- Green investment opportunity of USD 3 trillion from 2016-2030
- Current ASEAN green finance flows estimated at USD 40 billion per year
- Green finance from private sector will need to increase tenfold
Singapore, 15 November 2017 – The Association of Southeast Asian Nations (ASEAN) region needs to increase green investment by 400 per cent each year to protect its people and economies from climate change and other environmental shocks, according to new research released today.
Green Finance Opportunities in ASEAN, produced by financial services group DBS and the UN Environment Inquiry into the Design of a Sustainable Financial System, finds that USD 3 trillion in green investment is needed between 2016 and 2030. This represents a new ASEAN green investment market 37 times the size of the global 2016 green bond market.
“ASEAN is undergoing transformational changes as it adapts to climate change and pivots towards a more sustainable path of development,” said Piyush Gupta, Chief Executive Officer of DBS. “At DBS, we believe there is no trade-off between promoting sustainable development and value creation for our shareholders – green finance can be good business too.”
Humanity’s high-carbon, resource-intensive growth path has damaged both people and planet. Pollution, natural resource depletion and climate change bring significant economic stresses that policymakers historically have not accounted for, or properly addressed, in development plans.
Asian Development Bank (ADB) research shows that ASEAN members are more exposed to such risks than the global average – down to significant poverty rates, economic dependence on environmentally sensitive industries, geographic vulnerability to climate effects, and rapid population growth.
To reduce its vulnerability, and provide long-term economic stability and prosperity, the ASEAN region needs put itself on a sustainable trajectory. This will require substantial amounts of green investment.
“Green investment in the ASEAN region can transform the region into a green economic powerhouse that supports a growing population, and provides returns for investors,” said Dr. Ma Jun, UN Environment’s Special Advisor on Sustainable Finance and Co-chair of G20 Green Finance Study Group. “This report lays out ways in which the ASEAN region can unlock this investment and protect its people, environment and economies.”
The investment opportunity
Current annual ASEAN flows of green finance are estimated at USD 40 billion, against an average annual need of roughly USD 200 billion to 2030 – which adds up to the estimated total USD 3 trillion.
This investment is spread across infrastructure (USD 1,800 billion), renewable energy (USD 400 billion), energy efficiency (USD 400 billion) and food, agriculture and land use (USD 400 billion). Indonesia will require the largest volume of green finance. Substantial investment opportunities also exist in Thailand and Vietnam.
Approximately 75 per cent of current flows comes from public finance and 25 per cent from private finance, largely in the form of commercial loans. Future public contributions are anticipated to drop to around 40 per cent. This means that private green finance flows will need to scale up by a factor of over ten to meet the demand.
Investments should be made according to the unique characteristics of the ASEAN region. Small and medium-sized enterprises (SMEs) are widespread across markets that are highly diverse in terms of economic attributes, culture, language and religion.
Barriers to success
The report identifies several barriers to scaling up green finance. These include:
- Many of the SMEs that dominate ASEAN economies have issues accessing finance, which could be used for green investment in improving environmental performance, expanding sales of green goods and services, and reshaping the practices of agricultural smallholders.
- There is insufficient environmental disclosure from companies, and limited information-sharing platforms. This makes it more difficult for financial decision makers to identify, price and manage environmental risk.
- The pipeline of commercially viable green investment opportunities is relatively limited. Exchange rate volatility across the ten ASEAN member currencies is singled out as a significant barrier to ASEAN green investment.
- National environmental and broader sustainability objectives have not been translated into coherent financial policy frameworks.
Solutions to increase green investment
No single solution set will deliver the green finance required in ASEAN. However, the report finds several areas that would benefit from further exploration.
- Developing green investment platforms would support the collaboration required for many green investments.
- Investors with medium- to long-term liability profiles, such as insurance companies or pension funds, could help scale up green investment by lending directly to green projects with longer-term investment needs and purchasing green assets channelled by banks into the capital markets.
- Initiatives could be undertaken to develop voluntary environment-related financial risk disclosures for use by companies in providing relevant information to investors, lenders, insurers and other stakeholders.
- A deeper green investment asset pipeline could be developed, through aggregation of assets into financial products, use of public funds, and new financial products such as forms of environmental insurance.
- Digital finance offers promising avenues to connect SME users of green finance to lower cost sources through a growing range of intermediaries, such as mobile or crowdfunding platforms.
- Green finance roadmaps could enhance the ability of the financial system to mobilize green finance. These long-term, systemic plans involve identifying system-wide needs, barriers to scaling and priority actions.
To download the full report, visit go.dbs.com/ASEANgreenfinance.
NOTES TO EDITORS
The Inquiry is a leading international platform for advancing national and international efforts to shift the trillions required for delivering an inclusive, green economy through the transformation of the global financial system. Since launching in 2014, the Inquiry has worked with more than twenty countries on national processes, published around 90 reports and working papers and serves as the Secretariat for the G20’s Green Finance Study Group.
The Inquiry and partners are this week launching another three reports on the state of play in green and sustainable finance and upcoming investment opportunities. These are:
13 November – Roadmap on Sustainable Finance, with the World Bank Group. This report is aimed at helping governments and the private sector design a global financial system that is fit-for-purpose in the era of sustainable development.
15 November – Singapore Roadmap on Green Finance, with the Singapore Institute of International Affairs. This report looks at how Singapore could transform itself into a green finance hub for ASEAN and the wider region.
16 November – China Green Finance Progress Report, with the Central University of Finance and Economics in Beijing. This is the first published review of progress in China on green finance set against the State Council’s 35 recommendations on green finance adopted in August 2016.
All reports and related infographics can be downloaded from the Inquiry’s website on the relevant dates.
For more information and to arrange interviews, contact:
Michael Logan, Inquiry into the Design of a Sustainable Financial System, +39 349 453 9310, [email protected]
Edna Koh, DBS, +65 6878 8134, [email protected]
Davina Loh, DBS, +65 6878 2141, [email protected]
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