A Possible Blueprint for ASEAN’s 2025 Climate Finance Strategy

Finance is critical to driving the transition to a low-carbon world. Without it, ambitious targets risk becoming empty aspirations. With it, even developing economies can grow sustainably by affordably deploying green energy, scaling breakthrough innovations, and phasing out fossil fuels. At its core, finance grounds climate action in economic development, empowering economies to climb the ladder fuelled by clean, affordable, and reliable energy solutions.

In 2024, ASEAN reiterated its commitment to climate action, yet meaningful progress hinges on significant external support. Financial flows towards the region’s climate priorities remain constrained, hampered by fiscal limitations and bottlenecks. For instance, Indonesia and Vietnam’s Just Energy Transition Partnerships (JETPs), initially heralded as transformative, are mired in criticism over conditionality and social impact. In Indonesia, concessional finance and grants cover less than half of the Comprehensive Investment and Policy Plan (a strategic plan for the JETP rollout) leaving the region’s largest economy with a daunting 70 per cent financing gap.

Compounding these challenges are external pressures. The incoming Trump administration in the US could roll back critical government-to-government (G2G) funding streams, withdraw from the Paris Agreement, and further undermine global ambition, reversing years of progress on climate financing goals. Domestically, high borrowing costs and fiscal volatility constrain ASEAN’s emerging markets.

Inaction is not an option, as ASEAN is expected to be the world’s fourth-largest economy by 2030. Bridging the climate finance gap is essential to securing a sustainable development trajectory for the region. This urgency aligns with the opportunity presented at COP29, where an ambitious target of mobilising US$300 billion annually for developing nations by 2035 was announced. For ASEAN, this goal aligns with its 4.7 per cent gross domestic product (GDP) growth forecast, fuelled by expanding trade and manufacturing. This projection, coupled with the funding pledge, presents a critical opportunity to secure climate finance when the region’s rapid expansion demands sustainable solutions.

The International Energy Agency estimates that Southeast Asia will need US$7 billion in concessional finance between 2026 and 2030 to meet net-zero targets by 2050. ASEAN’s economic and sustainable future depends on three strategic pillars that will define its climate finance strategy in 2025 and beyond.

First, ASEAN must aggressively prioritise blended finance to bridge a key disconnect: developers face challenges securing funding for clean energy projects, while banks report regulatory uncertainties and a lack of viable investment opportunities despite having sufficient capital. Blended finance fosters collaboration among regulators, developers, utilities, and financiers, aligning public and private interests. It can thus “de-risk” investments by equitably distributing risks and returns via innovative structuring approaches involving public instruments like guarantees, private investments, and concessional finance from multilateral development banks (MDBs), and philanthropic grants. Success requires active collaboration from commercial banks and lending institutions, with robust government support to effectively mobilise resources. A notable example is the Singapore government’s commitment of US$500 million in concessional funding for the Financing Asia’s Transition Partnership (FAST-P) at COP29.

Bridging the climate finance gap is essential to securing a sustainable development trajectory for the region.

Second, government-backed regional partnerships must expand. Southeast Asia’s geography, often viewed as a limitation, can be its strength. It offers a unique opportunity to develop tailored regional energy infrastructures that address the specific needs of rapidly growing industrial and population hubs. The 2023 G2G pilot between Singapore and Indonesia, importing 300 megawatts of floating solar power, showcases this potential — it could evolve into a multilateral grid with political and technical alignment. The Lao PDR-Thailand-Malaysia-Singapore Power Interconnection Project has demonstrated cross-border energy trade feasibility, while recent agreements among Brunei, Indonesia, Malaysia, and the Philippines further highlight the potential for energy integration.

Beyond grids, ASEAN can further embrace innovative architectures such as setting up a dynamic regional carbon market to enable cross-border corporate and financial market participation. Strategically linking buyers and sellers across mainland and maritime Southeast Asia and key financial hubs will drive investment, scalability, and impact.

Last, aligning economic incentives between coal owners and transition agents (such as governments, MDBs, and philanthropies), is crucial for the early closure of coal-fired power plants (CFPPs). Private and non-concessional loans and catalytic mechanisms like transition credits (credits arising from emissions reduction through retiring CFPPs early and replacing them with cleaner energy sources) can facilitate this. Indonesia and Vietnam’s commitments to phase out coal by 2040 are admittedly ambitious but could generate some political momentum to attract financial support. However, significant obstacles persist, including weak regulatory frameworks, entrenched interests, and broader political-economic challenges in Indonesia.

A bright spot, the Filipino 246MW SLTEC coal plant exemplifies the transition from coal to clean energy. Supported by the Coal Asset Transition Accelerator and the Asian Development Bank’s sustainability-linked loan, the initiative will replace coal with solar, preventing 277,000 tonnes of emissions annually by 2029. Scaling those pilots across coal-dependent economies could attract significant private investment and drive growth fuelled by clean energy.

However, the window for decisive climate action is closing rapidly.

Despite headwinds, Southeast Asia has the agency and momentum to lead in this pivotal moment. Energised by its leadership, the region can take a more active role in 2025 and beyond to drive its energy transition. It can be a bold innovator, harnessing public-private financing, championing multi-stakeholder partnerships, and reimagining the future of fossil assets, not just a recipient of grants. By embracing these strategies and prioritising equity, governance, and nature-based solutions for mitigation and adaptation, ASEAN member states can not only bridge the climate finance gap but also chart a path towards sustainable growth.

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