Across major economies in Southeast Asia, there potentially needs to be some $50 billion in annual investment by 2030 to “activate systems-level solutions”.
These include developing a sustainable bioeconomy, developing next-generation grid infrastructure to improve reliability; and driving the transition to electric vehicles (EVs), including expanding infrastructure, across Indonesia, Malaysia, Thailand, Singapore, Vietnam, and the Philippines.
These recommendations were made in the latest report co-authored by Bain & Company, GenZero, Google, Standard Chartered, and Temasek.
Supporting these three themes requires improving access to commercial capital to finance climate and transition projects; developing carbon markets; and capitalising on green AI to optimise energy efficiency and land productivity.
The result of these efforts could boost economic growth in the region, projected to be around $120 million in GDP growth by 2030, along with more than 900,000 jobs created related to the green economy. This would also slash emissions, to close about half of the projected gap in national targets, by 2030.
Emissions gap widens
The report’s authors also note that based on current trajectories, most nations in APAC, which contributes half of the world’s greenhouse gases, are falling short of their 2030 targets.
The emissions gap for Southeast Asia and APAC is expected to widen even further by 2040 and 2050. The growing data centre sector in Southeast Asia, for instance, is expected to consume 10% of the region’s total energy by 2040, and faces constraints owing to the reliance on fossil fuels.
Indeed, the report shows how the six major economies in Southeast Asia—Indonesia, Vietnam, Thailand, Malaysia, the Philippines, and Singapore—have seen emissions grow at about 3-4% annually. Indeed, the region has yet to slow the rate of increase in its carbon emissions, unlike in the broader Asia Pacific region, China, the EU and UK.
When compared to global levels of renewable energy and electric vehicle penetration, the region still falls short of global peers. Usage of renewable energy, excluding hydropower, in Southeast Asia hovers around 9%, while EV adoption at under 15% compares poorly to the 30% recorded in markets in Europe and China.
Notably, the report’s authors highlight how, over the last five years, the same, persistent issues have hindered the scaling up of climate action projects across Southeast Asia. These are, namely, the need to balance economic growth and transition; economic incentives to change that are not well-aligned; the lack of clear carbon pricing mechanisms; limited regional cooperation; and inadequate financing tools.
To be sure, the region is still about 80% dependent on fossil fuels for its energy needs, particularly as a significant portion of the economy is driven by energy-intensive industries such as mining, manufacturing, and construction.
At the same time, Indonesia, Malaysia, and Thailand in particular have substantial commodities exports; their rubber, palm oil, and timber plantations contribute a big part of their economies, as well as deforestation and emissions.
Crucially, countries in the region also hold significant reserves of the mineral resources that are needed to drive decarbonisation, including nickel and rare earths needed for EV batteries.
Growth potential in green investments
According to the report, there was a 40% rise in private investments in the green economy in Southeast Asia, between 2023 and 2024, to $8 billion.
Most of blended finance, or nearly $16 billion in 2023, in Southeast Asia has so far gone towards energy projects, and financial services such as microfinancing, at about 28% and 27% of the total number of deals, respectively. The bulk of this, at nearly half, is concessional capital. Technical assistance funds make up for 22% of deals.
There remain ample investment opportunities across these sectors with the potential to generate robust margins, according to the report.
For instance, as part of developing the bioeconomy, producing higher value or yielding crops is forecast to grow to a $4 billion to $6 billion market by 2030; refining biofuel, estimated to have the largest market size at some $30 billion, could yield as high as a 30% profit margin.
In grid transmission infrastructure, the report’s authors estimate returns ranging from 10% to 30%, in grid expansion, modernisation, and energy storage projects. In the EV industry, apart from the manufacturing of batteries and vehicles, a $3 billion charging infrastructure market could develop to yield returns of as much as 9%.
Overall, investments across key green sectors, driven by AI, could deliver returns on investment between 15% and 50%, the report highlighted. These sectors include green data centres, smart manufacturing, waste collection, precision and regenerative agriculture.
