The Australian Sustainable Finance Institute (ASFI) just released a market assessment report exploring opportunities to scale Australian investment for the net zero transition in South and Southeast Asia emerging markets.
Based on interviews with large Australian asset owners, asset managers and banks, the report finds that climate and clean energy are seen as a growth sector in the region.
However, Australian financial institutions typically have only limited exposure to South and Southeast Asia emerging markets.
Financial institutions encounter a range of barriers to scaling up investment in the region and perceptions of risk vary depending on exposure.
While there is interest from Australian financial institutions to engage more on climate and clean energy opportunities in the region, converting this interest into capital allocation at the scale required to meet transition goals will require well-targeted and sustained government intervention.
Recommendations to Government
While there is interest from some Australian financial institutions to engage more on climate and clean energy opportunities in the Target Region, converting this interest to capital allocation at scale will require well-targeted and sustained Government intervention.
The report makes recommendations for government on blended finance, transaction support, sustainable finance policy development, and Australian regulatory reform.
Those recommendations can be summarised as:
- The Government, through the DFAT, should work in partnership with interested Australian financial institutions to design and test blended finance products utilising Australian Development Investments, the Private Infrastructure Development Group, and any other available mechanisms.
- The Government, in particular DFAT, should ensure that Australian-supported public finance mechanisms are designed and operated in a way that crowds-in private sector finance and promotes additionality including by:
- Developing and publishing additionality principles and guidance to ensure that finance provided by Australian public finance vehicles is “additional” to private sector finance.
- Commissioning an independent review to assess strengths and weaknesses in Australia’s ability to mobilise Australian private sector capital through its existing public finance mechanisms and identify best practice models for “catalytic” finance vehicles.
- The Government, in particular DFAT, should play an active role in efforts to improve the ability of MDBs, in particular the International Finance Corporation and the Asia Development Bank’s private sector operations department, to crowd-in private sector finance and to avoid crowding out private capital.
- The Government through DFAT and relevant Australian public finance vehicles should continue to support Australian financial institutions to become more familiar with markets, regulatory systems, intermediaries, and blended finance models in the target region by:
- Sharing institutional quality due diligence and project information from Australian Government investment vehicles with Australian financial institutions;
- Connecting interested Australian financial institutions with local intermediaries such as fund managers and advisors, including through ongoing networking opportunities, roadshows, and other events (building on the Government’s successful Investor Missions);
- Providing information and capacity building on local markets and regulation, as well as on blended finance models and providers, for Australian financial institutions interested in exploring opportunities in the region.
- Encouraging Australian financial institutions to establish a local presence in Southeast Asia for example through employee secondments into Australia’s Deal Teams.
- The Government, led by the Department of Treasury with DFAT, should continue to prioritise and scale up its support for the development of credible, interoperable sustainable finance policy in the region including for transition finance.
- The Government, led by the Department of Treasury, should examine Australian regulatory barriers that are inhibiting Australian investment and finance into Southeast Asia emerging markets for climate and clean energy. This could be done in parallel with a consideration of barriers to climate and clean energy finance in Australia.
Public-private collaboration in these areas will be essential to meet the new $300 billion climate finance target agreed at COP29 in Baku, and the region’s own transition goals.
The report is written by ASFI and draws from interviews with large Australian asset owners, asset managers, and banks. Commissioned by the Australian Department of Foreign Affairs and Trade, the report builds on Invested: Australia’s Southeast Asia Economic Strategy to 2040.
Access the full market assessment report here: Australian financial institutions’ views on climate and clean energy opportunities in South and Southeast Asia.