Asia’s green transition at a glance

Big investment into solar energy in recent years means Asian countries now account for half of the world’s top 10 solar-powered countries.

Asia is shifting towards a more sustainable development path as governments across the region acknowledge the effects of climate change.

That’s why, like their counterparts elsewhere, they’ve started implementing plans to achieve national carbon net-zero goals. Policymakers are also examining how infrastructure must adapt to the physical damage caused by more frequent storms, floods and droughts.

As a result, Asia accounts for the majority of renewable-energy investment globally – more than half of the total amount invested in 2022⁶.

China is the world’s largest investor in renewable energy. Along with Japan, Korea, and India, these countries rank within the top 10 on national investment in the energy transition.

How can investors participate?

Labelled bonds. An umbrella term that covers green, social, sustainability and sustainability-linked bonds. Asia is one of the fastest-growing labelled-bond markets⁷. With the large infrastructure spend needed to fund the region’s sustainable growth, these debt instruments will continue to be an important access point for investors wanting to drive Asia’s green transition.

That said, the quality of labelled issuance can vary. Investors need to ensure that what it says on the label is what’s in the tin.

Credible corporate transition plans. Policy and environmental change will affect the way companies operate, and firms need to adapt. Those that embrace sustainable practices in their business strategy are likely to be better prepared for a world of rising climate-change costs.

Environmental, social and governance (ESG) rating agencies, such as MSCI, recognise companies that succeed in making a positive sustainability transition. This has caused divergence in the performance of bonds issued by these firms and those of their peers who are slower to respond.

What themes are we looking at?

The green transition in Asia is expected to be a medium- to long-term story, as the transition pathway is often not linear and we’re looking at multi-year projects in many cases. 

That said, bond pricing is already changing to reflect rising risks and growing opportunity. For example, one Chinese EV battery-maker has seen its bond spreads narrow considerably since issuance in 2020 – a sign of growing investor interest and confidence. 

The spread is the additional yield above that paid by a comparable government bond that investors demand to compensate them for embracing more risk.

Rapid economic development often comes at a heavy cost to sustainability. Since 2019, Asia has accounted for more than half of global CO₂ emissions.

But things are changing. Across the region, more than 15 countries and 670 companies have set, or are committed to setting, emissions-reduction targets.

The region already accounts for some 45% of global installed renewable-energy (RE) capacity. Half of this is in China, India, and Australia. There’s also investment in Taiwan, Vietnam, and Thailand.

But under the Network for Greening the Financial System’s (NGFS) Net Zero 2050 scenario, it’s estimated that between 2020 and 2050, some US$3.1 trillion a year must be spent on physical assets for the region’s energy and land-use systems.

Where are the opportunities?

That means equity investment opportunities exist across the entire sustainability value chain. For example, within our portfolios we own:

China…

In the context of investing in the Asian sustainability theme, China is our biggest single-country exposure.

In 2022, Asia’s biggest economy spent some US$546 billion on renewable-energy investments that included solar and wind energy, EVs and rechargeable batteries. That’s nearly four times what the US spent that year.

Over the past decade, solar photovoltaic (PV) manufacturing capacity has moved away from Europe, Japan and the US, to China. That’s why the country is now home to all of the world’s top-10 suppliers of solar PV (solar panel) manufacturing equipment.

It’s also the world’s largest market for electric vehicles (EV); the world’s biggest EV battery-maker by market share is Chinese; and the country controls around 80% of the global solar-energy production value chain.

…is not the only story

However, we also have significant investments in South Korea and India as well.

South Korea may not be a surprise. For decades, this North Asian country has been flexing its industrial might in the rest of the world as a leader in science and technology.

Boosted by the country’s exporting prowess, today three of the world’s top-10 EV battery-makers by market share are Korean. Korea also ranks in the global top-10 countries for energy-transition investments in 2022.

On the other side of the continent, it wasn’t that long ago that investing in India was considered a less conventional choice. This is less so today.

But we’ve been investing in the country for almost 30 years and it’s a market that we’re still interested in because we see strong government support for sustainability goals, clear renewables targets and robust legal enforcement of contracts.

Last thoughts

Asia is at the vanguard of global efforts to shift economies onto a more sustainable foundation.

As we’ve found in our portfolios, there are opportunities here that range from copper miners to renewable-energy operators, and from to battery manufacturers to transmission firms.

While international politics adds complexity for investors, it’s clear that sustainability issues, such as climate change, are everyone’s problem.

That’s why sustainability solutions can’t be confined to any one region. That’s also why the opportunities won’t be either.

Around the world, property development and construction activity account for some 40% of energy-related CO₂ emissions ⁸.

That’s why we’ve committed to a goal of net-zero emissions by 2050 for all our direct real estate investment portfolios. Over the shorter term, we’ve aligned our portfolios’ climate transition targets with the 2030 goals of the Carbon Risk Real Estate Monitor (CRREM).

Despite the poor investment sentiment around the office sector since the pandemic, we think there are long-term opportunities in retrofitting office buildings in major business centres across Asia.

We think this for three reasons:

Case study

We purchased a prime-grade office building in Seoul that was built in 2021 and awarded a Leadership in Energy and Environmental Design (LEED) gold rating.

We then identified and implemented upgrades that led to a higher – platinum – rating that was awarded in 2023. We also determined a net-zero aligned investment strategy for further upgrades that’s based on the CRREM 1.5°C climate-scenario pathway.

As a result, this office building now consumes 40% less energy than the average office in Seoul. We think the advantage of having a net-zero aligned capital plan will become more obvious as net zero moves up the agenda for investors and tenants.