Green infrastructure takes flight in Asia

02 March 2017   Category: News, Asia, China   By Natalie Leung

It is anticipated that developing Asia will need to pool about US$26 trillion for infrastructure investment between 2016 and 2030, or $1.7 trillion per year, as climate change alters infrastructure needs in the region. This is more than twice the initial forecast of $750 billion in 2009.

This is according to a new report entitled Meeting Asia’s Infrastructure Needs published by the Asian Development Bank (ADB), which reveals views of all 45 ADB member countries in developing Asia. The report details how climate change will shift the region’s infrastructure requirements and how development partners can support the affected countries to maintain growth.

The report adds that if climate change mitigation and adaptation costs are excluded, the region will need $22.6 trillion, or $1.5 trillion per year for infrastructure investment.

It is estimated that from the period of 2016 to 2030, investment in power and transport will reach $14.7 trillion and $8.4 trillion respectively, while telecommunications will need $2.3 trillion worth of investment, with water and sanitation costs at $800 billion.

“The increase is due to higher GDP estimates, the inclusion of climate change-related investments, the use of 2015 prices instead of 2008 prices, and a wider country pool,” says Abdul Abiad, adviser at the economic research and regional cooperation department of ADB, who adds that the projected needs are almost double the amount the region currently invests in infrastructure, at $900 billion.

Mr. Abiad also underlines that a “deeper understanding and appreciation of climate change and its impacts” are one of the reasons that has driven the region to revisit its infrastructure investment needs.

The report findings reveal that East Asia will account for 61% of climate-adjusted investment needs through 2030. However, the Pacific leads all other sub-regions, requiring investments valued at 9.1% of GDP, followed by South Asia at 8.8%, Central Asia at 7.8%, Southeast Asia at 5.7%, and East Asia at 5.2% of GDP.

The growing awareness of climate change has also led to a trend in impact investing, or ESG (Environmental, Social and Governance) investing, particularly in the real estate market, as revealed in a seminar about green buildings hosted by Asia Pacific Real Estate Association (APREA), in tandem with global law firm Baker McKenzie and GRESB.

Ruben Langbroek, head of Asia Pacific at GRESB, which assesses the ESG performance of real assets globally, sees the demand for green buildings in the market as having a major environmental impact on peoples’ lives; prompting governments to put in place stricter rules and policies to mitigate any potential impact.

Last year alone, there was $7.6 trillion worth of institutional capital seeking responsible investments in companies or sectors performing well in ESG, and Mr. Langbroek says this provides great opportunities for companies that are able to satisfy the reporting and performance needs in the ESG space.

Rico Chan, a partner at law firm Baker McKenzie, finds that China has made proactive and progressive efforts in terms of green buildings, green initiatives and green bonds.

“The real estate players who actually play on this dimension (impact investing), are more likely to be the winners in the medium to long-term,” says Mr. Chan.

Roxana Isaiu, director of ESG and real estate at GRESB, says the improved performance of ESG portfolios shows that there is a more conscious strategic approach.

To further drive the shift, Ms. Isaiu adds that a combination of regulatory pressure and the right type of engagement from institutional investors is very much needed.

With the Chinese government promising to work on environmental issues and taking steps to shift its economy into a greener economy, Mr. Langbroek believes that investors can make a more positive impact on sustainable building projects, which will translate into economic benefits for both owners and tenants.