The importance of SEA in the global effort against climate change is becoming more widely recognised. The region accounts for some of the most valuable natural capital and is the foundation for many supply chains. There is thus an urgent need for companies and governments in reinventing their supply chains, making its decarbonisation an integral part of future growth.
Many industries in the region are at a crossroads. Coal plants have historically accounted for a significant share of new energy generation capacity. However, in recent month, financing for the development of new plants has been declining. Two nations in SEA have made net zero pledges although for most of the region, there are few effective climate policies, and carbon prices are still low. Over the next decade, almost USD2 trillion in infrastructure upgrades will be required to ensure SEA’s sustainable transition. During 2020, around USD9 billion was invested in green enterprises and assets.
Almost 90 per cent of SEA’s carbon emissions can be reduced through energy transition, environmental stewardship, and agri-food transformation. The region’s transition to a low carbon economy has the potential to generate USD1 trillion in yearly economic benefits by 2030. This includes the value derived from the development or expansion of new products and industries as a result of sustainable production and consumption, as well as cost savings resulting from resource efficiency.
Southeast Asia Infrastructure provides a brief excerpt of Bain and Company, Microsoft and Temasek’s joint report titled “Southeast Asia’s Green Economy 2021 report”. The report will highlight platforms for immediate and accelerated climate action, as the window to achieve Paris goals narrows. The report also provides an objective assessment of SEA’s progress against climate ambitions and plan, highlights the Net Zero imperatives for SEA along with the commercial opportunities it brings, and map out the landscape of green capital flows in the region. The companies have also suggest tangible individual and collective actions in achieving the region’s net zero targets.
A new narrative has emerged around climate action and global actors are responding. SEA is gaining importance as a critical piece of the global Net Zero solution. There is renewed recognition of the untapped potential of SEA’s natural capital as carbon sinks, and MNCs who have committed to Net Zero recognize they cannot deliver their climate goals without supporting change in SEA across their local supply chains. Put simply, the world cannot achieve Net Zero without SEA coming along on the journey. SEA faces additional risks itself. It is one of the regions most at-risk to climate shocks and stands to lose much of future GDP (3-4 per cent negative impact by 2030, translating to approximately USD130-USD200 billion in 2.0-3.2°C global warming scenarios) unless it takes decisive and timely action. The region needs to take three steps to accelerate its Net Zero journey:
- Define its road to Net Zero
- Catalyze the journey and outcomes together
- Unlock capital and investments
Dialogue has changed with Covid-19. Concerns about regional interdependency and resilience have come to the fore, together with greater climate awareness. SEA nations have made notable landmark moves in the past year– Singapore launched its National Green Plan, Indonesia announced a 2060 Net Zero commitment, and the ASEAN Taxonomy Board began work on a regional sustainable finance taxonomy, to name a few. The region’s businesses are also mobilizing. Regional champions, government-linked corporations, and MNCs are all coming to the table, driven by internal values, self-interest and external pressures. Familyowned businesses, who make up more than 85 per cent of SEA businesses valued at more than USD1 billion, are poised to play a pivotal role in accelerating the transition and new investment. Yet SEA is not on track. The region’s latest climate NDC commitments improve on 2015’s reduction targets by only 0.5–0.6 gigatonnes of CO2 equivalent (GtCO2e) by 2030, leaving an estimated gap of 3 GtCO2e (conditional) to 4 GtCO2e (unconditional), to achieving promised emissions reductions in line with Paris Agreement’s 1.5°C goals.
