Emerging dominance in climate action: East Asia's potential as the forefront of global efforts against climate change
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Asia is rapidly becoming a significant player in impact investing, a strategy that aligns financial performance with long-term resilience, climate risk mitigation, and rising demand from stakeholders. The region's substantial natural asset endowments, innovative financial mechanisms, and increasing investor integration of environmental risks and opportunities offer key avenues for growth and impactful climate solutions.
Southeast Asia's Nature-based Solutions (NbS)
ASEAN countries, including Indonesia, Cambodia, Malaysia, and the Philippines, possess about 30% of the world’s NbS potential, especially in forests, coastal wetlands, and marine ecosystems. NbS investments exceed USD 113 billion annually, mainly public-funded (86%), supporting carbon removal and avoidance via carbon credit markets such as “blue carbon.” These ecosystems provide critical carbon storage and biodiversity benefits valued at over USD 2.19 trillion yearly.
Malaysia’s Nature-related Financial Innovations
Malaysia leads in piloting Taskforce on Nature-related Financial Disclosures (TNFD) frameworks and innovative financing such as Ecological Fiscal Transfers that channel national budgets to local conservation needs. Projects like the Tiger Landscape Investment Fund use blended finance to reduce investment risks in nature-positive ventures.
South Asia’s Water Sector Resilience via NbS
South Asia, severely impacted by climate change, is implementing NbS like ecosystem-based adaptation and forest landscape restoration to address flood, drought, and water security challenges affecting 750 million people. These NbS contribute to biodiversity while increasing resilience to climate hazards.
Investors Integrating Nature Risk
Major Asian investors, including Singapore’s Temasek Holdings, employ satellite and biodiversity data to assess natural-capital risks, recognizing that nature loss poses direct financial risks, such as disrupted agriculture and resource scarcity affecting economies in Pakistan, Indonesia, and others.
Growing Green Finance Instruments
Asia-Pacific needs about USD 1.5 trillion annually to meet SDGs, with impact investing as a powerful channel directing capital to projects delivering measurable environmental and social returns alongside financial gains.
Expanding Carbon Credit Markets & Blue Carbon Projects
Fair pricing discussions may raise the value of carbon credits in Asia, especially related to blue carbon from coastal and marine ecosystems, unlocking private sector investment.
Integrated Financing Frameworks
Countries like Maldives have pioneered Integrated National Financing Frameworks combining public and private funds to tackle climate finance challenges cost-effectively.
Scaling Impact Investing Ecosystems
The Asian impact investing ecosystem is nascent but evolving, facing challenges like lack of clarity on impact definitions, measurement tools, regulatory frameworks, and marketplace efficiency. Efforts to scale this ecosystem aim to catalyze significant climate and nature investments.
Asia's climate moment is an opportunity to reimagine how economies can grow in balance with nature and equity and implement them at scale and pace. The global centre of gravity is shifting, and Asia has the opportunity to take the helm on the journey toward a sustainable future and to redefine climate leadership. To adapt and scale impact investing approaches, it is necessary to empower local institutions, invest in capacity building, and create partnerships of unprecedented collaboration. Many of the region's investors and family offices bring a distinct worldview rooted in legacy, family values, and community stewardship, which positions them well to serve as anchor investors in climate and nature solutions. Asia is poised to take up leadership in the next critical phase of the global transition to a low-carbon, nature-positive economy. However, the climate crisis is intensifying globally, and urgent action is required to address this challenge.
- Malaysia's adoption of Taskforce on Nature-related Financial Disclosures (TNFD) frameworks and innovative financing like Ecological Fiscal Transfers position it as a significant player in aligning financial performance with climate risk mitigation, contributing to the region's growing impact investing strategy.
- Investors in Asia, such as Singapore's Temasek Holdings, are integrating science-based assessments of natural-capital risks, acknowledging that nature loss could lead to direct financial risks like disrupted agriculture and resource scarcity.
- The value of carbon credits in Asia, particularly those related to blue carbon from coastal and marine ecosystems, could increase with fair pricing discussions, potentially attracting private sector investment and contributing to the expansion of carbon credit markets.
- Countries like Maldives are pioneering Integrated National Financing Frameworks, combining public and private funds to address climate finance challenges more cost-effectively, demonstrating a holistic approach to climate-change solutions.
- The significant potential of NbS in Southeast Asia, especially in forests, coastal wetlands, and marine ecosystems, necessitates increased investment to capitalize on the region's biodiversity benefits, carbon storage capabilities, and opportunities for climate risk mitigation.
- To effectively redefine climate leadership and implement sustainable solutions at scale and pace, the Asian impact investing ecosystem needs to confront challenges like unclear impact definitions, lacking measurement tools, inadequate regulatory frameworks, and marketplace inefficiencies, while empowering local institutions, investing in capacity building, and fostering partnerships of unprecedented collaboration.
