Southeast Asia’s Climate Finance Challenge: Mobilizing Capital for a Green Transition

Southeast Asia stands at a pivotal crossroads, characterized by ambitious climate pledges that have yet to translate into meaningful progress. While the recent COP30 conference amplified the region’s voice, securing ASEAN’s first dedicated space in Belém, the challenges of transforming promises into action remain evident. The Baku-to-Belém roadmap, a significant initiative, aims to funnel US$1.3 trillion into climate finance for developing economies, yet the region grapples with a daunting annual funding gap of US$210 billion, which must be closed by 2030.

The Challenge Ahead

The imperative for Southeast Asia is clear: mobilizing private capital at scale and creating viable, investable pathways is paramount. This is where organizations like British International Investment (BII) come into play. By building investor confidence through innovative financing models, promoting resilient ecosystems, and driving policy innovation, the aim is to catalyze the region’s green transition and make a tangible impact.

Mobilizing Capital through Blended Finance

Blended finance has emerged as a noteworthy strategy for unlocking private investment, especially in high-risk markets. This approach combines concessional capital with commercial funding, effectively absorbing early-stage risks and enhancing project bankability. By improving the attractiveness of investments, blended finance facilitates greater participation from institutional investors.

An exemplary case of this approach is BII’s partnership with the Green Investment Partnership (GIP). Established under the Financing Asia’s Transition Partnership (FAST-P) launched by the Monetary Authority of Singapore in 2023, GIP aims to de-risk climate projects throughout the region. With a tiered capital structure, GIP has already secured US$510 million from a diverse array of stakeholders, including governments, multilateral institutions, and private investors. BII’s commitment of US$60 million includes a portion directed toward the concessional tranche, providing first-loss protection that can significantly reduce risks for commercial investors.

Scaling Up Through Platforms

The need for scale and standardization cannot be overstated when it comes to attracting commercial investors. Without these elements, projects often become fragmented, leading to increased costs and reduced participation from the private sector. That’s why BII focuses not just on funding projects but on building the very frameworks that support them.

One initiative is the Sustainable Asia Renewables Assets (SARA) platform, launched in collaboration with the Dutch entrepreneurial development bank FMO and specialist fund manager SUSI. SARA aims to develop 500MW of greenfield renewable energy projects across Southeast Asia. By emphasizing standards and scale, such platforms reduce risks and enhance investor confidence, facilitating a greater influx of private capital into these crucial markets.

Strengthening Local Ecosystems

Building strong and resilient local ecosystems is vital to fostering investment and supporting green growth. By financing small and medium-sized enterprises (SMEs), BII helps develop supply chains and networks that reinforce economic resilience. This approach not only diversifies market participation but also ensures that smaller businesses can benefit from and contribute to the low-carbon transition.

A notable initiative includes BII’s partnership with VPBank in Vietnam, which entails a US$50 million investment aimed at expanding financial access for SMEs. Such investments are pivotal in strengthening the local economy and reassuring investors that climate action can yield sustainable returns.

Driving Policy Shifts

Addressing the climate finance gap requires more than just capital; it demands coherent policies, clear regulations, and standardized frameworks. Fragmented regulations and perceived risks deter commercial investors, making it difficult to mobilize funds effectively. Developing predictable and transparent frameworks is essential for giving investors the confidence to commit capital to climate projects.

Crucial shifts in policy, such as establishing bankable tariff structures for renewable power purchase agreements (PPAs), are fundamental. These measures can provide developers with long-term pricing certainty, enhancing their ability to secure financing.

A Call to Action for Collaboration

Bridging the climate finance gap in Southeast Asia is both an economic necessity and a moral obligation. As the UK’s development finance institution, BII is committed to investing up to £500 million (approximately US$660.75 million) in climate finance by 2026 to aid the region’s green transition.

However, collaboration is key to making real progress. The UK’s Foreign, Commonwealth and Development Office (FCDO) is already working closely with governments in Vietnam and Indonesia on the Just Energy Transition Partnership (JETP), which focuses on promoting clean energy while ensuring equity throughout the transition.

This partnership highlights the collaborative efforts necessary to accelerate progress. BII is eager to work alongside governments and stakeholders to create enabling environments, establish regional standards, and support policy innovation. By combining catalytic financing with collaborative efforts, the aim is to reduce uncertainty, attract private investment, and turn formidable climate ambitions into actionable outcomes.