This is the executive summary of a recent report “Southeast Asia’s Green Economy 2021 Report: Opportunities on the Road to Net Zero” by Bain, Microsoft, and Temasek

Key Takeaways:

As the global narrative on climate change shifts from challenges to action, there is growing recognition of the importance of SEA as a critical part of the Net Zero puzzle. SEA is the start of many supply routes and is home to some of the world’s most valuable natural capital sources: ~25% of global investible pantropic forest carbon stock, 19-46% of blue carbon stock, and ~97% of tropical peatland carbon sinks.

SEA has mobilized in the past year, with landmark national announcements and growth in corporate action, but pathways to results remain unclear. Only 2 SEA countries have Net Zero commitments, robust climate plans are sparse, and carbon prices remain low (~$4-5 per tCO2e). The region faces a ~3-4Gt gap to 1.5°C- aligned emissions levels in 2030 based on latest NDCs. While MNCs, government-linked enterprises, regional corporates, and family-run businesses lead the way, SMEs face resource constraints to make the shift.

We know what needs to be done: ~90% of SEA’s emissions are addressable through the energy transition, valuing nature, and the agri-food transformation. Opportunities exist as we decarbonize SEA’s heaviest emitting sectors. Scaling the voluntary carbon markets and leveraging data and digital innovation can further accelerate our Net Zero journey.

SEA investors’ mindsets are shifting, and green capital is beginning to flow, but there is a long way to go. The region needs ~$2 trillion in infrastructure investments over the next decade for a sustainable transition. In 2020, only ~$9 billion capital was deployed into green businesses and assets.

The playbook to accelerate SEA’s path to Net Zero must account for regional nuances and include individual and collective action at an ecosystem level. All sets of stakeholders –businesses, investors, communities, and governments – are required. Key ingredients for SEA’s collective action plan include ecosystem-wide co-innovation, collective transition support leveraging blended financing and public-private partnerships, and regional/cross-border collaboration. Those who lead the charge stand to gain $1 trillion in economic opportunities by 2030.

This is a moment of transition

A new narrative has emerged around climate action and global actors are responding. SEA is gaining importance as a critical piece of the global Net Zero solution. There is renewed recognition of the untapped potential of SEA’s natural capital as carbon sinks, and MNCs who have committed to Net Zero recognize they cannot deliver their climate goals without supporting change in SEA across their local supply chains. Put simply, the world cannot achieve Net Zero without SEA coming along on the journey.

SEA faces additional risks itself. It is one of the regions most at-risk to climate shocks and stands to lose much of future GDP (3-4% negative impact by 2030, translating to ~$130-$200 billion in 2.0-3.2°C global warming scenarios) unless it takes decisive and timely action. The region needs to take three steps to accelerate its Net Zero journey:

1) Define its road to Net Zero

2) Catalyze the journey and outcomes together

3) Unlock capital and investments

Our Net Zero plan must be crystalized

Dialogue has changed with Covid-19. Concerns about regional interdependency and resilience have come to the fore, together with greater climate awareness. SEA nations have made notable landmark moves in the past year– Singapore launched its National Green Plan, Indonesia announced a 2060 Net Zero commitment, and the ASEAN Taxonomy Board began work on a regional sustainable finance taxonomy, to name a few.

The region’s businesses are also mobilizing. Regional champions, government-linked corporations, and MNCs are all coming to the table, driven by internal values, self-interest and external pressures. Family-owned businesses, who make up >85% of SEA businesses valued at >$1 billion, are poised to play a pivotal role in accelerating the transition and new investment.

Yet SEA is not on track. The region’s latest climate NDC commitments improve on 2015’s reduction targets by only ~0.5–0.6 GtCO2e by 2030, leaving an estimated gap of ~3 GtCO2e (conditional) to ~4 GtCO2e (unconditional), to achieving promised emissions reductions in line with Paris Agreement’s 1.5°C goals.

Yes, allowances must be made. SEA has been hard hit by Covid-19: the region’s GDP growth was 7.8% pt. lower than forecasted in 2020. Many SEA businesses remain in survival mode, with little extra resources available to focus on sustainability. SMEs, who form ~40% of the region’s economy and ~75% of the workforce, are hard hit.

As a resource-rich, developing region, SEA faces unique issues for change. Critically, SEA needs to balance the climate transition with socio-economic needs and a reliance on fossil fuels for energy security. However, we also have significant opportunities: a vast amount of valuable natural capital and potential renewable energy sources, corporate structures that can move fast and effectively scale sustainability, and a growing appetite for co-innovation and collaboration across sectors and organization types. All this is needed to address SEA’s sustainability challenges.