SEA investors increasingly see sustainability as an opportunity versus a risk: 57 per cent of investors now integrate sustainability in their investing thesis while 19 per cent identify as impact investors in 2021. Multiple forces are at play, from investor pressures to recognition of this opportunity. Mindsets are in turn starting to generate results. Green fundraising has been on a strong upward trajectory, with 40-150 per cent growth per annum (p.a.) across debt issuances, IPO1 , PE/VC2 fundraising, and sustainable public funds AUM3 . What is crystal clear is there is significant headroom to invest more. approximately USD2 trillion in investments over the next decade is required to build out SEA’s infrastructure for a sustainable transition. Governments cannot do this alone – ADB4 estimates approximately 40 per cent of infrastructure investments need to come from the private sector. Yet, despite high liquidity, many barriers limit flows today: inconsistent government policies, an immature ecosystem leading to high transaction costs and evolving standards, and conservative mindsets. Action is needed for change.
Achieving Net Zero as a region demands individual action by businesses, investors, governments, and communities, as well as collective action at an ecosystem level. Businesses must identify the strategic white space where they can advance SEA’s climate transition while driving commercial value and innovation that is aligned to their core business strategy. Investors can further unlock green and transition capital flows in the region through catalytic financial instruments to de-risk investments and novel sustainability or transition-linked products to lower barriers to financing, while governments need to demonstrate regulatory leadership to create investible environments for sustainable assets. The scale of the Net Zero challenge is significant in economic, investment, nature, and human terms – SEA must find the path forward that meets the conditions of its realities. We know where attention is needed, and where the opportunities lie. Regional actors now need to come together to develop a robust Net Zero plan that accounts for regional nuances and the distinct needs of diverse SEA nation-states.
Three ingredients are crucial for collective action:
- Ecosystem-wide co-innovation: accelerate commercialization of low-carbon tech that suits SEA’s needs, such as agri-tech and carbon capture; increase sharing of data/tools/standards through value chain-wide alliances; and mobilize public and private capital to conserve and restore SEA’s natural carbon sinks
- Collective transition support, leveraging publicprivate partnerships and blended financing: improve access to capital and build capabilities of SMEs/smallholders, mitigate impact of stranded assets for hard-to-abate sectors, and upskill and retrain SEA’s workforce for the green economy
- Regional collaboration: develop a holistic SEA Net Zero transition plan, establish a cross-border carbon trading system, and reassess energy security by exploring a regional grid to more efficiently connect demand to supply
SEA is disproportionately exposed to climate shocks with impact expected to continue into the future. 15 of the 24 climate-linked crises in Asia-Pacific that IFRC responded to in 2020 were in SEA.
Impact of the COVID-19 pandemic
Covid-19 has brought issues of regional risk and resilience into sharp focus and spurred climate awareness. The pandemic has reinforced the need to develop a more resilient, localized supply chain, improve food security, and reduce the region’s reliance on global trade flows. For example, Singapore launched its “30 by 30” plan for local farms to produce 30 per cent of nutritional needs by 2030 with tech-enabled urban and sustainable farming systems, which will also reduce emissions footprint.
Covid-19 has highlighted the need to move away from the business-as-usual (BAU) approach governments have taken in the past in response to external shocks such as climate events. As part of SEA’s Comprehensive Recovery Framework, a core priority is to advance toward a more sustainable and resilient future, including the transition to sustainable energy and green infrastructure.
Covid-19 lockdowns have changed the way individuals live and work (e.g., video calls and work from home instead of traveling) and if sustained, could potentially abate approximately 15 per cent of all transportation emissions. The pandemic has also accelerated the shift to digital as a consumption platform over the past year while also shifting consumers toward “conscious consumption” with approximately 54 per cent of SEA consumers indicating they will be more environmentally conscious in the future.
Progress during 2020
The region has made considerable progress during 2020-2021 but more still needs to be done :
- Landmark moves by SEA nations There has been a wave of landmark announcements by SEA governments in the past year, including 2 Net Zero commitments (Laos, Indonesia) and 4 national green plans (e.g., Singapore’s Green Plan 2030, Thailand’s Bio-Circular-Green Economy model) to accelerate the transition toward Net Zero
- Steps forward in regional collaboration In 2021, the ASEAN Taxonomy Board was set up to develop a regional, sustainable finance and transition taxonomies framework, and Phase II of the ASEAN Plan of Action for Energy Cooperation was launched.
