste and water management as well as low-carbon technologies.
For Indonesia to make the transition to a low-carbon society, investment opportunities should focus on increased rail and bus rapid transit (BRT) development as well as electric vehicle generation and sustainable water transport. The government aims to increase the nation’s overall installed capacity as well as increase the share of renewable energy to 23 per cent by 2025 (estimated at 45 GW) and 31 per cent by 2050. With regard to the water and waste management segment, investment opportunities should focus on water infrastructure upgrades that promote resilience and the development of low-emission wastewater treatment, recycling and low-emission waste-to-energy facilities.
The Philippines
The Philippines has a viable business environment for building a market for green infrastructure. The International Finance Corporation (IFC), a sister organisation of the World Bank, is helping create an ecosystem for green finance in the Philippines as climate finance gains a stronger foothold in Asia. IFC has so far provided $465 million in financing for climate-smart projects of Filipino firms in the past 12-15 months. These include an investment of $75 million in the first-ever listed green bond issued by AC Energy Finance International Limited in February 2019; $150 million in Banko de Oro’s green bond issue in December 2017; the $90 million Mabuhay Bond issue to finance the capital expenditure programme of the Energy Development Corporation in June 2018; and the $150 million investment in the green bond issued by China Bank in October 2018.
The Philippines plans to build an entirely new, more sustainable city called New Clark envisioned to be completed by 2022. The Bases Conversion Development Authority (BCDA), Singaporean urban developer Surbana Jurong and Japan’s Overseas Infrastructure Investment for Transport and Urban Development (JOIN) signed an agreement to build the archipelago nation’s first smart, green and disaster-resilient city. As part of the collaboration, Surbana Jurong will assist BCDA in creating the overall sustainable management framework for the city, which will feature fully integrated infrastructure and utilities for power, water, sewerage, information and communication technology (ICT), security, and traffic management while ensuring environmental protection. JOIN, on the other hand, will lead the construction of the Manila-Clark Railway, which will be one of Japan’s biggest projects in the Philippines.
The Philippine government embarked on its Green, Green, Green programme in 2018, which aims to promote the development of public open space projects and create greener, more sustainable, and liveable cities. This is envisaged to be achieved through the expansion and rehabilitation of 143 projects – 13 institutional open spaces, 21 public squares and plazas, 60 parks, 16 streetscapes, 30 waterfronts, and 2 mangrove parks. The programme, which is parallel to the national infrastructure development programme Build, Build, Build, is expected to be completed by 2020.
The government’s Build, Build, Build programme, coupled with its commitment to shift to low-carbon development, will help the country secure green financing and green technology from global investors.
Malaysia
Malaysia has pledged to reduce the intensity of its greenhouse gas (GHG) emissions by up to 45 per cent by 2030 relative to 2005 levels. It is anticipated that by 2030, green businesses will contribute approximately 1.5 per cent to the nation’s GDP. In order to catalyse sustainable economic growth and realise the green targets, the government launched the Green Technology Master Plan [GTMP] 2017-30 in October 2017. The GTMP creates a framework that facilitates the mainstreaming of green technology into planned developments while encompassing the four pillars set in the National Green Technology Policy, 2009, that is, energy, environment, economy and social. GTMP’s first edition focuses on six key sectors, namely energy, manufacturing, transportation, building, waste, and water.
In 2017, the Malaysian Green Technology Corporation (GreenTech Malaysia) and Prasarana Malaysia Berhad collaborated to spearhead the development of public transport and advancement of green technology in the country. The five-year agreement aims to transform the country’s public transport services in a sustainable manner and also aligns Prasarana’s strategy and operations to support the GTMP’s target of 45 per cent reduction in carbon emissions by 2030.
Outlook
ASEAN’s total green financing opportunities lie at $3 trillion between 2016 and 2030, according to a report by Singaporean financial services group DBS and the United Nations. Investments in green infrastructure make up 60 per cent of this amount. These are primarily in energy transmission and distribution ($700 million), climate change and mitigation ($400 million), water ($380 million), railways ($60 million) and telecommunications ($260 million). There are opportunities galore for investors in the Southeast Asian region. In the long run, the region will contribute significantly to the global green financing market with the greater focus of ASEAN nations on green infrastructure development.
