- As Southeast Asia recovers from the COVID-19 pandemic, it is critical for governments to create bankable green projects to better leverage public funds.
- Governments can tap into various resources to finance a green recovery, including capital markets, public-private partnerships, commercial banks, and infrastructure funds.
- The ASEAN region has seen a significant increase in the issuance of green, social, and sustainable bonds and loans, reaching $12.1 billion in 2020. But the market still has much room to grow.
The region of Southeast Asia is one of the most vulnerable to climate change. About 650 million people live in the area, which has 174,000 kilometers of coastline. Many of them depend on agriculture and natural resources but regularly face flooding and extreme weather events. More than half of the world’s mismanaged plastic waste, or plastics that can enter the ocean, come from East Asia and Pacific, and among the top producers are five growing economies in Southeast Asia: Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam.
In 2020, the coronavirus disease (COVID-19) pandemic led to an economic contraction in developing Asia for the first time in 6 decades, including $163 billion to $253 billion in projected losses in gross domestic product across Southeast Asia, according to the Asian Development Bank (ADB).
ADB supports a green, resilient, and inclusive recovery in the region, incorporating climate and environmental sustainability, with support from the Association of Southeast Asian Nations (ASEAN) Catalytic Green Finance Facility (ACGF), says Anouj Mehta, unit head of the ACGF and green and innovative finance at ADB’s Southeast Asia Regional Department.
1. Have Southeast Asian countries invested enough in green infrastructure?
There is still quite a long way to go, and governments will need private financing to get there. Southeast Asia needs an estimated $3.1 trillion, or $210 billion annually, from 2016 to 2030 to support climate-compatible infrastructure, renewable energy, energy efficiency, food security, agriculture, and land use, according to the Development Bank of Singapore and the UN Environment Inquiry. The annual financing gap in 8 of the 11 Southeast Asian countries was estimated to be $102 billion from 2016 to 2020, which may have worsened since COVID-19 hit.
2. How can Southeast Asia boost green financing?
As Southeast Asia recovers from COVID-19, it is critical to create bankable green projects to better leverage government funds. There is an urgent need to develop country-specific strategies to promote a green economic recovery supported by private capital, which can work seamlessly with post-COVID-19 national recovery plans across Southeast Asia.
With $1.7 billion in cofinancing pledged so far, the ACGF is supporting the financial design of more than 25 projects. The ACGF is helping some countries develop green recovery strategies, including policies, de-risking vehicles and projects. The ACGF is also supporting the issuance of green and sustainable bonds. In 2020, for example, the ACGF provided technical assistance to Thailand’s sustainability bond, which raised almost $ 1 billion at issuance.
Established in 2019, the ACGF is an ASEAN Infrastructure Fund initiative, owned by all 10 ASEAN countries and ADB, with support from 13 partners.
3. Is ADB supporting green financing in Southeast Asia?
Definitely. ADB invests about $6 billion a year in climate-related projects across developing Asia and the Pacific. ADB also has committed to ensuring 75% of its projects will be supporting climate change mitigation and adaptation by 2030.
With technical assistance, loans, and equity products, ADB has been assisting its developing member countries, including those in Southeast Asia, in introducing green and climate-focused financing mechanisms and projects, such as the ongoing work on the SDG Indonesia One: Green Finance Facility project.
Through the ACGF, ADB has been assisting the expansion of green, social, and sustainable bonds in Southeast Asia. Recently, the Green Climate Fund has allocated funding for the ACGF to develop a Green Recovery Program for Southeast Asia. Lastly, ADB has been supporting the development of green recovery strategies and roadmaps for select countries.
4. What financing options are available to support green financing post-pandemic?
Governments can tap into various options for green financing, including capital markets, public-private partnerships, commercial banks, and infrastructure funds. The ACGF and Green Climate Fund, for example, can provide financing to help countries reduce investment risk and catalyze private capital.
In ASEAN, the issuance of green bonds and green loans reached $12.1 billion in 2020, according to the Climate Bonds Initiative. By contrast, the global issuance of green, social, and sustainability instruments peaked at $700 billion in 2020, almost double the 2019 figure.
New asset groups, such as transition bonds and green securitization, are expected to see higher demand. Transition bonds first emerged in 2019 to help heavy industries become greener and more environmentally friendly, such as mining and construction.
Mechanisms that help countries adopt green recovery strategies include measures to reduce investor risks associated with green recovery projects and ocean financing, such as ocean health credits, green public-private partnerships, green securitization, and COVID-19 recovery transition bonds. For more information, please check out the ACGF’s explanation on green recovery strategies and our new publication on SDG bonds.