SUSTAINABLE FINANCE: A KEY DRIVER FOR SUSTAINABLE GROWTH OF SOUTHEAST ASIA

The upcoming COP 29 will be held in Baku, Azerbaijan, this November. Focusing on two pillars, the first pillar - “enhance ambition” - is to ensure all parties commit to ambitious national plans and transparency; while the second pillar - “enable action” - reflects the critical role of finance which is a key tool to turn ambition into action of reducing emissions, adapting to climate change and addressing loss and damage. 

The Southeast Asia (SEA) region, which is known as a region of rapid economic growth and strategic importance in global trade, is considered as the most vulnerable area to the effects of climate change. It requires careful planning across sectors to achieve sustainable growth in the region and sustainable finance would be a key driver. If left unchecked, climate change could shave 11 per cent off the region’s gross domestic product (GDP) by the end of the century, according to the Asian Development Bank.

What is Sustainable Finance?

Sustainable finance refers to financial practices that integrate environmental, social, and governance (ESG) considerations when making investment and business decisions. It aims to support economic growth while ensuring positive social and environmental outcomes, fostering long-term sustainability. Sustainable finance plays a pivotal role in aligning economic development with long-term sustainability goals. Sustainable finance encompasses various financial instruments and strategies such as green bonds, green loans, social bonds, sustainability bonds, sustainability-linked bonds (SLBs), and sustainability-linked loans (SLLs). 

Sustainable Finance as a Driver of Green Growth

Because of the vulnerability of Southeast Asia to the adverse impacts of climate change, it needs financial support not only for economic expansion, but also for the transition towards a low-carbon, climate-resilient future. And sustainable finance is playing a key role as an enabler for this transition and there are significant opportunities for green financing to flourish.

Governments, financial institutions, and businesses are increasingly recognising the importance of mobilising capital for sustainable infrastructure, clean energy, and eco-friendly projects. There is significant demand for new investments to decarbonise economies going forward. Governments and financial institutions can promote cleaner technologies and support industries that adhere to sustainability standards by redirecting capital flows toward environmentally friendly industries. 

The most crucial aspect is the involvement of the private sector as they are essential in this transition. Because businesses are starting to see the importance of sustainable finance, more and more are starting to take up sustainability-linked bonds/loans, where the performance of sustainability targets of the borrower is tied to the borrowing costs. 

Financial Inclusion and Access to Capital

Small and medium-sized enterprises (SMEs) form the backbone of Southeast Asia’s economy. Many SMEs, particularly in rural areas, lack the capital needed to adopt sustainable practices or invest in new technologies, which keeps them from embracing cleaner operations and accelerating their decarbonisation journeys. They are also hesitant as they are unsure if they can get a good return on investment. To encourage SMEs to go green, microfinance and impact investing have become powerful tools to bridge the gap, providing low-cost financing to underserved populations and helping them integrate into the sustainable economy. By ensuring that SMEs can access green financing, sustainable finance can contribute to inclusive growth of Southeast Asia region.

Sources of Sustainable Finance in Southeast Asia

Various sources of sustainable finance are available across the region, aimed at supporting projects that align with ESG principles. Key sustainable finance sources in Southeast Asia include Multilateral Development Banks (MDBs), green bonds and sustainability bonds, Development Finance Institutions (DFIs), commercial banks and sustainable finance initiatives, and ESG funds and sustainability-linked investments. 

Journey of Accessing Sustainable Finance

Accessing sustainable finance involves a structured process to ensure companies, governments, or organisations align their projects with ESG principles. A step-by-step guide to the typical journey of accessing sustainable finance includes the following:

1) identify your sustainability goals and projects, 

2) choose the appropriate financial instrument,

3) prepare a clear and transparent plan, 

4) engage with investors or lenders, 

5) do your due diligence and ESG evaluation, 

6) secure financing, 

7) implement the project, and 

8) measure impact and report to stakeholders. 

By following this path, organisations can secure the necessary funds to achieve financial returns while driving positive environmental and social outcomes.

Conclusion

The sustainable growth of Southeast Asia depends not only on the region’s ability to expand its economy, but also on how it integrates sustainability into its financial systems. 

With climate change having profound implications on our economy, financial institutions can help to mitigate physical and transition risks arising from climate change and develop a vibrant green and sustainable finance ecosystem to support the region’s transition to a low-carbon future.

At Bureau Veritas, we work with players across the financial services ecosystem to support businesses and allow them to thrive in the rapidly evolving Sustainable Finance landscape so that they can be at the forefront of sustainability action. The opportunities for businesses to leverage sustainable finance can be unlocked as long we continually collaborate to create an enabling environment that supports the region’s sustainability goals, ensuring a responsible growth that benefits the world, environment and the society.