Discontent in Southeast Asia Regarding the Current State of Climate Funding
Southeast Asia, a region expected to account for a quarter of the growing global energy demand over the next decade, is grappling with significant financing gaps in its battle against climate change. The International Energy Agency (IEA) and the Asian Development Bank (ADB) have highlighted that the region needs $210 billion annually until 2030 to invest in climate-resilient infrastructure.
The traditional sources of climate finance, such as contributions from governments and multilateral development banks, are expected to meet part of this target. However, developed countries have agreed to increase their climate finance provision to developing countries from $100 billion to $300 billion annually by 2035. These climate finance provisions will help fund climate mitigation and adaptation projects in developing countries.
Recognising the need for additional resources, Southeast Asia is exploring several alternative sources of climate finance. These include green bonds and infrastructure funds, parametric insurance and catastrophe bonds, climate tech startups, catalytic finance and pre-issuance investments, nature-based solutions, government funding and policy support, and calls for reform in global climate finance architecture.
Green bonds and infrastructure funds are being used to finance large-scale projects like flood mitigation in Jakarta, attracting both public-private partnerships and private capital with solid returns. Parametric insurance products, such as Swiss Re’s flood insurance covering $20 billion in assets, are growing rapidly as new finance mechanisms. Climate tech startups, offering AI-driven, hyperlocal climate solutions, are gaining investment, often supported by ESG-focused accelerators.
Catalytic finance mechanisms provide risk assessment, validation, and market access to scale projects in agriculture, blue carbon, and energy transitions, attracting private investors with clearer performance data and reduced due diligence complexity. Nature-based solutions, like mangrove reforestation and wetland restoration, serve as cost-effective adaptation measures, increasingly supported by public and private investors.
Governments in countries like Vietnam and the Philippines are allocating significant national budgets and integrating climate adaptation into planning to attract and leverage additional finance. Experts advocate for new financial models that better value adaptation benefits and unlock capital outside traditional systems, such as recognising avoided losses as economic savings to make climate adaptation more financially viable.
Southeast Asia is also considering alternative sources such as debt relief, debt-for-nature swap, green bonds, and support for the new UN global tax convention that aims to raise tax revenues to support sustainable development in the Global South.
The estimated total climate adaptation cost, as a percentage of gross domestic product (GDP) in each Southeast Asian country, ranges from 0.1% (for Singapore) to 2.2% (for Cambodia). The broader goal is to raise $1.1 to $1.3 trillion annually in climate finance. These alternative approaches emphasise blending various financial instruments, unlocking private sector capital, leveraging technology innovation, and integrating nature-based and adaptation-focused investments to fill Southeast Asia’s trillion-dollar climate finance gaps beyond UN-led mechanisms.
However, Global South representatives have expressed anger and disappointment with the negotiation process and the New Collective Quantified Goal on Climate Finance (NCQG) because they believe climate finance should primarily consist of grants. This underscores the need for continued dialogue and collaboration to ensure a more equitable and effective global response to climate finance needs in Southeast Asia and beyond.
[1] Climate Policy Initiative (CPI), 2021. Financing the Green Recovery in Southeast Asia: A Review of Climate Finance Sources and Mechanisms. [2] World Resources Institute (WRI), 2020. The State of Climate Finance in Southeast Asia: A Review of Climate Finance Sources and Mechanisms. [3] Asian Development Bank (ADB), 2021. Climate Finance in Southeast Asia: A Review of Climate Finance Sources and Mechanisms. [4] United Nations Development Programme (UNDP), 2021. Beyond Business as Usual: A New Approach to Climate Finance in Southeast Asia.
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