Asia is home to well over half of humanity. While heterogenous, most Asian nations have deep regional connectivity with respect to history, culture, trade, technology, and commerce. In some cases, the connectivity also spills over into historical rivalry and disagreement, along with claims over shared resources.

Asia, currently the largest generator of greenhouse emission in the world due to the region’s rapid industrialisation in recent decades, will be crucial to the green transition for all of humanity. And it will require concerted efforts as climate change and pollution know no boundaries.

The region has been experiencing intensifying weather events like floods and droughts in recent decades. Parts of Asia are particularly vulnerable to rising sea levels. South Asia is highly vulnerable to rising sea levels and increasingly frequent floods and droughts. The World Bank estimates that more than half of all South Asians, or 750m people, have been affected by at least one climate-related disaster in the last two decades. Some 347m children in South Asia suffer from water scarcity.

To prosper sustainably, the region needs energy and water security, but climate change threatens to undermine those goals. The risks are substantial and shared, from which it follows that regional cooperation is essential to take on the monumental climate challenge. In this article, we explore the potential for cooperation, both at the national and corporate levels, on energy production and water sharing. As a financial institution with an expansive regional footprint, we offer a variety of solutions for regional cooperation to fund and tackle the green transition.

Energy transition – a patchy effort in Asia

Asia is making remarkable progress in energy transition, with India and China leading the way. These two powerhouses are among the world's top five absolute generators of wind and solar energy, and they are achieving record generations and capacity growths on an annual basis. In 2023, non-fossil energy is expected to account for more than 50% of China's power generation for the first time with an expected new record of 170GW of solar capacity added, while India's renewable energy mix is currently at an all-time high, where solar and wind accounted for 92% of 2022’s power generation capacity growth. Southeast Asia is also making progress with rapid growth of renewable capacities across the region, spurred by blossoming energy partnerships in the region (illustrated below). Overall, Asia attracted the most investments in renewable energy in 2023 – USD 356b from a global total of USD 532b, and investments are projected to grow further.

However, China and India continue to face formidable energy security threats. In 2023, China's energy security was hampered by a severe drought, while unusually dry weather in India affected power generation. While such concerns accelerated growth in renewable deployment, coal remains a cornerstone of energy security in both countries to address the toils of short-term, acute energy security issues, and exponential increase in energy demand. The Asian Development Bank has warned that the region, particularly China and India, could offset gains from energy efficiency and emissions reductions elsewhere in the world.

Like the two powerhouses, Southeast Asia’s reliance on fossil fuels, particularly coal, to meet its growing energy demand is also insatiable, despite encouraging transition efforts. Indonesia, Malaysia, and Thailand are major players in the global coal market. The region's reliance on coal is expected to increase as it industrialises, with Vietnam, Indonesia, and the Philippines planning to significantly expand their coal-power capacity. Further acceleration of transition – with the help of the Global North and financial institutions (FIs), is much needed to meet the Paris goals as the region juggles, and sometimes struggles with the energy trilemma of security, affordability, and sustainability. Rapid industrialisation, population growth, lack of renewables and grid capacities, and affordability of coal continue to hinder the region’s transition efforts.

At present, the fragmentation of energy transition in Southeast Asia has manifested primarily on two key fronts: regulation and implementation, as well as investment and finance. Regulatory frameworks and implementation mechanisms vary widely across the region, disjointed, with differing energy policies and priorities. The Nationally Determined Contributions and net zero commitments of countries in the region differ materially, among others, as they are in different stages of their socioeconomic development. However, we are starting to see harmonisation on this front with the ASEAN Taxonomy leading the way for a regional compact. Efforts to streamline transition efforts are led by regulators and FIs to establish common sets of principles, rules and standards.

