Green to transition finance: Re-gear Asia's carbon clean-up

 

 

Asia is the economic engine of the world. Population growth, urbanization and industrialization are on the rise. But the region also faces a stark reality: achieving sustained economic development with the least amount of carbon emissions requires a monumental shift in energy production and consumption. We also cannot forget that we are no longer just chasing a ‘green’ future. We’re striving for a just transition as well.

A just transition is not just about replacing coal-fired power plants with windmills and solar panels. It is about building a resilient future that leaves no one behind and where everyone can live well—with access to food, fresh water, air, education, etc.— within planetary constraints. It encapsulates the United Nations’ 17 Sustainable Development Goals which cut across economic, social, and environmental objectives and targets.

News reports scream “trillions needed”— about $3.5 trillion a year—to achieve the goal of net-zero emissions, painting a picture of a resource-scarce future. However, the reality is far more nuanced. The challenge is not a lack of capital, but the need for a robust ecosystem to attract and channel investments effectively. Bridging the sustainable financing gap will require innovation on several fronts—through innovative policies, solutions, financing models and partnerships.

Investors need clear long-term policy frameworks that define emission reduction targets and encourage sustainable practices. This clarity creates a degree of predictability to help investors better assess future risks and make more informed investment decisions.

Examples of conducive policies include green and transition taxonomies to channel capital in practical and transparent ways, as well as to incentivize the scaling up of new technologies. Beyond regulatory certainty, investors also need a compelling risk-reward profile. Balancing long-term environmental benefits with competitive returns is key. A mix of risk-reward profiles—ideally based on a range of sustainable projects across various sectors—can further help attract a wider pool of investors.

Innovative financial products, such as green impact bonds, can help bridge this gap. There is also a need to rethink traditional financing models. For example, blended finance, which combines concessionary and commercial loans, continues to hold promise. But scaling this model has been challenging because of hurdles in attracting private investment and effective public-private risk sharing.

Overcoming these issues will require us to plug many of the same gaps addressed here. Shifting from green financing to transition financing is also critical. While green finance will continue to play a role in enabling environmentally sustainable projects, the real economy requires funds that enable the shift from brown to green.

Industries such as power generation, steel production, agriculture, and transportation—and the small and medium enterprises that support them—need financing and sustainable advisory services to navigate the complex process of transforming their business operations.

In addition, the lack of readily available high-quality data on emission-reduction potential and clean-energy project viability hinders informed investment decisions. Strengthening data collection and analysis, through a combination of digital solutions, artificial intelligence (AI), and increasingly Generative AI as well, would help build investor confidence.

But the equation does not stop there. We must prioritize the just aspect of the transition. Leaving fossil fuel-dependent communities behind in the quest for clean energy, for example, is not an option. Addressing this challenge requires upskilling and reskilling programmes for workers, apart from social safety nets to ensure a smooth transition.

Another hurdle is the talent gap in the sustainability sector. We need to equip a new generation with skills to measure, evaluate, structure, and manage transition projects. In addition, government and industry have a shared responsibility to help workers find their place in a low-carbon future by re- or upskilling individuals. While workforce transformation can be challenging, the benefits can be substantial. The green economy could raise global gross domestic product (GDP) per capita by up to 5% and add millions of jobs.

Building a strong ecosystem to support a just energy transition will be challenging. No single entity or government can do this alone. Close collaboration between policymakers, corporates, financiers, and civil society will be vital.

The good news is that this is already happening. Over the past 18 months, we have seen an increase in the number of regional workgroups, industry task forces and public-private partnerships geared towards creating a sustainable future. And I have had the privilege of sitting on global, regional, and national workgroups to help shape the future of sustainable and transition financing.

By shifting from green to transition financing, with its focus on a holistic ecosystem, we can unlock Asia’s true potential to lead the charge towards a sustainable future, one well-financed project at a time.

Helge Muenkel is the Chief Sustainability Officer, DBS Bank

 As featured on LiveMint