Catalysing Green Financing for a Just Energy Transition
Catalysing green financing will be critical to delivering on the needs of a just energy transition in Asia. The remarkable transformation of the economies and countries in the region to decouple carbon emissions from growth represents a monumental challenge, and one which will generate significant investment needs.
The International Energy Agency (IEA) estimates that annual clean energy investment will need to triple globally from levels of the last decade to at least US$4 trillion by 2030 in order to align with the path for net-zero 2050. That represents a significant increase from the ~US$2.3 trillion annual clean energy investment seen in most recent years.
While that figure is eye-watering, the opportunities it unlocks will be equally transformative for the global economy. In the net-zero energy (NZE) scenario of its seminal report, Net Zero by 2050 – A Roadmap for the Global Energy Sector, total annual energy investment surges to US$5 trillion by 2030. Under these conditions, the IEA predicts a 0.4 percentage point boost to annual global GDP growth.
The necessary jump in private and government spending would create millions of clean energy jobs, as well as adjacent opportunities in manufacturing, engineering, and construction, putting GDP 4% higher in 2030 than on current business-as-usual trends.
Asia has a huge role to play in this evolving net-zero journey. The Race to Zero campaign, backed by the United Nations, estimates the Asia-Pacific (APAC) region will require US$13.6 trillion investment this decade alone to advance the global net-zero transition.
At a top-down level, these significant investment needs and projected GDP boost offer a compelling argument for Asia’s policymakers and decision makers as they set their energy transition goals. But what’s even more powerful is the individual impacts that could have on the ground—powering up rural economies, unlocking innovation-driven job opportunities, and providing new livelihoods for individuals and communities.
The Asian Development Bank (ADB) estimates that the combined markets of developing Asia will need to invest US$1.7 trillion annually in infrastructure between now and 2030 to maintain growth momentum, tackle poverty, and respond to climate change.
Exploring clean financing investment in ASEAN
Green financing flows will increase significantly during this period of energy transition, with capital investment in the NZE scenario predicted to rise from 2.5% of global GDP to 4.5% by 2030, falling back to 2.5% by 2050 as major interventions mature and technologies reduce in cost.
Renewable energy investment alone is expected to reach more than US$1.6 trillion by 2030, as a transition to low-carbon power generation drives forward a major pillar of the energy transition. That will be a particularly complex challenge in Asia, where markets at different stages of development and infrastructure maturity seek to deliver a net-zero journey within their own local circumstances.
This includes annual investment in modernisation of electricity networks to meet the needs of growing variable generation from renewable energy, investment in low-carbon technologies such as hydrogen, hydrogen-based fuel and bioenergy and green energy investment for the transport sector.
Needless to say, ASEAN will play a significant role in this transition for the wider APAC, as a high-growth region with surging energy demand backed by significant energy resources.
Energy Asia knowledge partner, CERAWeek by S&P Global estimates that the cost of a faster net-zero transition scenario for ASEAN would reach US$2.55 trillion cumulative investment to 2050. The greatest investment need comes from the largest economy, Indonesia, with approximately US$31 billion needed annually, followed by Vietnam (US$21 billion), Malaysia (US$13 billion), and Thailand (US$10.4 billion).
Globally aligned and mandatory guidance around environmental, social, governance (ESG) disclosures, integration on investment decisions, credit ratings, and prudential requirements will help empower this positive green financing landscape. This will require financial institutions to develop both internal and external capacity to nurture a sustainable financial model.
Appropriate policy support and enabling regulatory guidance will also provide positive frameworks to catalyse green finance in ASEAN and beyond, with key areas including green, social, and sustainability (GSS) bonds, voluntary carbon markets, and appropriate carbon pricing. Financial institutions in ASEAN can further this journey by introducing more blended financing options that target the transition to a net-zero roadmap.
There are already encouraging global movements, with the Glasgow Financial Alliance for Net Zero (GFNAZ) agreed in 2022, bringing together over 160 firms with a combined US$70 trillion in assets towards delivering Paris Agreement goals.
Creating a holistic, sustainable finance model that incentivises all stakeholders, with particular focus on affordable, accessible energy for end users will be key in ASEAN and across developing Asian markets. This helps mitigate the risks to energy security, while ensuring that clean financing investments are delivering fit-for-purpose solutions for individual markets.
Energising the green financing needs of a just transition for Asia will require the participation of stakeholders across the region, including investors, financial institutions, policymakers, industry decision makers and more. Only through this holistic, integrated approach to transition can we generate and target investment as and where it is required, and unlock value towards a net-zero future.