Private Equity Investments Fueling Decarbonization in Asia

Decarbonizing assets with significant emissions is a complex and costly endeavor. It necessitates reimagining processes from the ground up and modifying existing facilities through rebuilds or retrofits. Some assets may prove impossible to fully decarbonize and would require investment in future breakthrough technologies.

Fullerton Fund Management explains that achieving net-zero emissions in Asia by 2050 requires a massive investment of around $37 trillion, offering a significant opportunity for private investors to support eco-friendly businesses and generate value.

Renewable energy is witnessing rapid growth, even in low-emission Asian countries. In 2021, Asia accounted for 60% of newly added renewable energy capacity. This sector continues to attract private equity funds, as evidenced by ongoing transactions such as Actis acquiring a stake in Vietnam-based Levanta Renewables.

Looking Beyond Renewable Energy Investments

Kelvin Fu, the Managing Partner of Gunung Capital, highlights that while renewables present a compelling opportunity, there are also attractive returns in greening carbon-intensive sectors like steel production in the region. To achieve significant decarbonization in industries and manufacturing, the widespread implementation of technologies such as carbon capture, storage, and utilization, as well as green hydrogen, will be necessary.

Fu points to the partnership between Gunung Raja Paksi, a major steel company in Indonesia, and Fortescue Future Industries as an example of exploring a value chain for green hydrogen and green ammonia to decarbonize steel production. He emphasizes the importance of green hydrogen as a key component in industrial decarbonization.

Private investors are recognizing this potential and are actively seeking opportunities. Fu states that it is crucial to provide funding for the transition to green energy and support the acquisition of new equipment that facilitates its generation. These tangible actions allow investment firms to have a meaningful impact on companies and their environmental efforts.

Steering Asian Businesses Towards Net Zero

Private equity (PE) firms offer more than just capital to Asian businesses. PE firms can play a crucial role in steering them towards achieving net-zero emissions. Operational improvements and innovative technologies are among the ways through which these firms can unlock value.

Kelvin Fu emphasizes the importance of active investment management, where private equity firms actively assist companies in hiring or developing the necessary capabilities for improvement. Many companies express a desire to enhance their operations, but they often lack a clear understanding of the specific actions required. With their proximity to management, PE firms can exert influence and drive climate and ESG initiatives. Additionally, the alignment between long-term investors and management tends to be stronger in the private equity realm.

Manufacturing is highlighted as a sector where private investors can make a significant difference. The manufacturing industry generates vast amounts of waste, presenting opportunities for investment firms to help companies become more ESG-compliant and cost-competitive in the future.

According to Fu, the green economy in Asia provides a reset button, particularly advantageous for smaller and more agile firms that can adapt quickly. Alternatively, investors can pursue a strategy of acquiring and integrating multiple companies to create synergies.

Overall, PE firms bring active management, operational expertise, and long-term alignment with management to drive businesses towards net-zero goals and promote sustainability in the Asian market.

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