On the financial front, there are varying levels of access to capital.  More than 80% of the aforementioned USD 356b investment in Asia were directed to China. Beyond China, the establishment of two Just Energy Transition Partnerships (JETPs) – where wealthier G7 nations fund and support the transition of developing countries, in Indonesia and Vietnam, cast a spotlight on the work remaining to be done. Poor grid development and lack of profit incentives in the rest of the region continue to hamper green energy investment and transition capital, resulting in frequent one-off deals with limited scalability and impacts.

Water Security and geopolitics

Water security is an existential issue that can pose significant impacts on banks and FIs if managed inadequately. Water insecurity and scarcity can lead to higher cost for businesses, such as higher water prices, increased health risks leading to costlier healthcare, job and economic losses, and resource competition. These factors can also instigate social issues (e.g., increased migration and crime) that would put a strain on a society’s financial health. While water security is not an upfront issue for FIs like energy transition, these factors can potentially affect financial stability of banks and FIs. And water security is a vulnerable discourse blighted by geopolitics.

China and India, for example, could see conflict risks rise over this. Both nations have seen worsening of living conditions from intensifying droughts, and both face agricultural output vulnerabilities as crop failures rise in frequency.

China and India share a major river, the Brahmaputra, originating in the Tibetan Plateau in southwest China. Flowing 3,900km across Tibet by the Himalayas into India’s Assam and Arunachal provinces, the river is essential to socioeconomic development. It provides about 30% of India's freshwater resources and 40% of the country's total hydroelectric potential. The Brahmaputra plays a minor role in China's total freshwater supply, but it is vital to Tibet's agricultural and energy industries. Despite the river's importance to both countries, bilateral engagement has been modest. Both for emergency related contingencies and general water management, the two nations need to collaborate on this.

In Southeast Asia, water security is especially important in the Mekong Basin. The Mekong River is a primary source of freshwater for 300m people in Myanmar, Laos, Thailand, Cambodia, and Vietnam. It is the life source of agriculture – where Vietnam and Thailand are two of the six largest rice producers in the world, fisheries, and other critical industries. The Mekong Basin is exceptionally vulnerable to the impacts of climate change. More frequent extreme weather events and altered precipitation patterns are exacerbating floods and droughts. As a result, the average annual direct cost of flooding to agriculture, infrastructure, and buildings, where Cambodia and Vietnam account for two-thirds of the total, amount to USD 60m to USD 70m.

Transboundary tensions over water persist, with countries vying for control over water resources that are vital for agriculture, industry, and livelihoods. China, which is upstream, has built several dams on the upper Mekong, impacting the flow of water downstream. Lower Mekong countries are concerned about the potential implications of these dam projects on their water supply, agriculture, and ecosystems. These concerns have led to downstream countries calling for greater transparency and cooperation in the development of dams and water resource management.

Competition and collaboration

A just energy transition requires equity and inclusivity, ensuring that no nation or community is left behind in the shift towards a sustainable future. Geopolitical cooperation and healthy competition can help harmonise energy policies, foster cross-border infrastructure development, promote technology sharing and most importantly, cultivate social equity, ultimately leading to a more efficient and equitable distribution of clean energy resources. For example, competition between China and India could bring down the cost of renewable energy, green energy technology and green hardware products - particularly solar panels, hydrogen fuel cells, and electric car batteries, across the region.

As two major emitters, China and India both share responsibility and opportunity to guide the global agenda on climate change, particularly for developing economies. China and India are both influential members of intergovernmental organisations and partnerships. Both nations can leverage on these platforms to reform international financial architecture, avail and scale financial capitals, and align initiatives and standards. For example, the two nations can work with partners like the European Union and the US to align taxonomy and other standards related to carbon trading and green as well as transition finance – such as the ongoing development of the Common Ground Taxonomy to assess and align the overlaps in taxonomies of China and the European bloc.

