Going green doesn’t always mean going big: ‘Also pay attention to small and medium-sized players’

But there remains a huge financing gap, particularly among emerging markets which have less capacity to tap global capital.

Southeast Asia needs around $200 billion a year to finance its green transition, estimated Mian Ying Chen, head of industries at UOB’s sector solutions group, at the Fortune Innovation Forum in Kuala Lumpur on November 17. Yet only $50 billion to $60 billion in investments are currently made each year.

Chen added that green investments cannot focus exclusively on larger companies. “It is very important for us to also pay attention to small and medium-sized players,” she said. These companies play a key role in global supply chains and are particularly abundant in emerging regions like Southeast Asia.

In October, the Association of Southeast Asian Nations (ASEAN) opened a center to facilitate the green transition in micro, small and medium enterprises (MSMEs).

“ASEAN’s green transition is primarily financed by debt – a lot of debt,” she said, arguing that while banks are “increasingly more creative” in how they structure loans, other private investment is also needed to complement them.

Global companies have begun to downplay their sustainability programs, in part due to macroeconomic uncertainty, growing demand for potentially dirty resources, and political hostility in countries like the United States.

Yet investing in the green transition benefits businesses in the long term, said Mohd Faris Adli Shukery, managing director of Johor Plantations Group Berhad (JPG), a Malaysian palm oil company. This allowed his company to sell its products in more regulated markets (e.g. Europe), thereby improving its profitability.

“We were able to capture premiums, rather than just commodity prices, which allowed us to perform better in terms of financial results,” said Mohd Faris.

JPG has invested in converting biogas (an agricultural by-product) into biomethane, which can be used to replace natural gas in energy production. The company is also building an integrated sustainable palm oil complex, powered by a renewable power plant.

These sustainability initiatives have boosted investor appetite for JPG shares, said Mohd Faris. He argued that beyond meeting environmental and social requirements, these initiatives also help businesses produce results, remain profitable and sustain their existence.

JPG listed on Bursa Malaysia, the country’s stock exchange, in July 2024. Shares have risen 80% since then, although the benchmark FTSE Bursa Malaysia KLCI has remained stable.

Environmental activists have previously targeted the palm oil industry due to, among other things, deforestation concerns. Since then, the industry has attempted to adopt measures to improve its environmental performance through measures such as the Roundtable on Sustainable Palm Oil.

“Even though people are very critical of the palm oil industry, the response from investors has been very, very encouraging. In fact, we have received a lot of response from foreign markets, including Western markets, which are subscribing to our actions,” Mohd Faris said.

With better informed and more socially conscious consumers, green investments are now a necessity, not a luxury.

“This generation [of consumers] are more aware of the products they consume, whether they come from sustainable sources or not, [and if] they are circular,” said UOB’s Chen.

Industry giants like JPG have a role to play in ensuring that smaller players are not left behind, said Mohd Faris. JPG has a smallholder inclusion program, where the company helps small plantations “practice good agronomy” and obtain sustainable palm oil certification.

Financial institutions such as banks also play a key role in catalyzing ASEAN’s green transition, Chen said. “We ask our customers: ‘What are the risks associated with the transition? How can we help you?'”