Southeast Asia’s Sustainable Commitments, Needs, and Opportunities
Southeast Asia makes up 20% of the world’s biodiversity and 10% of the world’s population. The region is home to 16% of the world’s coastline, scattered with coastal communities that inhabit hundreds of millions of people facing direct threats from rising sea levels. All signatories to the Paris accord, the 10 ASEAN states share a commitment of making 23% of their primary energy renewable by 2023. Moreover, 26 of the major cities in the region have been selected for the piloting of smart-city programs. Naturally, sustainable opportunities are anticipated with Southeast Asia in recent times.
In the past months, the Asia Pacific Green Deal for Business Declaration was adopted by the ESCAP Sustainable Business Network (ESBN), which is made up of private sector representatives across the Asia-Pacific region. The Green Deal will serve as a roadmap for climate action leadership in companies. Under-Secretary-General of the UN and Executive Secretary of ESCAP, Armida Salsiah Alisjahbana remarked: “ESBN, through this Green Deal, will lead private sector sustainability efforts to accelerate a green transformation in the region”.
The region’s climate ambitions have been raised by COP26, which resulted in 8 out of 10 ASEAN countries now having a net-zero target; carbon taxes are currently being piloted by Singapore and Indonesia. ASEAN’s climate ambitions are reflected in its green investments. The region has seen a cumulation of $15 billion investments in 2020, with the majority funding built environment and renewables. Building and scaling sustainable solutions are currently being spearheaded by entrepreneurs across the region, particularly in spaces of agrifood and energy. Private and venture capital investments in sustainability have grown exponentially between 2020 and 2021.
60% of Southeast Asia’s potential in carbon abatement will consist of contributions from the five most investable priority sectors in the region: sustainable farming, forest conservation, built environment, renewables (solar and wind), and electric mobility. However, insufficient incentives for the agile scaling of decarbonization efforts, a bias towards novel solutions vs. proven solutions, low-risk options, and the lack of clarity on energy transition in system costs hinder the region from achieving its full carbon abatement potential.
Four critical fronts identified by the Southeast Asia’s Green Economy 2022 Report requiring action from stakeholders in region in order to accelerate and scale green investment include: (1) unlocking the opportunities in proven solutions, (2) confronting energy transition in system costs, (3) strengthening green financing, and (4) increasing regional collaboration.
The rise of sustainability-related startups in Southeast Asia
The emergence of startups on sustainability has also been observed to be 13 times more in 2021 in comparison to 2015 according to the cumulative growth of founded startups in the region. Whereas rapid investor demand has tripled in value of private equity and venture capital sustainability investments within the region from $181M in 2020 to $545M in 2021, with alternative proteins making up the largest segment of investments, and sustainable farming, food loss and waste, and renewables accounting for other constituents. If fully pursued, a material economic and climate prize exists throughout the region, totaling to approximately $1T green economic opportunities annually across sectors with the energy sector constituting $250B of the total, followed by agri-food and forestry ($225B), industrial ($200B), cities including built environment and mobility ($185B), and healthcare, education, and retail ($74B).
Various decarbonization levers exist with varying extent of tech maturity in the region, with 30 key, potential impact levers identified by the Report. Among the 30, sustainable farming has been recognized as one of the proven levers that offer commercial solutions that are competitive or solutions with proof of stability established. Alternative proteins have also been classified as one of the market ready levers that offer commercially available solutions that are not yet competitive.
Sustainable farming champions opportunities in Thailand
By 2030, sustainable farming will represent a $30B opportunity, with farmer service platforms and precision agriculture being the most attractive opportunities due to robust regulatory support, namely in Thailand, Malaysia and Vietnam. Financing and supporting innovative models in agritech and startup spaces is key to enable the region to realize and achieve its full potential.
In Thailand, $2.85B of green bonds contribute to the country’s climate financing. Nonetheless, the country would benefit from more consistent policies in times when the drafting of climate-specific policies are still underway. The valuation of firms with commitments to science based targets initiative (SBTi) in the region has seen an increased growth in the past 4 years, with Thai firms having the second-most valuation after Singapore in 2021. The region has observed 20% net growth in the amount of impact investors since 2020, with 15% of Southeast Asia’s investments deployed in 2020-2021 related to sustainability, and every 1 in 2 APAC investors considering climate change metrics for decision-making. On the other hand, a staggering 91% of Southeast Asian consumers desire more sustainable investment solutions options, with 79% of the Southeast Asian population understanding the urgency of coal-power reliance reduction, and 46% of the Southeast Asian population believing that more government resources are able to be allocated towards climate change.
Of the $1B private equity and venture capital funds invested since 2020, approximately 50% of capital was cumulatively deployed to alternative proteins ($557M). Presently, Thailand has no clear incentive or regulatory support for sustainable farming investments and carbon taxes. Regulatory support but weak financial incentives exist in Thailand’s renewable tariffs and built environment investments. EV adoption investments in Thailand is the only segment with the presence of government-aided financial incentives. Despite the lack of clear financial incentives, sustainable farming becomes an increasingly attractive segment in Thailand with the government’s 20-year agriculture-development plan that aims to push forth digitization in the agricultural sector and easy access to financing among AgTech startups.
Notably, three sectors closely linked to any potential investment for returns and climate impact capture 90% of Southeast Asia’s carbon budget consist of energy, nature, and agri-food. This is also true for Thailand where energy and agri-food make up large volumes of carbon emission in 2018. Regardless, relevant sectors such as sustainable farming and alternative proteins are identified as potentially investable in terms of high carbon abatement potential by 2050, technology readiness, public awareness and sentiment (with the exception of alternative proteins) and investor interest; and moderate regulatory incentives and criteria agnostic enabling infrastructure.
Key stakeholders are anticipated to mobilize actions and take on unique roles to ensure successful outcomes in the acceleration of carbon transition. Critical activities from the government consist of leading with specific roadmaps for decarbonization and clear direction for the enablement of growth in green investments. The championing of progress and backing of needle-moving solutions via unlocking greater transition financing from investors are ideal. The role of corporates is decarbonizing own emissions and capturing commercial values from sustainable levers.