Australia
China
India
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Japan
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Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
Germany
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USA
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Singapore
United Kingdom
To keep global warming from rising more than 1.5°C, the 2015 Paris Agreement mandated that greenhouse gas (GHG) emissions be reduced by 45% by 2030. The agreement also set the goal of reaching ‘net-zero’ emissions by 2050. To do so, experts believe that the expansion of Asia’s green industries will play an important role.
This is because the countries in the region account for 51% of annual GHG emissions, as per World Economic Forum (WEF). Furthermore, countries like China, India, Japan, Indonesia and South Korea make up 43% of the total global GHG emissions.
Faced with this situation, more than 15 countries and 670 companies in the Asia-Pacific have now committed to emission reduction targets. Companies like engineering services firm Neste have spent over $1.4 billion in Singapore for manufacturing growth, resulting in 30% of its renewable production capacity being situated in Asia. Among others, India’s Adani Group announced a $70 bn investment last year in green energy transition and infrastructure projects.
Along with that, financial investment in green industries is increasing in both the private and governmental sectors. Over 60% of global funds focused on ESG concerns in 2021. According to Mckinsey, this practice is becoming more prevalent throughout Asia.
“The addressable market size for green businesses in Asia is expected to reach between $4 tn and $5 tn by 2030. Entering the green space will likely come with risks, but also potential rewards for businesses that move early,” writes Mckinsey and Company.
Asia’s green industries – more than renewable energy and EV
As Asia’s green industries begin to expand, new avenues for investments have opened up in the region.
According to Nikko Asset Management, cleaning up and re-engineering domestic power grids can serve as a major area for investments. “China and India are both implementing the world’s largest (and grid-competitive) wind power installations, while Vietnam, South Korea and Taiwan have also been particularly active in adding to renewable energy capacity recently. This was simply not possible five years ago,” writes the asset manager.
Along with that, the asset manager points to the green energy equipment sector and electrification of transport as attractive avenues for global investors in Asia’s green industries.
Along these lines, Eastspring Investments said: “Asia’s renewable energy and EV companies as well as those operating within the EV-related supply chain present opportunities for both equity and bond investors…Active investing is still important when navigating these sectors, as hype may have pushed valuations up.”
Furthermore, McKinsey & Company cites increased investments in sustainable aviation fuel (SAF) in the Asia-Pacific region.
“Aviation fuel is currently the most feasible and economical way to decarbonize aviation, given the weight challenge of batteries and the nascency of hydrogen for aviation. By 2050, the Asian market could account for 30 to 40% of global biogenic SAF demand—equivalent to between 25 and 30 million tons per annum,” writes Ashwin Balasubramanian, Associate Partner at McKinsey & Company.
Besides this, Balasubramanian informs that green steel development in Asia looks promising as it makes up for around 70% of crude steel demand in the region on the back of low-cost green hydrogen production availability.
Also, he speaks about the importance of Asia’s alternative protein market. “…both the public and private sectors are committing to investing in this space. Incumbents are launching their own brands, such as Nestlé’s Harvest Gourmet range. Governments are looking to alternative proteins to strengthen national food security,” he adds.
The alternative protein market is playing a key role in climate change since more than one-fifth of global GHG emissions come from agriculture.
Transition finance needed
Looking forward, BNP Paribas Asset Management says that 2023 will see a resurgence of transition finance in the Asia-Pacific region.
“Transition finance is an investment approach that supports the shift towards a net zero economy. This not only includes funding “pure green” activities but also sectors that emit large amounts of greenhouse gases,” said the asset manager.
Also, BNPP AM predicts that there will be an increase in the issuance of green bonds to $600 bn, surpassing 2021 levels.
“When it comes to green bond issuance and sustainability-linked bonds, China is in the lead…. The effect of these ESG investments will be felt in Asia and beyond, as the world’s most dynamic region pivots to sustainable development,” the asset manager concludes.
