ClimateTech's Golden Ticket: Why Southeast Asia is the Place to Be

Greeting fellow Earthlings,

Since we began working on building a Climate VC Fund in the region, we've noticed that while the primary focus of the climate investment conversation is rightly on its environmental and social benefits, which are admirable and deserving of attention, most investors in the region and globally are overlooking the significant opportunity it offers. Climate investment is likely to be one of the region's most lucrative and return-positive investment spaces of the decade.

The world is increasingly complex, with growth inextricably tied to geopolitical developments, particularly the decoupling of China and the US, which has sent shockwaves through both economies and the global market, creating widespread uncertainty. The region's strategy has been to remain neutral, leveraging strong relationships with both sides, and this has attracted a significant influx of capital seeking protection from geopolitical risks. The arrival of hundreds of Family Offices from both sides, choosing Singapore as their financial base, further validates this approach.

Source: DBS - Foreign Direct Investment

Southeast Asia, as a rapidly growing and evolving region, offers a level of dynamism that few others can match—a place where growth fuels innovation, allowing for disruptive advancements that leapfrog existing technologies and, in turn, accelerate growth even further.

Source: DBS - Navigating High Winds report

Most countries in the region that recognise this are typically pro-startup and embrace transformation at all levels. Having frequently faced market disruptions, even large corporates are quick to adopt new technologies. Furthermore, entrepreneurship is deeply ingrained in the culture, especially in developing markets where the influence of large corporations is less pronounced, making building one's own business a more viable path to success.

Meanwhile, the region's growing population, increasing by 1% annually, and its youth will require solutions and support to ensure their resilience, particularly in facing the climate crisis. Mitigation and adaptation to climate impacts will be crucial not only for their comfort but, more importantly, for the survival of local populations.

Sources: World Bank, ADB, IMF

3A. Singapore is the 3rd largest Financial hub in the world, behind New York and London

Source: Wikipedia and GCFI

3B. R&D centres

Southeast Asia's spending on Research and Development is rapidly approaching the global average, increasing from 0.5% in 2010 to 1% in 2023.

Singapore is also among the top 5 cities in the world for startups and innovation.

Source: Innovation Index 2019

Source: Crunchbase 2022

Southeast Asia has maximized its land use, with agriculture's contribution to GDP rising from 12.4% in 2015 to 13.5% in 2020. However, forecasts highlight the challenges of further land expansion, particularly due to conflicts with nature conservation parties. Despite this, the region still needs to increase agricultural output. Focusing on improved production techniques and efficiency, while protecting the land and its carbon stores, will be crucial.

The region remains one of the fastest-growing in the world, with annual growth rates of 3 to 5% (except in 2020), and is expected to outpace global economic growth overall.

To sustain such growth, energy demand in the region is expected to increase by 27% overall, or 32% per capita, over the next decade (source: IEA).

Achieving decarbonization will require massive efficiency gains, electrification, a shift to renewables, innovative solutions, and significant financing—without which, the region risks growing its carbon footprint in tandem with energy demand.

The transition to sustainability will require an estimated $3 trillion in investments by 2030, with a focus on project financing, loans, venture capital, and R&D funding.

To address these challenges effectively, we must embrace greater risk and radical change. Being conservative in times of crisis will not yield significant results; instead, taking measured and well-considered risks can lead to substantial rewards

For us, investing in climate is inherently about capital creation and profits. However, since we also share goals of enhancing environmental and human resilience, collaboration must remain a priority. Addressing the complex problems we face will require a collective effort, and we are all part of that effort.

Several approaches can effectively drive impact in climate investment, listed here by their scale of impact from greatest to notable:

1. Venture Climate and Innovation: Direct investment or through funds, with Sif.vc aiming to lead in this space.

2. Venture Building and Incubation/Acceleration.

3. Debt and Late-Stage/Growth Financing: For new ventures, either directly or through funds.

4. Project Finance and Infrastructure Deployments: Both direct investments and funds.

5. Carbon Project Deployment: Direct investments and funds.

6. Thematic Climate Funds: Focused on areas like Agtech, food substitutes, and transport.

7. Climate-Focused Bonds and Public Equity: Caution against sustainability-linked and broadly defined ESG bonds; validate underlying assets thoroughly. Many vehicles can be considered to start moving the needle.

Approach us if any of these are of interest, we can certainly help connect the parties involved.

Take care all,

@David Pardo for @Sif.vc 

Disclaimer: This material is provided for information purposes only and it is general information not specific in any way to any particular investor, investor type, strategy, investment need or other financial circumstance. As such this information is not financial advice or a financial promotion, nor is it intended to influence an investor's decision to invest. It is not to be construed as an offer to buy or sell or solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction.