The world faces a turning point in its efforts to maintain the targets of the 2015 Paris Climate Agreement. The global decarbonisation rate from 2015 to 2020 stood at a mere –1.5%, far from the needed –16% by 2030 to achieve the 1.5°C goal. There is a nearly 50/50 chance of surpassing the 1.5°C threshold within the next five years. Southeast Asia’s rapid economic growth has contributed to escalating emissions, intensifying global challenges as energy demands expand in parallel with the regional economy.
A recent publication by Boston Consulting Group in collaboration with Fairatmos, Southeast Asia’s first climate technology company, studies the impact of nature-based solutions (NbS) as a pivotal means to combat climate change and bridge the gap. Despite holding less than 1% of the world’s landmass, Southeast Asia possesses the potential to contribute approximately 30% of the global cost-competitive NbS supply. With an extraordinary mitigation potential of 21.7 Gt CO2e (gigatonnes of equivalent carbon dioxide) per year, NbS could reduce 2030 emissions by around 60%, bringing the world one step closer to achieving net zero.
Confronting hurdles to NbS uptake: Challenges in Southeast Asia
There are a number of challenges hindering the path to unlocking NbS potential in Southeast Asia.
• Origination — navigating project complexity and funding gaps. NbS initiatives in Southeast Asia face a maze of development challenges, from intricate registries and standards to uncertain methodologies, especially for smaller landowners. Additionally, the lack of suitable financing options further hinders project initiation.
• Quality assessment and assurance — balancing costs and benefits. Achieving credible carbon credit value hinges on resource-intensive measurement, reporting, and verification (MRV) processes. The data intricacies of MRV, including on-site surveys, create significant time and cost constraints. Social impacts are often overshadowed, demanding holistic assessments for maximal carbon credit value. Robust certifications are critical for instilling trust in carbon credit markets, necessitating transparent and dependable certification procedures.
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• Trading — tech transformation for stability and growth. Advanced technologies play a pivotal role in streamlining nascent carbon credit markets, ensuring efficient asset exchange and market stability. Long-term viability hinges on entrepreneurs and investors gaining insights from established commodity markets, relying on stable demand indicators and innovative asset securitisation.
• Demand generation — tech drives clarity. Buyer demand for carbon credits hinges on precise carbon emissions assessment. Automation fuelled by advanced technologies like artificial intelligence/machine learning, Internet of Things and edge computing is pivotal in achieving accurate carbon footprint assessments.
Southeast Asia’s start-up ecosystem rises to the challenge
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Southeast Asia’s climate tech start-ups are addressing these barriers head-on by developing solutions to streamline processes, enhance quality assessment, ensure certifications, facilitate trading and generate demand. The climate technology landscape in Southeast Asia has grown remarkably, with more than triple the deals observed in 2022 compared to 2017.
Notable start-ups have emerged as key players, leveraging innovative solutions to address climate change and advance NbS. Fairatmos, based in Jakarta, verifies and connects carbon projects, using advanced tech like AtmosCheck for integrity. It collaborates with over 100 entities and has facilitated US$18 million ($24.7 million) in climate projects.
Climate Impact X (CIX) in Singapore offers a global marketplace for trusted carbon credits. It ensures secure trading through satellite monitoring, established by DBS Bank, Singapore Exchange S68 , Standard Chartered and Temasek. CIX aims to provide a seamless trading experience for diverse carbon market needs.
However, to realise climate technology’s full potential, these start-ups need to advance and attain broader acceptance, necessitating the resolution of the key hurdles they face. These include addressing diverse market needs, accommodating long investment horizons for institutional backers, and building awareness and educating corporate purchasers of the benefits NbS bring.
As we continue to deepen our understanding of climate technology and its advancement, innovative approaches have emerged to accelerate development and expansion. These mechanisms encompass various funding strategies such as advanced market commitments (AMCs), concessional finance and pooled procurements. Coalitions have also gained importance, allowing organisations to collectively pledge support, thus amplifying demand signals. Moreover, shaping favourable government policies and regulations plays a pivotal role in cultivating an investment-friendly climate for climate technology. This entails creating appropriate incentives and streamlining regulatory procedures to catalyse progress.
Beyond business-as-usual: Partnering for climate action takes all stakeholders
A collective call-to-action is needed across stakeholders to drive meaningful change:
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• Corporate buyers and industrial leaders should integrate climate action into core business strategies, defining emission baselines and transition plans. Integrate climate strategies into core business plans, defining emission baselines and transition plans to reduce operations and supply chain emissions. Active participation in market-shaping initiatives like AMCs and offtake agreements sends a strong demand signal, fostering climate technology growth. Allocate resources for research, embracing risk-taking and collaboration with technology partners for innovative solutions.
• Investors, venture capitalists and financiers should commit for the long term, understanding climate technology’s unique demands. Embrace innovative financing instruments such as blended financing to de-risk early project stages and attract further investments. Integrate climate metrics into investment processes, prioritising sustainability-aligned opportunities. Build internal expertise to effectively navigate the evolving climate technology landscape.
• Technology and project owners should actively engage with industry leaders and seek partnerships with other technology providers. It is vital to foster an ecosystem that enables parallelisation and collaboration among various stakeholders, understanding that the traditional linear path of product development, production set-up and commercialisation is no longer sufficient.
• Governments and regulators should set ambitious targets, encourage carbon market growth and streamline policies to foster climate technology investment. They must create efficient processes, balance regulations to promote innovation, and improve monitoring mechanisms. Sharing data transparently supports collaboration, while providing incentives and subsidies bolsters financiers’ confidence in climate technology investments, aiding the transition to a low-carbon economy.
Unleashing the transformative force of climate technology and NbS is vital for combating climate change and tapping into Southeast Asia’s substantial carbon sink potential. Despite challenges faced by climate tech startups, innovative funding methods like AMC and concessional finance can foster participation and sustainable innovation. Collaborative partnerships are key, involving companies, technology providers and economic players, while governments must set ambitious goals, streamline policies and provide incentives.
Collectively, we possess the ability to unlock the region’s climate tech potential and forge a sustainable future, making immediate collective action essential. When we unite behind a common goal, driven by innovation and sustainability, we have the power to address even the most pressing global challenges. So, let us act now, with purpose and unity, to secure a sustainable and prosperous future for generations to come.
Yulius Yulius is managing director and senior partner at Boston Consulting Group. Natalia Rialucky is CEO of Fairatmos