- Corporations in the region leading the way Corporations across the spectrum are taking concrete actions to accelerate sustainability within and beyond their own organization’s boundaries (e.g., working with suppliers and customers to drive their sustainability agenda). Family-led businesses have also awoken to the importance of sustainability and resiliency in the wake of Covid-19 and are well-positioned to lead the charge in the region
- NDCs and renewables targets lag global peers SEA nations are behind global peers in Net Zero commitments (20 per cent of SEA nations vs. 28 per cent of the world), renewables supply targets ( approximately 23-29 per cent in SEA compared to 40 per cent in the US by 2040), and NDCs. The region still has approximately 3-4 GtCO2e 1 emissions gap in 2030 to achieve the 1.5°C pathway
- Lack of robust plans to achieve Net Zero targets Most SEA countries do not have all the elements of an effective Net Zero plan (e.g., Net Zero committed to law, absolute 2030 emissions targets, full sector coverage), leaving more to be done to enhance the scope and clarity of their commitment
- SMEs lacking in support and resources to make the shift Exacerbated by Covid-19, SMEs, who form 40 per cent of GDP and employ 75 per cent of the workforce, lack financial and human resources and sustainability capabilities to keep up with the rapidly evolving sustainability standards (e.g., access to green financing)
Figure 1 give a brief image of the landmark announcements and moves made by governments and agencies in the SEA regions since 2020.
Only two countries in the region, Indonesia and Laos, have announced commitments to Net Zero. Singapore is the only country whose unconditional emissions are expected to fall between 2021 and 2030. Singapore has announced a carbon tax while in Vietnam, ETS has been legalised and is scheduled to go into effect starting January 2022.
One of the most ambitious renewables installed capacity target has been announced by Indonesia under which the nation will aim to have a 48 per cent of share renewable energy in the national grid by 2030.
Figure 2 summarises the national targets announced by each nation in the SEA.
Initiatives by businesses in the region
Businesses in the region are leading the charge by increasing commitments and taking tangible action to drive sustainability forward. Efforts include investments and partnerships by government-linked enterprises to develop holistic infrastructure and drive ecosystem change. Some of the key announcements by government-linked agencies in the region includes :
- Temasek : Established USD600 million decarbonization fund in partnership with BlackRock
- Petronas: Acquisitions of renewable companies such as Amplus and SOLS Energy to boost clean energy portfolio
- BukitAsam: Targeting Net Zero by 2060 and increased transparency through partnership with CDP Global
- PTT: Accelerating electric vehicles adoption in Thailand under a partnership with Foxconn
MNCs in the region have also joined the effort in collaboration with suppliers and customers to decarbonize supply chains.
Challenges and roadblocks
However, SEA is not on track, and there is a lot of work to do. Compared with global benchmarks, SEA’s climate ambitions appear modest. Most of SEA’s latest NDC targets lead to an increase in annual emissions by 2030 in absolute terms. SEA Net Zero commitments are in line with non-Annex I countries, but trail global average. The region’s carbon pricing is still insufficient.
SEA-specific nuances present multiple challenges
- Reliance on natural resource extraction such as fossil fuels and forestry for livelihood of communities and workforce
- Need to balance transition with socioeconomic growth while protecting jobs and livelihoods, with regional GDP forecasted to grow by 5.5 per cent in 2021
- Significant risk of stranded assets – for example, approximately USD60 billion1 in stranded value from coal assets in Indonesia, Vietnam, and the Philippines, which make up approximately 75 per cent2 of SEA’s coal-power capacity
- Diverse regional populations and socioeconomic needs as a loose federation of countries with uneven pattern of development across the region, unlike the EU
- Challenge in measuring carbon footprint due to longer and more complex supply chains (small, geographically siloed suppliers such as smallholder farms)
The full report can be accessed here.