COP29 and the Industrial Transformation Infrastructure Debt Program: Driving ASEAN’s Sustainability Agenda

By Rachel Kong | 4Q 2024 | IN-7635

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At the 29th Conference of the Parties (COP29) to the United Nations Framework Convention on Climate Change (UNFCCC) in Baku 2024, BlackRock, Monetary Authority of Singapore (MAS), International Finance Corporation (IFC), Mitsubishi UFJ Financial Group (MUFG), Nippon Export and Investment Insurance (NEXI), and AIA Group (AIA) signed a Statement of Intent (SOI) to collaborate on developing an Industrial Transformation Infrastructure Debt program. This initiative falls under the Financing Asia's Transition Partnership (FAST-P), which the MAS launched at COP28 last year. The debt program seeks to finance green projects in hard-to-abate sectors, such as heavy industry consisting of cement, steel, and chemicals production, advancements in low-carbon technologies, and industrial transformation opportunities.

At the broader level, FAST-P is a blended financial platform that combines commercial and catalytic capital from public, private, and philanthropic partners. It aims to raise US$5 billion to support climate action in Asia, with a focus on mobilizing capital for green and transition investments in the region. Its primary areas of focus include:

1. Energy Transition Acceleration: Facilitating the phased retirement of coal-fired power plants and their replacement with renewable energy sources.
2. Green Investments: Prioritizing mature technologies such as scaling renewable energy, grid modernization, and developing Electric Vehicle (EV) infrastructure.
3. Clean Technologies: Investing in emerging green technologies like hydrogen and carbon capture, utilization, and storage (CCUS).

Southeast Asia (SEA) is grappling with a significant financing gap for decarbonization initiatives. A joint report by the IFC and International Energy Agency (IEA) highlights that SEA's growing energy demands require more than an eight-fold increase in annual clean energy investments, from US$30 billion in 2022 to US$208 billion by the early 2030s.

The debt financing program is a well-timed initiative to accelerate the SEA region's transition to green energy by providing new funding opportunities to private sector corporations seeking to decarbonize their businesses. Progress has been made both in the lead-up to and following COP29:

• In November 2024, Pentagreen Capital, the sustainable infrastructure debt financing company established by HSBC and Temasek, committed to investing US$1 billion in green project initiatives under the FAST-P program. The Green Investments partnership is set to allocate capital to projects across sectors such as renewable energy and storage, EV infrastructure, sustainable transport, and water and waste management, with capital deployment expected to begin in 2025.
• At COP29, the Singaporean government pledged up to US$500 million in concessional funding to support FAST-P, targeting green and transition projects in Asia as part of the nation's commitment to advancing climate financing solutions in the region.
• At COP29, the Economic Development Board (EDB) launched a new grant designed to provide Singapore-based carbon project developers with increased access to funding and support. This initiative aims to address the financing gap in the sector and spur development and investment in new carbon projects.

Sustainability financing is a common challenge across various countries and regions. This is particularly so in SEA where rapid economic growth in the region is leading to rapidly increasing energy demands. To boost investments in the sustainable sector, a collaborative effort from companies, governments, and international organizations will be needed. International organizations are especially key in creating a favorable regulatory environment for key stakeholders.

• Companies to Adopt Sustainable Technologies in Their Operations: By showcasing the successful implementation of sustainable technologies, companies show tangible proof of their environmental and financial benefits, which can boost market confidence and encourage other firms to follow suit. As more successful implementations of green technologies are showcased, this will, in turn, encourage greater investments in green solutions and, ultimately, result in a positive cycle that will be crucial for scaling these technologies.
• Calls for Investors into Blended Finance: To scale up financing of green projects, there is a need to pivot away from the traditional approach of structuring financial transactions on a project-by-project basis. Instead, greater participation from capital contributors with blended finance initiatives should be promoted to achieve that aggregation-multiplier benefit on a larger scale.
• Developing the ASEAN Power Grid (APG): By harmonizing standards across borders and demonstrating the potential benefits and cost advantages of the APG, the likelihood of attracting commercial investments in the region increases. Having consistent alignment of goals and objectives across the region will foster greater confidence among investors, reduce perceived risks, and create a more predictable and stable investment environment. Additionally, it opens up opportunities for cross-border collaboration and facilitates access to larger pools of capital.