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Infrastructure of the Future: Financing Sustainable Growth in ASEAN

Ecosperity 2020 screenshot

21 Aug Infrastructure of the Future: Financing Sustainable Growth in ASEAN

As part of the Ecosperity Conversations series, the Singapore Institute of International Affairs (SIIA) partnered with Temasek to organise a webinar, Infrastructure of the Future: Financing Sustainable Growth in ASEAN, on 14 August 2020. Speakers included Associate Professor Simon Tay, Chairman of the SIIA, Ms. Meixi Gan, Assistant Director of Sustainability at the SIIA, Mr. Subash Narayanan, Deputy Head of Project Finance at DBS Bank, and Mr. Pang Yee Ean, Chief Executive Officer of Surbana Jurong Capital. The speakers discussed the challenges and opportunities on how sustainable finance can help ASEAN ‘build back better’ in a post-COVID-19 world.

Sustainable infrastructure is a significant opportunity, but must be better defined

All speakers agreed that as Asia develops, large investments are needed for sustainable infrastructure. According to Associate Professor Tay, bridging this massive infrastructure gap will require approximately US$210 billion a year through 2030. This is a goal Mr. Narayanan foresees ASEAN falling short of, despite countries having announced targets and having participated actively in moving toward renewable energy and other forms of sustainable infrastructure. As countries enter the post-pandemic phase to rebuild their economies, infrastructure stands as an attractive, sensible way to stimulate the economy and to ‘build back better’. To facilitate this, there must be a common understanding among stakeholders of what defines sustainable infrastructure, and the relevant environmental and social (E&S) factors to consider.

Greater need for private sector financing

Infrastructure development in ASEAN is strongly driven by governments. Associate Professor Tay noted that governments in Asia typically finance up to 90 per cent of infrastructure expenditure, as opposed to the global average of 40 per cent. In light of the pandemic’s effect on public budgets, there is an emphasised need for greater private sector involvement to help shoulder infrastructure development needs alongside governments. In particular, the power and transport sectors stand out as having the largest climate-adjusted investment needs in developing Asia.

In the power sector, there is a critical need for the energy mix to transition towards sustainable sources. This needs to occur in a way that keeps energy affordable for the end-user. Fortunately, with technological progress, clean energy is becoming increasingly affordable today. From the investor perspective, Mr. Narayanan noted that there is currently a rush for renewables with solar photovoltaic systems, wind and utility-scale battery facing a drop of 88 per cent, 60 per cent, and 80 per cent in prices respectively. These all indicate that renewable energy is becoming more commercial. Project sizes are also becoming smaller – for instance, due to increasing popularity of distributed solar projects – enabling a more diverse group of investors to participate.

Roles of governments, multilaterals, and the private sector

In order to encourage capital flows into sustainable infrastructure, there is a need to align understanding of E&S risks in infrastructure. Ms. Gan presented recommendations from the SIIA’s Financing Sustainable Infrastructure in ASEAN report published in April 2020 where the need for the alignment was highlighted. For the public sector, it was recommended that governments train and equip workers with the skills needed for sustainable infrastructure sectors. Additionally, the ASEAN Secretariat could lead in developing a directory of green and sustainable funds for infrastructure projects in the region. Financial institutions, on their part, ought to clearly disclose their sustainability policies and monitor key E&S risks throughout a project’s life cycle.

In order to procure more private investments for sustainable infrastructure, speakers noted that several characteristics of projects need to be met. The bankability of projects remains a key concern that determines risk appetite for infrastructure projects. From a financier’s point of view, projects need to demonstrate that they will allow investors to recover capital over a long period of time. On this front, it was noted by Ms. Gan that governments can do more by providing more regulatory support and stability, as well as incorporate E&S considerations into regulations. Amongst other concerns are that investors and financiers need to know that the asset they are financing will not become stranded.

New paradigms emerging through COVID-19

Aside from power and transport infrastructure, Mr. Pang identified social infrastructure as another opportunity to emerge from COVID-19. He noted that we need to understand the post-COVID world through the lens of a new paradigm. For example, with the rise of telemedicine during the pandemic, one must question if we ought to build bigger hospitals or perhaps switch to practicing patient care remotely instead. Similarly, regarding connectivity, one must question whether we should retain a traditional focus on physical connectivity or look towards virtual connectivity instead. These questions impact infrastructure development, ranging from how we think of the office space of tomorrow, how toll roads and railways will have to change, to how city planning will have to evolve.

Conclusion

Although the world remains preoccupied with the COVID-19 pandemic, the webinar, Infrastructure of the Future: Financing Sustainable Growth in ASEAN, highlighted that other existential challenges such as sustainability also need to be addressed. As ASEAN looks towards emerging from the pandemic, it must do so sustainably.

For the full recording of the webinar, visit this link.