A $330bn bonanza opens up in EM green investments
A multi-billion-dollar annual opportunity awaits investors keen on green investments in emerging markets (EMs), according to a recently released report.
Emerging markets present a $330 billion opportunity per year in green investments, a report by LeapFrog, Temasek and the World Bank Think Tank said.
Experts that AsianInvestor spoke to noted that institutional investors are recognising the value of clean technology, especially as the returns profile turns increasingly attractive.
The report, titled Accelerating clean technology access to emerging consumers, flagged four investible opportunities – rooftop solar, efficient cooktops, 2-3 wheeler electric vehicles and smart farming.
Private capital can be deployed today across many of these opportunities, where the price of green goods and services is out-competing incumbent technologies.
“Lower prices in green tech across EMs is spurring investors to make big bets on tipping point technologies, from the $5.4 billion valuation for Ola Electric, which runs the world’s largest 2-wheeler EV factory, to renewable energy unicorn Sun King, delivering PAYG solar systems to around 100 million Africans,” the report noted.
Ola Electric is India-based, while Sun King is Kenya-based.
Other experts agreed with the potential of green investments presented in the report.
“Energy transition is arguably the biggest opportunity on the horizon for Asia,” said Sunil Veetil, head of commercial banking sustainability, Asia Pacific at HSBC.
“Indonesia and Vietnam – two of the most dynamic economies in Southeast Asia – have announced their respective Just Energy Transition Partnerships (JETP), and tens of billions of dollars in public and private finance will be mobilised, catalysing the decarbonisation of the power sector in those countries,” he told AsianInvestor.
He noted that innovation and investment in climate tech is growing rapidly in Asia.
Climate tech is at the cusp of exponential growth – it is where fintech was about a decade ago.”
“As with fintech, Asian companies have the opportunity to localise a global technology and scale it domestically,” he added.
INVESTMENTS NEEDED
Along with the release of the report, LeapFrog, Temasek and the European Investment Bank announced they are collectively deploying $500 million via the LeapFrog climate investment strategy to invest in companies that provide green tools and technologies.
This is just one example of the increasing climate-related investments.
British International Investment (BII), the UK's development finance institution, also announced a few weeks ago that it would invest $25 million in a private equity fund that targets mainly India for climate finance.
Such partnerships and investments have great scope to grow exponentially, but only if investors are aware of the opportunities available.
“We need to ensure that there are channels available for sharing business opportunities. For example, the establishment of Gprnt to collect more sustainability-related information from companies can be a very useful platform for potential investors. Such data availability is key to unlocking the large amount of green capital to flow within Asia,” Zhang Weina, a professor in the department of finance at NUS Business School, told AsianInvestor.
Gprnt is a digital platform launched by the Monetary Authority of Singapore that harnesses technology to simplify how the financial sector and real economy collect, access and act upon environmental, social and governance (ESG) data to support their sustainability initiatives.
“One historical pain point is that the information barrier has hindered access to these surrounding investment opportunities and has to be broken down significantly,” she added.
“The traditional private funding sources such as impact investors, venture capital and private equity funding may have limitations in terms of scaling up large quantities of innovative solutions needed. To address this, new forms of investment opportunities need to be shared in a larger platform with credible information providers.”
To catalyse climate investments, private participation will be increasingly needed.
“Private investors are increasingly realising that these investments are in their own interests,” said Tatjana Greil Castro, co-head of public markets at Muzinich & Co.
She noted that the green investment market is quite vibrant and offers “excellent opportunities to invest in innovative as well as tried and tested projects that deliver a superior risk return profile compared to the broad sub investment grade market in addition to tangible impact,” she told AsianInvestor.
Identifying these opportunities, however, is key to deploying capital responsibly and generating the strong returns to motivate others to enter these markets, the report noted.