As the world forges ahead on its recovery path in the post-Covid world, Asia-Pacific governments and companies have taken the opportunity to set new priorities angled towards sustainability. At a high-level event organized by The Asset Events, alongside the Asian Development Bank’s 56th Annual Meeting, in Incheon, South Korea, executives shared their views on the growth of sustainable finance in Asia.

The event kicked off with Ashok Lavasa, vice-president, private sector operations and public-private partnerships, at Asian Development Bank (ADB), stressing that further involvement of the private sector was key to growing sustainable finance practices in the region.

“The private sector is essential to ensuring the transition to net zero, the scale of investment that is needed is beyond what the public sector can provide,” Lavasa explains in his keynote address. “Fortunately, sustainable finance from private sources – in particular, green and social finance – is growing rapidly and bringing many benefits. The private sector has access to significant amounts of funds and can help bring innovative financing solutions to the market, including local currency project finance loans.”

Ashok Lavasa, vice president, private sector operations and public private partnerships at Asian Development Bank making his keynote address at the high-level event organized by The Asset Events in Incheon, South Korea, on May 5.

Sok-Hour Hong, chief executive officer of the Cambodia Securities Exchange, cited several milestones in sustainable finance that the Southeast Asian country has achieved, such as the listing of the first green bond on the exchange by Golden Tree in January 2023.

“In 2023 we made some progress in Cambodia with the listing of our first green bond. It was a very small deal but significant for our market,” Hong states in his presentation. “However, there are still issues in developing our sustainable finance market. Firstly, issuers are faced with extra compliance costs and market awareness is still very low. The capital market itself is still very small. Investors talk about looking at ESG but they still want returns.”

Hong Sok Hour, chief executive officer at Cambodia Securities Exchange giving his presentation at the high-level event organized by The Asset Events in Incheon, South Korea, on May 5.

Bankable deals

The discussion that followed at The Asset Events roundtable focused on how to make sustainable finance mainstream, and supporting bankable renewable energy projects in developing regions in Asia.

“It’s about bringing the parties together to understand what the issues are and at times this is where the tools such as blended finance come in because some risks cannot be negotiated away. You need to bring instruments to take small portions of it to make it a bankable deal,” says Suzanne Gaboury, director general, private sector operations department, at ADB.

“A country that we are doing a lot of renewables in is Uzbekistan. We have been active there over the last couple of years. What we did there was bring in our [public-private partnership] arm to structure and negotiate proper PPP structures and create frameworks so that you could have the predicability aspect of it. Because we know that what the private sector needs is predictability.”

Panellists engage in a lively discussion on sustainable finance development in the region at "Breaking Barriers", a high-level event organized by The Asset Events in Incheon, South Korea, on May 5.

Her views were echoed by Kavita Sinha, director, private sector facility, at Green Climate Fund, who noted that attempts to have parties involved in green projects were often ignored due to the perceived high risk.

“We try to demystify what bankability is and look at what exactly are the challenges. Funds like us who have been set up for climate impact and geared towards the highest risk, make it easier for us to go in and solve the issues in the market. That is something we would do increasingly. We are a partnership organization – no one can do it alone. Our funds are very small but they are very catalytic, they have solved the problems,” Sinha notes.

How to build scale

For Rajeev Kannan, managing executive officer and co-head of Asia-Pacific at Sumitomo Mitsui Banking Corporation (SMBC) Asia-Pacific, the main focus should be making renewable energy projects scalable after their initial completion.

“It’s about how do countries in Southeast Asia build scale. I know in other areas renewable energy is mainstream, but in some Southeast Asian countries renewables are not mainstream,” he says. “In India, it has become mainstream because of SECI (Solar Energy Corporation of India), which became a counterparty to a lot of solar and wind projects which allowed the risk to be transferred to a party that is much more creditable. For Southeast Asia, we haven’t been able to scale up from one to two transactions.”

Panellists on stage also talked about the opportunities in e-mobility projects. “What we are seeing now is that because renewable energy has become more mainstream, the electrification of economies, we hear about e-mobility in Indonesia and India,” observes Jason Pellmar, new business manager, infrastructure and natural resources, South Asia, at International Finance Corporation. “This a very exciting time in the sense that we have the green energy, and we can promote usage of that green energy in industries such as transportation.”

A similar trend is being seen in Indonesia. Muhammad Wahid Sutopo, president director at PT Penjaminan Infrastruktur Indonesia (Persero) (Indonesia Infrastructure Guarantee Fund), asserted that sustainable finance projects don’t need to be large initially but should showcase a framework which the market can replicate.

“We now have a platform for small-scale PPP, such as street lighting and energy conservation. We promote municipalities in Indonesia to do PPP with us for street lighting. We have a pipeline of 10-15 other municipalities,” he shares.

Despite the volatile macroeconomic environment, interest in sustainable finance remains strong, with sustainability bonds in particular showing resilience, according to Jeffrey Lee, vice president – sustainable finance regional manager, second-party opinion, APAC, at Moody's Investors Service.

“2022 was a very tough year due to very volatile external capital markets activities and inflation. Definitely, overall issuance has declined. However, the penetration of thematic bonds has been maintained,” Lee notes. “We are not talking about just financing renewables but also social activities as well. We have provided second-party opinions against drinking facilities and public transportation in China.”

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