Sustainable financing has gained substantial momentum in Southeast Asia in the recent years, but even if the progress is notable, the amount of sustainable financing in the region still falls way short of the levels required to drive transition towards net zero targets.
This is the view of Lim Lay Wah, managing director & group head for the Global Financial Institutions Group & Sector Solutions Group at UOB.
"Southeast Asia has committed to decarbonisation, with eight out of 10 member states of the Association of Southeast Asian Nations (ASEAN) at COP26 pledging to achieve net-zero targets by 2050," says Lim.
"According to Climate Bonds Initiative, the Southeast Asia sustainable finance market in 2022 raised US$36 billion, almost double the amount in 2020."
"We are seeing the same trend at UOB. Last year, the amount of sustainable financing provided to our clients to support the region’s transition towards a low-carbon economy more than doubled from 2022 numbers to S$44.5 billion."
Lim says the growth was from the built environment and energy transition to support the construction of new green buildings, improvements to existing buildings and smart city infrastructure development across Southeast Asia.
"In the same period, sustainable trade finance tripled with the surge in imports and exports of sustainable products such as eligible certified palm oil, coffee, tea, cocoa, sugar, hazelnut, animal feed, aquaculture, textile, apparel and footwear, forestry products, biomass or biofuel, recycled chemicals and building materials."
According to the Monetary Authority of Singapore, US$200 billion of green investment is required annually for Southeast Asia till 2030 to meet its net zero commitment. Lim says this gap can be attributed to several factors, including the need for more robust policy frameworks, consistently adopted taxonomies, greater awareness and education on corporate sustainability, and the demand for innovative sustainable financing solutions tailored to the diverse needs of businesses across Southeast Asia.
"These pose a considerable challenge to accelerate the innovation and adoption of sustainable technologies, infrastructure and practices, thereby hindering progress," Lim points out.
Building momentum with transition finance
Lim believes businesses must assess quantitative thresholds based on national taxonomies for projects depending on their location.
"The 'glide path' for companies starting above the pathway is to decarbonise with the aim of convergence as soon as possible. Those starting below the pathway must remain on or below it to maintain and reduce emission intensity."
Lim explains that an implementable climate transition plan would mean that it is sufficiently robust to deliver on the said ambition.
"It needs to be underpinned by consistent disclosures and monitoring that is aligned with existing climate-related disclosure standards such as International Financial Reporting Standards (IFRS) S2 Climate-related Disclosures."
Scaling up through innovation and collaboration
"The next evolution in sustainable finance will be in the area of transition finance, which directs capital to transitioning companies across debt, equity, and other forms of financing instruments," Lim says.
She believes that while there is a need to provide guidance to encourage progress, this guidance will have to be applicable and relevant so that instruments, capital and investments can be utlised to meaningfully contribute to the transition.
"Through innovative solutions, collaborative efforts, and a concerted commitment to sustainability, Southeast Asia can unlock the full potential of sustainable financing and lead the way for a more resilient and sustainable economy for future generations."
