As Southeast Asia confronts escalating climate impacts due to its geographical and economic vulnerabilities, a recent study by the Asia Competitiveness Institute (ACI) examined the public climate investment landscape in Southeast Asia. ACI researchers found that each newly enacted climate policy is associated with a 2.2% increase in sustainable investments. These findings underscore the importance of robust regulatory environments in attracting the necessary funding for the green transition.

The rise in awareness of the impacts of climate change has prompted governments to develop targeted climate legislation aimed at a more sustainable future. This legislative push is further bolstered by intensified climate diplomacy that results in a marked increase in climate legislation worldwide (see Figure 1).

Southeast Asia is particularly vulnerable to climate change. The Global Climate Risk Index, which assesses countries based on their exposure to extreme weather events, ranks Myanmar, the Philippines, and Thailand among the top 10 economies most affected in the past decade. This vulnerability arises from the region’s extensive coastline and low-lying areas, which are associated with heightened risks of sea-level rise and coastal hazards. Furthermore, the frequent occurrence of extreme weather events exacerbates economic vulnerabilities in climate-sensitive sectors such as agriculture and tourism.

Recognizing the enormity of the challenge, ASEAN countries have responded by enacting climate legislation. The authors utilized the Climate Change Laws of the World Database and computed the number of national climate legislations for ASEAN countries. Figure 2 illustrates the progression of climate policy enactment over time across ASEAN, with countries with heavy exposure to coastal lines and maritime trade, such as Vietnam, Indonesia, and Singapore emerging as leaders in this effort.

How has this change in the legislation landscape impacted public sustainable investment in Southeast Asia? The authors next extract information from the International Renewable Energy Agency which provides various data on renewable energy investment flows. These investments are heavily financed by public sector, for example, Laos had a substantial increase in sustainable investment due to the Pak Lay hydropower project, financed by China’s Export-Import Bank.

By controlling for various confounding factors through a comprehensive set of fixed effects in a regression of 160 unique ASEAN country-donor combinations from 2000 to 2020, the authors find that the introduction of each new climate policy is associated with a 2.2% average increase in the share of renewable energy investments across ASEAN. This magnitude is quantitatively large and suggests that comprehensive climate legislation could significantly help ASEAN meet their energy transition goals.

The study concludes that national climate legislation plays a crucial and positive role in attracting essential investments in renewable energy. Comprehensive climate legislation signals a nation’s commitment to renewable energy development and the robustness of its regulatory environment. This finding has significant policy implications, urging national governments to take climate legislation seriously in order to attract public renewable energy investments.

By XU, Ni Scarlet

Researchers: GUPTA, Shubhangi and BANH, Thi Hang