ECONOMIES in Southeast Asia face a major financing gap that could slow their transition to greener, more sustainable growth, according to a report by the Asian Development Bank (ADB) released on Thursday.
The report, “Advancing the Green Economy Transition in Asean,” draws a road map to sustainable growth among Southeast Asian nations. It outlines policy frameworks, pinpoints green investment opportunities and recommends actionable strategies for decarbonization.
Authored by ADB, the paper said while financing remains the main driver of green transition or the shift to an environmentally-friendly economy, the Association of Southeast Asian Nations (Asean) region suffers from a shortage of capital needed to support climate and sustainability projects.
Asia needs more than $1.7 trillion annually until 2030 to sustain economic growth while meeting climate and environmental targets, ADB said in a statement at the report’s launch.
The problem is, only a small portion of the funding is being mobilized, resulting in a large gap that threatens the pace of the region’s green transition.
Green finance supply is estimated at about $40 billion annually, compared to a demand that leaves a financing shortfall of roughly $160 billion.
“Public budgets alone cannot meet this demand... Unlocking larger flows of green finance requires enabling environments that reduce investment risks and align financial incentives,” ADB said.
“Governments must introduce green taxonomies, carbon pricing instruments and risk-sharing tools such as guarantees and concessional finance,” it added.
The multilateral financial institution that seeks to reduce poverty in Asia and the Pacific said private companies must be co-leaders in financing, building and operating green infrastructure, including renewable energy systems, sustainable transport networks, climate-resilient infrastructure and energy-efficient technologies.
“Green projects in Asean often struggle to attract low-cost financing due to high perceived risks, underdeveloped financial markets and a lack of clearly bankable projects,” ADB said.
At present, more than 70 percent of green investments in Asean are concentrated in renewable energy, the bank said. Other sectors critical to climate goals — including sustainable agriculture, forestry management and green buildings — remain underfunded.
“One of the most critical enablers is increasing access to affordable finance through innovative instruments such as blended finance, which strategically leverages development finance to crowd in private investment,” ADB said. “Blended finance mechanisms allow investors with different risk appetites and return expectations to participate in green projects by structuring layered capital and appropriate risk-sharing arrangements.”
PH on track to transition
“I think the Philippines is on the right track toward a green transition,” ADB chief economist Albert Park said on Thursday.
“For instance, [it has] an aggressive target on renewable energy, and a number of other initiatives,” Park said.
The country and its Asean neighbors could attract more foreign financing if they can clearly measure how much certain investments reduce carbon emissions, said ADB lead economist for Southeast Asia James Villafuerte.
“At the same time, you want financing investments that have high social returns for the well-being of your people,” he added.
