Southeast Asia is a region that is primed for growth in the green economy. With a population of over 670 million people, the region is home to some of the world’s fastest-growing economies, and there is a growing awareness of the need to transition to a more sustainable economic model. As we look ahead to 2023, several factors suggest the potential for a thriving green economy in Southeast Asia.
First, there is a growing demand for renewable energy in the region. According to the International Renewable Energy Agency (IRENA), Southeast Asia expects to reach aspirational goals of 23% renewable energy in primary energy supply and 35% renewable energy installed capacity by 2025.
This is equivalent to more than twice the region’s current installed capacity. The demand for renewable energy is being driven by a combination of factors, including the need to reduce greenhouse gas emissions, the desire to reduce dependence on fossil fuels, and the falling cost of renewable energy technologies.
Several countries in the region are already making significant progress in developing their renewable energy sectors. By the end of 2021, Vietnam, Thailand, and Indonesia would be in the lead in the area for installed renewable energy capacity, with respective totals of 42.5 GW, 12 GW, and 10.6 GW.
Under the Energy Transition Mechanism (ETM) Southeast Asia Partnership led by the Asian Development Bank (ADB), Indonesia, Philippines, and Vietnam set the goal of retiring 50% of the coal fleet (30 GW) over the following 10 to 15 years. It could reduce carbon dioxide emissions by 200 million tons annually, or the equivalent of taking 61 million cars off the road. ETM has the potential to grow into the biggest global carbon reduction initiative. These targets are driving investment in renewable energy projects, and there are many opportunities for investors to get involved in the sector.
Secondly, there is a growing awareness of the need to address environmental challenges in the region. Southeast Asia is home to some of the world’s most biodiverse ecosystems, but these ecosystems are under threat from deforestation, pollution, and climate change. There is a growing recognition that these environmental challenges need to be addressed if the region is to continue to thrive economically.
One area where there is significant potential for growth is in sustainable agriculture. In Southeast Asia, approximately 35% of the region’s workforce is engaged in the agriculture sector, with smallholder farms contributing to 60% of this employment.
These farmers are facing a range of challenges, including climate change, soil degradation, and water scarcity. However, there are many opportunities to support these farmers in transitioning to more sustainable agricultural practices, such as agroforestry, conservation agriculture, and integrated pest management.
Investing in sustainable agriculture can have a range of benefits, including improving food security, reducing poverty, and supporting biodiversity conservation. There are many examples of successful sustainable agriculture projects in the region, such as the Sustainable Rice Platform in Vietnam and the SRI-LMB project in Cambodia, Laos, and Myanmar.
Thirdly, there is a growing interest in sustainable finance in the region. Sustainable finance refers to the integration of environmental, social, and governance (ESG) factors into investment decisions. There is a growing recognition that sustainable finance can play a key role in supporting the transition to a more sustainable economy. A recent report from Bain & Company stated that green capital inflow of $17 billion into Southeast Asia between 2020 and 2022.
Several countries in the region are taking steps to promote sustainable finance. For example, the Monetary Authority of Singapore has launched a Green Finance Action Plan to support the development of green finance in the country. Indonesia has also introduced regulations to promote sustainable finance, including the issuance of green bonds and the establishment of a green investment fund.
According to the Climate Bonds Initiative (CBI), there are 39 issuers of green bonds and loans in the ASEAN region. The leading issuer in Southeast Asia is ICBC Singapore, which has issued a multi-tranche green bond amounting to $2.2 billion across three currencies. This is followed by Indonesia with outstanding green sukuk worth $2 billion, and remains as the sole ASEAN member issuing green sovereign bonds.
There are many opportunities for investors to get involved in sustainable finance in the region. For example, there is growing demand for green bonds, which are bonds issued to finance environmentally sustainable projects. In 2019, the ASEAN Green Bond Standards were launched to promote the development of green bonds in the region. There are also opportunities to invest in companies that are adopting sustainable business practices, such as those that are reducing their carbon footprint or improving their supply chain sustainability.
In conclusion, Southeast Asia has significant potential for growth in the green economy. The region’s growing demand for renewable energy, increasing awareness of environmental challenges, and growing interest in sustainable finance all suggest that the green economy will continue to grow in the coming years. Investors who are looking to get involved in the sector should consider opportunities in renewable energy, sustainable agriculture, and sustainable finance. By investing in the green economy, investors can not only generate a financial return, but also contribute to the transition to a more sustainable economic model.
