Green investment in Southeast Asia driven by eco-friendly data centers, but report reveals more is required.

• The largest investment dollars in Southeast Asia were driven by green data centers, thanks to energy efficiency regulations in Malaysia and Singapore, according to a new report.
• Despite having only 1.5% of the green financing needed to meet 2030 emission targets, the region remains "woefully off-track."

According to a report released Monday, green investments in Southeast Asia increased significantly in 2023, thanks to green data center projects, but funding remains inadequate.

A study by Bain & Company, GenZero, Standard Chartered, and Temasek revealed that $6.3 billion in green investments were made in the region, resulting in a 21% year-on-year increase.

In 2023, green data center projects, supported by efficiency policies in countries like Malaysia and Singapore, generated the most significant growth in green investments, surpassing renewable energy as the primary theme, according to the report.

The rise of new technologies like generative AI has led to a surge in demand for data centers, prompting concerns about increased energy consumption.

The International Energy Agency predicts that the energy consumption of the AI industry will increase by at least ten times from 2023 to 2026, as stated in a January report.

Malaysia and Singapore pave the way

Green data centers in Southeast Asia received major investments from governments including Malaysia and Singapore, with the goal of being more energy-efficient and less dependent on fossil fuels.

Over $500 million in green financing was attracted to Malaysia last year for at least two data centers, resulting in the country making the largest year-over-year increase in green investments in the region, up 326% from 2022.

The largest telecommunications company in Singapore, secured a 535 million Singapore dollar ($401 million) green loan for five years to enhance efficiency at all its data centers, including the ongoing 58 MW green data center construction that started last year.

After the Singaporean government introduced a sustainability standard for data centers in tropical climates, the city-state has emerged as a popular destination for cloud service providers and data centers.

GenZero's head of investments, Kimberly Tan, stated that countries that establish clear policy frameworks, supportive regulations, and concrete financing plans for decarbonization will be more attractive to private investment.

In 2023, Singapore's overall green investments decreased from $1.2 billion to $0.9 billion, despite efforts.

More to be done

The report's authors suggest that despite a regional increase in green investments, more is required to achieve critical climate objectives, particularly in the area of green data center investment.

The report stated that $1.5 trillion in total investment in the energy and nature sectors is required to achieve the nationally determined contribution targets by 2030. However, only 1.5% of this amount has been invested so far, with many countries at risk of not fulfilling their commitments.

According to Tan from GenZero, it is crucial for countries, corporations, and investors to increase their efforts in Southeast Asia, as the region is currently falling behind.

For the second year in a row, green investment towards power in the region fell by 14%, despite renewable energy accounting for less than 10% of the region's energy supply. Fossil fuel subsidies are around five times higher than renewable investments.

According to Dale Hardcastle, director of the Global Sustainability Innovation Center at Bain & Company, there is a significant difference between what people believe is happening and the actual progress being made on the ground.

Although Southeast Asia faces "structural challenges," there is significant potential to speed up the energy transition and establish a green economy through initiatives such as blended finance, he stated.

The report urged governments to enhance policy incentives, regional cooperation, and prioritize deployable green technologies to generate $300 billion in annual business by 2030.

Indonesia experienced the highest private investment in green projects in the region, with the Philippines closely behind. Meanwhile, Laos had the second-largest increase in investments, thanks to foreign investment in renewable energy projects.

Waste management investments, such as water treatment and plastic recycling, are also significant drivers of major investments in Southeast Asia.