Positioning For Southeast Asia’s Green Revolution

Investors can capitalise on the region's net zero transition to build a more resilient portfolio. By James Cheo, Chief Investment Officer for Southeast Asia at HSBC Global Private Banking and Wealth.

Southeast Asia (SEA) plays a pivotal role in the world’s net zero transition. Southeast Asia is rich in natural resources and at the heart of many supply routes across the globe. The region holds some of the most valuable natural biodiversity in rainforests, mangroves, and peatlands.

However, Southeast Asia is also extremely vulnerable to global warming. Asia has 99 of the 100 most environmentally at-risk cities and crop yields could fall as much as 22% by 2050.

The good news is that many Southeast Asian governments have pledged ambitious carbon neutrality plans backed by massive stimulus to push for green and sustainable industries. And for good reason as the stakes are high.

As part of wider response measures, Southeast Asia’s governments are pledging investment in green technology. These commitments not only seek to address the immediate climate issues but have the potential to create more than US$1 trillion in annual economic opportunities by 2030, according to Bain.

For investors, this is a nascent opportunity as an emerging thematic trend. But knowing where governments and industry will focus efforts could build resilience into your portfolio to grow in tandem with the markets.

Here are themes and market developments to look out for.

#1: Building sustainable smart cities:
Southeast Asia is expecting a population surge of 90 million in the next decade, which will put more stress on existing infrastructure. Cities are a key contributor to climate change, responsible for 75% of carbon emissions, with transport and buildings being the largest emitters. Smart building solutions can unlock cost savings by adopting efficient energy usage.

However, to solve climate change, the future of transport has to be electric, which is insignificant at under 1% of market penetration globally. Indonesia has an ambitious target of producing 20% of electric vehicles of their total production in the next five years.

Globally, electric vehicles are expected to grow by 36% annually, reaching 245 million vehicles in 2030—more than 30 times above today’s level. Southeast Asia, coming from a low base, is expected to see bigger exponential expansion. In the region, electric two and three-wheelers will represent the lion’s share of the total electric vehicle fleet, as this category is most suited to rapid transition to electric drive.

With such goals, there will be immense improvement s in electric vehicle infrastructure. For example, Singapore is aiming to deploy 60,000 charging points and require all newly-registered cars to be cleaner-energy models by 2030 and phase out internal combustion engines by 2040.

#2: Transitioning to greener energy:
In the region, resource extraction and energy generation are still very much coal-reliant and inefficient, and must be decarbonised in a sustainable manner. ASEAN has set a target of 23% share of renewable energy in primary energy supply by 2025.

It is not realistic to suddenly replace fossil fuels with renewables. However, the transition to natural gas is one low-hanging fruit. The advancement of green hydrogen technology can possibly be a solution, but solar and wind has the potential to grow significantly due to substantial land mass in the region.

In Singapore, the government has commit ted to quadruple solar energy deployment by 2025, including covering the rooftops of public housing blocks with solar panels. In another decade, the ambition is to deploy five times that of today, with at least a two gigawatt-peak, capable of powering over 350,000 households a year.

Singapore can also play a crucial role as a clean tech hub as a test bed of commercialisation for new green technologies—such as green hydrogen and battery storage capabilities—and scale these solutions in other markets.

#3: Securing sustainable food chains:
Agricultural practices are subsistence and inefficient in many parts of the region, however, employing technology and localising production are key to feeding a growing and large urban population in a sustainable manner.

Singapore, as a small city with limited land for traditional agriculture, wants to increase its local food production through vertical farms and sustainable aquaculture that can increase yield.

Also, take for instance the upside in development of alternative plant-based protein, which is estimated to generate US$14 billion by 2025, globally. Singapore can be the launchpad for alternative plant-protein research such as cell-cultured protein, and the development of a plant-protein production hub for the region.

Indeed, sustainable agriculture and food technology can be scaled across SEA improving yield, production and security significantly.

#4: Reconfiguring to more efficient supply chains:
SEA’s manufacturing hub can become a viable alternative to China—and supply chains can be reconfigured sustainability. As supply chains shift to this region, more robotics and automation will be employed to improve productivity and energy efficiency.

Furthermore, the implementation of the Regional Comprehensive Economic Partnerships (RCEP), will allow a standardisation of cross-border regulations, which will promote trade efficiencies, streamline logistics and eventually reduce carbon emissions.

Capturing Southeast Asia’s Green Transition

James Cheo, Chief Investment Officer for Southeast Asia at HSBC Global Private Banking and Wealth

Southeast Asia’s green transition should not be ignored by investors.

The investment case for Southeast Asia’s green opportunities will evolve from a small set of pure play renewable and clean tech companies to a broader set of opportunities across the whole economy. All companies across all sectors will be affected by climate change and are pressured by their shareholders to become net zero and have an action plan in place.

There is growing evidence that investors in the region have recognised the importance of the net zero transition. In Indonesia, Southeast Asia’s largest economy, there is growing demand for ESG solutions from investors, including high net worth and ultra-high net worth (UHNW) individuals and families.

Like their peers in other parts of Asia, Indonesia’s wealthiest are allocating a greater portion of their portfolios to ESG products. This is expected to gain pace as wealth continues to accumulate in the country. According to Statista, the number of UHNW individuals residing in Indonesia is forecasted to increase to over 1,100 in 2025, from 630 in 2020. Meanwhile, HSBC research shows that it is projected that Indonesia’s aggregated financial wealth is expected to grow by over 120% from 2022 to 2030.

The trend will also be fueled by Indonesia’s sustainable transformation. A study by PwC found that ESG is a top business priority for Indonesia, with the government introducing regulatory changes to strengthen the sustainable investment landscape.

On this front, HSBC helps its UHNW clients in Southeast Asia build more resilient portfolios by delivering a range of ESG investment solutions; encompassing a biodiversity thematic discretionary mandate, sustainable core multi-asset solutions and private equity impact funds.

There is a need for investors to be aware of these trends and avoid companies that fail to adapt to these changes. At the same time, investors can gain exposure to Southeast Asia’s green opportunities either through global companies—with strong ESG scores that are adapting to these trends, or pure-play companies that are pushing the boundaries of green innovation.

As Southeast Asia’s transition into a green economy gains traction, knowing what lies ahead will position your portfolio to capture a golden value creation opportunity.

About James Cheo
Mr. Cheo is a member of the Global Investment Committee for Private Banking and Wealth Management and also a member of the Regional Investment Committee in Asia. In his role, he spearheads the development of investment strategies across all asset classes for global private banking and wealth management clients in Southeast Asia. With his knowledge and wealth of experience, his investment views are frequently sought after, with appearances on notable financial media including BBC, Bloomberg, CNBC, and Channel News Asia.



The information contained in this article has not been reviewed in the light of your individual circumstances and is for information purposes only. It does not purport to provide legal, taxation or other advice and should not be taken as such. No client or other reader should act or refrain from acting on the basis of the content of this article without seeking specific professional advice. Issued by The Hongkong and Shanghai Banking Corporation Limited.

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