Challenges aside, SEA needs to take climate action now and define the right pathway that accounts for its own constraints, point of departure, and human needs.

The road to Net Zero presents clear opportunities for SEA

Together, the energy transition, valuing nature, and transforming our agri-food system could address up to ~90% of the region’s emissions while unlocking new economic opportunities and industries of tomorrow.

Energy transition: Reshaping the region’s ecosystem from resource extraction to electrification is one of the largest challenges SEA has ever faced. Immediate opportunities lean toward driving energy efficiency and renewables (e.g., solar, wind), scaled by grid modernization and electrification, and on the horizon, rethinking transport, emerging carbon capture technologies and hydrogen innovations.

Valuing nature: Nature is one of SEA’s largest and most undervalued resources; the global movement to “better price” nature offers a material opportunity for SEA investors and businesses enabled by tech and financial innovation to scale protection of SEA’s vast resources to realize potential as global carbon sinks and biodiversity banks.

Agri-food transformation: Agriculture is the other backbone of SEA’s economy but is also a source of significant emissions and other environmental impacts. Opportunities exist to empower smallholder farmers with sustainable practices and innovations that also improve productivity, as well as build out the region as a global center for food tech, e.g., alternative-protein.

We see two critical enablers to accelerate our journey:

Scaling the region’s voluntary carbon markets will accelerate SEA’s decarbonization by pricing carbon while incentivizing the protection of our natural capital and contributing socioeconomic benefits to the region. SEA holds immense potential, particularly in nature- based solutions. By 2030, ~$10 billion in revenue opportunities could be realized across the value chain.

The growing “green data revolution” is also a major catalyst for scaling climate impact. Thematic changes such as the democratization of data, advanced predictive models, and growing cross-sector co- innovation are enabling us to push boundaries at a pace we never imagined possible. There are green shoots in digital innovation taking place in SEA, with the development of Singapore’s digital twin for climate resilience modelling and geospatial mapping of SEA forests for better conservation as prime examples.

Unlocking capital flows

SEA investors increasingly see sustainability as an opportunity vs. a risk: 57% of investors now integrate sustainability in their investing thesis while 19% identify as impact investors in 2021 (vs. 52% and 0% respectively in 2019). Multiple forces are at play, from investor pressures to recognition of this opportunity.

Mindsets are in turn starting to generate results. Green fundraising has been on a strong upward trajectory, with 40-150% growth per annum (p.a.) across debt issuances, IPO1, PE/VC2 fundraising, and sustainable public funds AUM3.

What is crystal clear is there is significant headroom to invest more. ~$2 trillion in investments over the next decade is required to build out SEA’s infrastructure for a sustainable transition. Governments cannot do this alone – ADB4 estimates ~40% of infrastructure investments need to come from the private sector.

Yet, despite high liquidity, many barriers limit flows today: inconsistent government policies, an immature ecosystem leading to high transaction costs and evolving standards, and conservative mindsets. Action is needed for change.

Leading by doing

Achieving Net Zero as a region demands individual action by businesses, investors, governments, and communities, as well as collective action at an ecosystem level.

Businesses must identify the strategic white space where they can advance SEA’s climate transition while driving commercial value and innovation that is aligned to their core business strategy.

Investors can further unlock green and transition capital flows in the region through catalytic financial instruments to de-risk investments and novel sustainability or transition-linked products to lower barriers to financing, while governments need to demonstrate regulatory leadership to create investible environments for sustainable assets.

The scale of the Net Zero challenge is significant in economic, investment, nature, and human terms – SEA must find the path forward that meets the conditions of its realities. We know where attention is needed, and where the opportunities lie. Regional actors now need to come together to develop a robust Net Zero plan that accounts for regional nuances and the distinct needs of diverse SEA nation-states.

Three ingredients are crucial for collective action:

1) Ecosystem-wide co-innovation: accelerate commercialization of low-carbon tech that suits SEA’s needs, such as agri-tech and carbon capture; increase sharing of data/tools/standards through value chain-wide alliances; and mobilize public and private capital to conserve and restore SEA’s natural carbon sinks

2) Collective transition support, leveraging public- private partnerships and blended financing: improve access to capital and build capabilities of SMEs/smallholders, mitigate impact of stranded assets for hard-to-abate sectors, and upskill and retrain SEA’s workforce for the green economy

3) Regional collaboration: develop a holistic SEA Net Zero transition plan, establish a cross-border carbon trading system, and reassess energy security by exploring a regional grid to more efficiently connect demand to supply

For businesses who lead the action, more than $1 trillion5 in economic opportunities are on the table.

The complete report can be accessed here