Southeast Asia is acutely vulnerable to the effects of climate change. Increasingly frequent typhoons, floods and droughts, rising sea levels, higher temperatures, and shifting rain patterns are negatively impacting crop yields, biodiversity, forest harvests, and the availability of clean water. Climate impacts can also lead to a greater incidence of malaria, dengue fever, and other diseases.
The Asian Development Bank (ADB) estimates the region’s economy could shrink by 11% by the end of the century due to the collective effect of climate change on agriculture, tourism, energy demand, labor productivity, human health, and ecosystems.
As Southeast Asia rebuilds from the COVID-19 pandemic, governments need to promote a recovery that will not only support growth and job creation but also protect the environment. With the pandemic squeezing state resources needed to invest in meeting Sustainable Development Goals (SDGs) and climate change targets, the challenge is formidable.
Green and SDG bonds to the rescue
Governments in Southeast Asia need rapid access to funds so they can climate-proof key infrastructure. Enter green and SDG bonds, which enable governments to raise capital to finance projects that can advance Southeast Asia’s sustainable green agenda.
"Green and thematic bonds are key to unlocking the scale of capital flows in the shortest time," says ADB Vice-President (Operations 2) for East Asia, Southeast Asia, and the Pacific Ahmed M. Saeed.1
As of the first half of 2022, Association of Southeast Asian Nations (ASEAN) countries have raised a cumulative $38 billion from green and SDG or thematic bonds. Still, this amount represents little more than 1% of global issuances, and pales in comparison to the region’s annual needs.
Thailand and Indonesia are among the countries in the region that have successfully ventured into the green bond market.
Thailand raised almost $6 billion from a sustainability bond issuance in 2020—one of the first worldwide following the pandemic―to finance its infrastructure needs. The bond issuance was the first of its kind by an ASEAN member state, and generated exceptionally strong demand from investors.
Indonesia is also active in green bond issuance. As of 2021, Indonesia’s green, social, and sustainability bond market stood at $7.7 billion, with green bonds contributing $6.3 billion of the total. Indonesia issued the first global green sukuk—Islamic debt securities—in 2018, and the first green retail sukuk in 2019.
ADB Vice-President Saeed cites capacity, regulation, risk assurance structures, and a lack of underlying projects among the challenges of scaling up these instruments.
To encourage ASEAN member states to tap the bond market, ADB launched the Green, Social, Sustainable, and other Labeled Bonds Initiative for Southeast Asia last year. The initiative aims to scale up green and thematic bond issuances across the region by $1 billion through 2025.
The program was established under the ASEAN Catalytic Green Finance Facility (ACGF), a $2-billion regional facility under the ASEAN Infrastructure Fund, which is administered by ADB. The AIF is a dedicated fund established by ASEAN members and ADB to address Southeast Asia’s infrastructure development needs.
The initiative seeks to generate more bond issuances that can enable countries to address their investment needs and achieve climate-resilience targets by creating enabling environments and ecosystems to catalyze bond issuances and better leverage public sector funds.
In November 2022, ADB also approved a $15-million technical assistance program, supported by ADB’s own funds and the Green Climate Fund, to develop projects that promote climate change adaptation and mitigation in Southeast Asia.
The new program, which was announced at COP27, will help countries mobilize financing for their emission reduction and climate adaptation action plans by improving investment planning, identifying and developing projects, and building country capacity to accelerate a pipeline of green projects.
"The Accelerating Climate Transitions through Green Finance in Southeast Asia program will generate much-needed pipelines of climate investments in Southeast Asia," said ADB Director General for Southeast Asia Ramesh Subramaniam, who presented the program at COP27. "It applies a large-scale, holistic approach—planning frameworks, innovative project ideas, and knowledge sharing—to help the region’s governments deliver on ambitious climate commitments."
Nature-positive investments are cost-effective and sustainable ways to address the urgent problems of climate change, biodiversity loss, and pollution.
Climate as a growth and business opportunity
Climate change also presents growth opportunities for the private sector.
A 2022 ADB report notes that investing $172 billion in sustainable urban transport, clean energy transition, circular economy, agriculture, and oceans could create up to 30 million direct jobs in Southeast Asia by 2030.
This growth opportunity has not gone unnoticed. Companies are now beginning to see climate mitigation and adaptation as a business opportunity, and are coming up with solutions that align with governments’ decarbonization goals. These companies are even attracting venture capital and angel investment, as well as interest from consumers and fellow businesses eager to patronize products and solutions that meet environmental, social, and governance norms.
Ananas Anam, maker of a sustainable leather alternative derived from pineapple waste, is one example. The company has received $200,000 in seed funding from ADB Ventures, the corporate venture arm of ADB. The seed funding will help the company improve its production processes and make its leather alternative, Piñatex, more cost competitive with traditional and other bio-based leathers. The company has operations in the Philippines, where it sources pineapple waste from farmers.
The company’s business model aligns with two of the green growth opportunities identified by ADB—agriculture and circular economy. The production of Piñatex cuts carbon dioxide emissions by 80% compared with traditional leather production. With this product line, the company wants to reduce the fashion industry’s reliance on leather and other unsustainable materials that are expected to contribute 2.7 billion tons of carbon dioxide to the atmosphere by 2030. Since it is derived from an agricultural waste product, Piñatex does not require additional land, water, fertilizer, or pesticides to produce.
Ananas Anam, which has also received venture capital funding from other firms, aims to increase Piñatex’s share in the global bio-based leather market, representing a $5.4-billion opportunity. Piñatex is now used by 1,000 brands worldwide, including Nike, Hugo Boss, H&M, and the Hilton Hotel Bankside.
Established in January 2020, ADB Ventures supports and invests in early-stage companies with technology-enabled solutions that contribute to achieving the SDGs in Asia and the Pacific. ADB envisions ADB Ventures to become a leading impact technology investment platform in the Asia–Pacific that crowds in over $1 billion of risk capital for early-stage companies, thereby unlocking the potential for private sector capital and technological know-how to contribute towards attaining the SDGs.
#SEADS2023 on 30 March will explore innovative technologies and solutions, financing mechanisms, and policies that can help Southeast Asia meet its net-zero goals. Join the discussion. Learn, share, collaborate. Register now.