The sustainable rise of viable investment across Asia

Climate change is a global risk for economies and corporates, and it is a disruptive factor for the value and income-generating potential of various assets. The risks mainly come from the transition to a low-carbon world as economies align themselves with 2°C and 1.5°C pathways, adjusting to a warmer world as well as the direct and indirect impact on living beings. These risks have financial implications for short-term and long-term asset valuations and performance.

Tim Evans-CEO, HSBC Vietnam

Unarguably, climate change has become a mainstream investment philosophy and financial institutions have begun to integrate these risks into their investment management processes. One way of managing climate-related risks is through identifying potential providers that offer solutions to offset and overcome the effects of climate change, thus enabling a shift towards a low-carbon economy.

The number of public companies with meaningful exposure to climate-related businesses in our database is growing globally. Based on our proprietary data, the number of green stocks has risen around 75 per cent since 2016. Besides, the climate-related revenues of such companies have also been growing consistently.

The largest destination market

Despite a global economic slowdown last year, climate-related revenues of companies are rising with a pivot in Asia-Pacific. The region has emerged as a hotspot for climate products and services as it is the largest market for the majority of renewable solutions and for key themes in the energy efficiency sector.

Our latest analysis suggests that Asia-Pacific has in fact overtaken the Americas to emerge as the largest market for climate-related products and services. Based on the available geographical breakdown of 2021 revenues provided by the companies in our climate solutions database, Asia-Pacific is the largest destination market with a 36 per cent market share.

The increasing share of the region as a destination for climate solutions demonstrates a gradual shift and positive momentum in climate integration. This also potentially suggests rising political and regional commitment towards climate goals.

Demand across themes

Asia-Pacific is the largest market for key renewable climate themes like hydro, solar, and wind. Almost two-thirds of global revenues for the solar climate theme and nearly 42 per cent of global wind revenues came from Asia-Pacific.

We believe the strong demand for key renewable solutions, particularly solar, in the region can be attributed to high energy installation targets set by the major countries in the region over the past few years. Asia could account for nearly 55 per cent of global solar installations by 2025.

Furthermore, the region is also the biggest market for key themes in the energy efficiency sector, particularly those associated with clean transport in our database. This comprises companies that offer efficient transport solutions including low/zero-carbon vehicles, mass transit systems, transport substitution technologies, and pedal power. The region accounted for more than half of revenues attributable to the transport efficiency theme in 2021.

Asia-Pacific also accounted for almost half of the globe’s buildings efficiency climate revenues in 2021. Companies in this are defined as those that design, develop, manufacture, or install efficient building systems and solutions that are related to lighting, insulation, HVAC (heating, ventilating, airconditioning), smart building, and automation systems.

Given a global drive towards the development of smart cities globally, the number of companies that offer related solutions has been rising. Furthermore, the sector continues to see rising investments driven by various government-led incentives to promote green buildings as well as the increasing inclination of real estate developers and management companies towards development of buildings with energy-efficiency certifications.

Given that the region offers superior economic growth, is supported by favourable demography, and has rising investments in clean solutions, we expect Asia-Pacific to continue to grow its climate revenue share over the coming years.

John F. Kennedy once said, “Our most common link is that we all inhabit this small planet. We all breathe the same air. We all cherish our children’s future”. His words are still relevant today. If we want to create a better world for our children – a net-zero world where our shared air is more breathable – then we must keep up the pressure for suitable solutions that lower emissions and make sure our investments keep the planet blue and green for our children.