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Temasek chairman Lim Boon Heng delivers the opening remarks at Ecosperity Week 2022. Image credit: Ecosperity Week 2022

Southeast Asia should fund sustainable ag over ‘silver bullets’ to meet climate targets

June 9, 2022

Southeast Asia needs $3 trillion in “green investments” to keep global warming within 1.5 degrees Celsius above pre-industrial levels.

But “bias” towards funding “silver bullet” solutions over more immediate fixes in areas such as agriculture may be holding the region back.

That’s one among many conclusions drawn by consultancy Bain & Company in the latest edition of its Southeast Asia Green Economy Report, published in partnership with Temasek and Microsoft and released Tuesday at Ecosperity Week 2022 in Singapore.

Speaking on stage at the event, Dale Hardcastle, director of Bain & Company’s Global Sustainability Innovation Center, said that “while we are right to celebrate the progress and success that has been made, we should acknowledge that we are at the beginning of a very long journey.”

‘Low-risk, proven solutions’

Southeast Asia will need to invest $3 trillion — roughly equivalent to its yearly regional GDP — by 2030 in order to decarbonize and keep on track with the global 1.5 degrees Celsius target, the report states.

There are encouraging signs:

  • $15 billion in non-government capital has been invested in sustainability-focused ventures and projects across Southeast Asia since 2020, the report indicates – with 45% coming in just the last three quarters (Q3 2021–Q1 2022)
  • $11 billion of that total– almost three quarters — has been deployed by corporate investors
  • Sustainability-focused startups in the region were valued three times as highly in 2021 than they were a year previously, based on investment trends

Nevertheless, Southeast Asia — which is home to 10% of the world’s population and 20% of its biodiversity — remains “well short of where it needs to be on carbon and investment” to reach climate change and emissions reduction goals, the report says.

It notes that there is an investment “bias toward new solutions versus proven, low-risk levers.”

  • Forest conservation is among “the largest carbon abatement levers,” and presents an estimated annual revenue opportunity worth $20 billion in Southeast Asia.
    • Nature-based solutions, and carbon and biodiversity credits — along with the market infrastructure needed to trade them — are gaining more attention from “established investors,” but require more funding.
    • Bain predicts a “looming supply crunch” of these credits; however, the “investable space” is expanding, particularly in Malaysia and Indonesia, which host some of the world’s largest areas of rainforest.
  • Sustainable farming solutions represent $30 billion in potential annual revenue to investors in the region.
    • The report pinpoints precision agriculture and farmer marketplace platforms as the most attractive investment opportunities in ag because they enjoy “strong regulatory support, especially in Malaysia, Thailand, and Vietnam.”
    • But Southeast Asian agriculture’s sustainability potential is being held back by structural problems – in particular, many of the region’s farmers still lack adequate access to markets and finance.
  • Of the $3 trillion in investment required by 2030, just over a third is needed by the agriculture and nature sectors combined.
Source: Bain & Company

Zooming in on the startup ecosystem, Hardcastle told delegates that while “greater interest is being shown [by investors] in sustainable farming, forest conservation, and carbon offsets” than in years gone by, more funding for solutions in these sectors could lead to cheaper and faster gains. Governments in the region could do more to encourage such investment, he said.

“Many Southeast Asian countries today simply lack sufficient incentives or penalties to drive the necessary behavioral change. [Other regions] have shown that such incentives are needed to kickstart investment at scale.”

“[We] all need a push to consume less and emit less. Without such incentives and changes we aren’t going to achieve our goal,” he said.

Betting on silver bullets

Another constraint to funding in ag and nature-based solutions is that it loses out in the attention stakes to more alluring technologies and models.

“We need to respect that achieving net zero requires a radical transformation of a system we spent a century building; we’re not going to replace it overnight. While we look for new solutions and new ideas […] we also have to look for ways to improve what is already here,” Hardcastle said.

“Too many countries in the region today seem to be betting heavily on ‘new’ and emerging solutions, which is another way of saying they’re betting on silver bullets.”

Click for enlarged version. Note: (1) including more sustainable rice growing, avoided burning, and other practices that may be monetizable; (2) $2-7 billion from organic fertilizer, $1-2 billion from biopesticide; (3) from carbon credit sales; (4) EBIT margin based on global manufacturers; (5) EBITDA margin for global precision ag equipment manufacturers; (6) gross margin based on global brand owners; (7) based on Singapore. Source: Bain & Company

More readily available solutions in areas like sustainable farming “somehow don’t find their way into serious plans,” Hardcastle continued.

“I’m not by any means suggesting we shouldn’t be getting behind [green] hydrogen, carbon capture, and other new innovative solutions; but rather [aiming for] abatement everywhere. This approach should also consider a more inclusive way of thinking about SMEs and smallholder farmers across the region, who account for half of GDP.”

To boost investment in sustainable ag solutions, the Bain report recommends:

  • Increasing growth-stage financing, particularly for agtech startups with “clear potential for scale”
  • Develop carbon credit markets to incentivize regenerative agriculture
  • Create certifications for sustainably-grown produce that may command a consumer premium
  • Improve farmer access to markets and finance, as well as telecom connectivity; this may require government subsidies for remote rural areas where mobile network operators struggle for commercial viability
  • Government support for private investors
  • Facilitate public-private partnerships in agribusiness

Such measures can focus the Southeast Asian ecosystem “not [on] silver bullets that are perhaps years in the future, but what we can do with existing technologies so we can start to move the needle while we build for the future ahead,” Hardcastle said.

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