Análises & Estudos
Singapore’s Outsized Impact on ASEAN’s Energy Transition
Singapore has made ambitious pledges to achieve net zero emissions domestically
Singapore has made ambitious pledges to achieve net zero emissions domestically, but as a hub for green finance and infrastructure funding, the country can have an outsized impact on the energy transition in Asia.
Access to funding will be critical for Asia—which consumes more than three-quarters of the world’s coal—to reach net zero. That’s an obstacle that Singapore has long been working to address, and the pioneering financial infrastructure it is rolling out is set to have an outsized impact on the energy transition across the entire region.
The launch in December 2023 at COP28 of the world’s first multi-sector transition taxonomy for defining green and transition activities across eight sectors, including energy, industrials and construction, is just the latest example. Among other things, this groundbreaking taxonomy provides a framework to finance the early retirement of coal-fired power plants.
That’s just one of many announcements at the climate talks that demonstrate how Singapore will play a leading role in enabling the energy transition in Asia. The country also announced a series of measures that could help boost carbon markets and scale up financing for the transition in developing countries. While the government signed bilateral carbon credit deals with countries including Fiji and Papua New Guinea, the Monetary Authority of Singapore announced the launch of the Transition Credits Coalition (TRACTION), one of a new generation of global initiatives that aims to use carbon credits to help fund the early closure of coal-fired power facilities.
Long before COP28, Singapore had already emerged as a global hub for infrastructure financing and sustainable debt. The country is home to some of the world’s leading infrastructure investors – such as GIC, which has increased the size of its infrastructure portfolio by five times since 2016 – and has emerged as a global hub for sustainable financing.
All of this financial infrastructure and capital formation means that Singapore can and should have a truly disproportionate impact on the energy transition in Asia. The country is rightly focused on its own transition to net zero by 2050, but its capabilities give it the power to drive change that will go well beyond eliminating the 0.12% of global carbon dioxide emissions that it produces. If impact on climate finance was mapped, the Little Red Dot wouldn’t be so little.
Build it and they will invest
Singapore has been a globally important financial centre for decades because of its strong legal and regulatory system and highly skilled workforce. But its emergence as a sustainable finance hub is the result of policymakers recognising the importance that financial infrastructure will play in deploying capital towards the transition.
Singapore has been successful in cultivating a local ecosystem of public-sector agencies and private-sector firms – including developers, international financial institutions, and development banks.
Last August, Singapore’s second offer of 50-year government green bond was well received by investors. While overall sustainable debt issuance in ASEAN declined last year, new sales of green bonds and similarly-labelled instruments from Singapore still led the region, according to Asian Development Bank data.
About 60% of all ASEAN project finance transactions are arranged by Singapore-based banks, according to the Ministry of Finance. In the official sector, the World Bank uses Singapore to service the full project financing value chain for the region, and the Private Infrastructure Development Group (PIDG), established in 2002 by a group of multilateral institutions, selected Singapore as the Asian headquarters of three units working on developing, financing and guaranteeing infrastructure projects.
This regional ecosystem has benefited from the proactive support of the Singapore government, in the form or risk guarantees and tax concessions and the capacity of government-backed entities such as Clifford Capital, which has pioneered the use of securitisation in infrastructure lending since it was established in 2012.
In 2018, the government set up Infrastructure Asia to offer technical assistance and coordination that enhances the ‘bankability’ of sustainable infrastructure projects around the region – or their ability to access commercial financing.
Temasek invests in a range of clean energy projects, from wind and solar to green hydrogen and carbon capture. Along with HSBC, it has also established Pentagreen Capital, which is at the forefront of developing ‘blended finance’ in Asia – a technique for attracting commercial funding to projects through partnership with other types of investors. The USD150 million joint venture provides debt financing for sustainable infrastructure projects in Southeast Asia, completing its first investment to support a solar power portfolio in the Philippines last year.
Together with a rich legal and advisory services community, this bench of expertise makes Singapore a natural hub for mobilising public-private partnerships to finance projects that move us closer to net zero.
Focus on the transition
Transition financing is crucial because many emerging markets will need help with retiring their coal power plants and switching to lower-carbon alternatives for their energy. It’s vital that capital is available to support efforts to decarbonise energy production and other ‘hard to abate’ industries – not just sectors that are already green.
HSBC is playing its part in these efforts. We are an active lender to renewable energy projects across the region, through green trade facilities and loans, but also committed to supporting all of our clients on their journey towards net zero.
For example, last December, HSBC Singapore has provided a green term loan to ACEN Renewables International to support its expansion in Asia. ACEN Renewables International is the renewable energy investment vehicle of the Philippines’ Ayala Group. During the same period, HSBC Singapore has also funded a hydropower plant in Indonesia through a green loan to Aenergy, a unit of Singapore-listed ISDN Holdings. This deal illustrates the City-State’s ability to catalyse clean energy investments around the region.
We see more companies from ASEAN and beyond looking to Singapore as a financing hub for their net-zero transition. This presents an exciting opportunity to connect the country’s growing pools of capital with projects and businesses in the region, but the financing challenge is on a historic scale. At least USD500 billion is needed to decommission the region’s approximately 5,000 power plants. Southeast Asia will need USD3.1 trillion of infrastructure investment between now and 2030, taking into account the impacts of climate change.
Channelling hundreds of billions of dollars annually into the region’s transition will mean a radical change in the volume of funds flowing into and around the region. Singapore has prepared for this challenge by developing its financial infrastructure over decades. Over the years ahead, that investment should pay off by enabling the country to have an outsized impact on the regional energy transition.
SOURCE: HSBC