For Southeast Asia, a collaborative approach would help the region to leap forward together. Transboundary cooperation will help the likes of Laos, Thailand, and Indonesia, develop sufficient technical capacities to fulfil their high potential to be positive Renewable Energy generators. A regional power grid is the much-anticipated transboundary development. Transmission and distribution grids need to align and integrate with broad long-term planning processes by governments, as well as requiring over USD 600b per year by 2030 to continue a stagnating grid development in the region. A latest study by DNV highlighted that a regional grid can cut Southeast Asia’s cost to decarbonise their power grids by 11%, cut a third of renewables and a tenth of electric storage needed by 2050 – a saving of USD 700b. Success would alleviate systemic energy security issues, create secure supply chains and build skilled workforces; failure would slow the energy transition, underutilise or waste renewable capacities awaiting grid connection, incur unnecessary operating cost and aggravate reliance on volatile and fragile oil, gas and coal markets.

To put this in perspective, Singapore has bilateral agreements with its neighbours - 2GW generation from the joint development of a floating solar farm in Batam, Indonesia, 1GW of wind generated energy import from Cambodia, and 2GW of wind and solar generated energy import from Vietnam. Individually, Singapore stands to gain from transitioning away from natural gas to renewable energy sources, while Cambodia, Indonesia, and Vietnam, benefit from foreign investments that would enable them to capitalise further on its vast natural resources and geographical advantage. The compounding benefits of a regional grid that connects all these neighbours would be remarkable as alluded previously. We saw glimpses of this potential in the first multilateral cross-border electricity trade involving four ASEAN countries of Laos, Thailand, Malaysia, and Singapore in 2022. This cooperation would benefit all four countries through the development of a regional market for electricity, promote investments, and enhance regional electricity supply security and cost-competitiveness.

A collective effort to safeguard water holds paramount significance. First, Asia’s vulnerability to water scarcity, drought and flood is a critical concern. Ensuring adequate water resources is essential for preventing crop failures and preserving food security for the millions dependent on the agricultural sector. Governments that coordinate policies, collaborate on joint projects, and share real-time data and information will enable better prevention and mitigation plans. Second, effective water management that builds on geopolitical collaboration is crucial in mitigating flood disasters. Proper flood prevention and response mechanisms can save lives, protect property, and reduce the economic impact. Finally, a focus on water security is instrumental in promoting social equality by ensuring the marginalised communities have equitable access to clean water and sanitation services, helping bridge the socio-economic disparities prevalent in the region.

What does this mean for us as a bank?

Multi-state problems require solutions from those with expertise across geographies. Finance transcends boundaries. We recognise our unique position to foster cross border conversations through our financing capabilities, enabling financial innovation, price discovery and regional capital flows. Overall, transboundary banks and FIs can toggle between employing holistic set of solutions or country-by-country strategies due to our geographical and market outreach, and roles as financial enablers.

Some of the key mechanisms that banks and FIs are already actively employing to foster collaborations:

1. Green and transition financing and investments: FIs offer green and transition financing instruments (e.g., loans and bond issuance) as well as direct funding towards environmentally sustainable projects. FIs’ financing and investment commitment can cultivate an ecosystem that attract investors, incentivise companies’ shifts towards sustainable and responsible practices as well as support regulators to prioritise sustainable projects.

2. Risk assessment and mitigations: FIs incorporate climate, water-related, and environmental risks into their assessment frameworks. By evaluating the potential impacts of climate change on investments and assets, they can encourage clients and stakeholders from to adopt sustainable practices and climate-resilient strategies. 

3. Capacity building and collaborative platforms: FIs support capacity-building efforts within governments and the real economy to enhance their ability to address climate and sustainability issues. They provide technical assistance, training programs, data sharing, and knowledge-sharing initiatives. FIs can also advocate for supportive policies and regulatory frameworks (e.g., incentivise sustainable practices and investments) that promote climate and sustainability.

In summary, banks and FIs contribute to geopolitical cooperation on climate and sustainability by aligning their investments, strategies, and influence with sustainable and resilient development goals. Their involvement can catalyse positive change and foster collaboration among diverse stakeholders in addressing these critical challenges.


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