Investing in Asia’s Just Energy Transition: A People-First Approach

In this episode of Impact Investing Musings, Varad Pande, Partner at BCG, dives into the critical role of climate finance in enabling Asia’s just energy transition. With Asia-Pacific accounting for 50% of global emissions, Varad unpacks the region’s unique challenges and opportunities in moving toward sustainable energy solutions. He also shares key insights from the People-Centric Energy Transition in Asia Pacific report by AVPN and BCG, highlighting the importance of prioritizing workers, communities, and SMEs in the transition. 

Join us as we explore the strategies, funding mechanisms, and collaborative approaches needed to drive equitable, people-first solutions for Asia’s energy future.

Links:
Download the People-Centric Energy Transition in Asia Pacific report by AVPN and BCG here: https://web-assets.bcg.com/db/0a/d33c984640fc9c72b6a2a4ef1bbb/bcg-avpn-final-publication-people-centric-energy-transition-in-apac-vupload-1.pdf

Transcript

SPEAKER_01 0:00

We need to move from a primarily fossil fuel world to a primarily renewable energy world, right? This transition is not just a climate and an energy question. It is a social question. There are people who will lose their jobs in this process. It has to make sense for people at large.

SPEAKER_00 0:17

Welcome everyone to Impact Investing Music, a podcast series where we delve into the ever-evolving world of impact investing and aim to connect, educate, and share knowledge to drive capital towards impact. I'm Vikas Aurora, Chief of Impact Investing at AVPN.

SPEAKER_02 0:34

And I'm Jackie, your host. When I think about climate finance, I think about renewable energy, technology, but what about people? In this episode, I discuss with Varad Pandey, partner at PCG, on the importance of prioritizing workers, communities, and SMEs as a people-centric approach to a just energy transition in Asia Pacific. Let's dive in.

SPEAKER_03 0:56

You must have seen so much change over the last decade or so working in this field. Maybe you can give us an overview of what you mean by climate finance.

SPEAKER_01 1:05

So, look, I always say that finance is the elephant in the room in the climate discourse. Because it's really the investment that will drive action. And I would say there are three parts to this. We need to finance preventing the worst effects of climate change by reducing our emissions, which is called mitigation. We need to also address what is likely to already happen because you're already locked into a lot of harms, and this is called adaptation and resilience finance. And then lastly, we have to also pay for the harms which have already happened. And that's called the whole topic of loss and damage finance, right? And these are all different categories of climate finance, and each of these are important. The problem we are facing is the quantity problem, and then there's an allocation problem. Most of the money, 90% of the money, is only going to mitigation. But we also have to get more money flowing to adaptation and resilience and uh loss and damage. The global south is only getting 15% of climate finance today. The global south is where the growth is, where consumption is going to increase, where investments are going to be made for the next 30 to 50 years, India, Vietnam, China, Indonesia, the choices these countries will make today is actually going to determine the arc of whether we're able to achieve our climate goals or not. So we need a drastic increase in capital to go to the global south.

SPEAKER_03 2:29

What do you think is causing that, or what do you see is the biggest challenge that these investors might have directing or mobilizing that capital in the space? Is it the regulatory challenges? What's been your experience?

SPEAKER_01 2:40

So look, at the highest level, there is a mindset change that we all have to do. But from an economic perspective, the big uh question that commercial investors uh face is that there is a green premium that we need to bring down. So we need government effort to bring down the green premium. We need a carbon price. It's a very important piece because that's what will change incentives to act faster. We need advanced market commitments, which is buyers coming together and saying we will buy uh large amounts of something if it gets built so that then investors and businesses make investments. And there are some coalitions which have come up to do that, like the first mover coalition. And then lastly, we need blended finance, and this is a topic I know AVPN does a lot of work on, where we need to bring together concessional capital and commercial capital in creative ways to make more projects financially and commercially viable so that the investments we need can actually happen much faster.

SPEAKER_03 3:40

When we do talk about the energy transition, there's a topic that comes up a lot called the just energy transition. For those that are perhaps less familiar, can you explain what that means, especially for here in Asia?

SPEAKER_01 3:51

At the highest level, quite straightforward. We need to move from a primarily fossil fuel world to a primarily renewable energy world, right? Uh, and that this transition, and I would even call it a transformation, it's not a transition, it's a transformation that is needed, is not just a climate and an energy question. It is a social question. There are people who will lose their jobs in this process. And that's why the phrase just was added to the energy transition phrase, that it has to make sense for people at large. Now, Asia is really at the forefront of this, right? Because if you think about most Asian economies, I think 70% plus of our energy mix is uh is from fossil fuels. That needs to go down to a very small percentage uh over the next 30, 40 years, while at the same time growing our energy. These are all growing economies in Asia, right? So we're also growing, so it's a huge challenge that we are facing. We have done some analysis as part of the AVP and BCG report, which was launched uh two weeks back at New York Climate Week, that less than 1% of funding on energy transition is today going to people-centric topics.

SPEAKER_03 4:51

Yes, I was reading the report just before this call, you know, that the people-centric energy transition in Asia Pacific, the now, the how, and the future. Perhaps you can share what some of the highlights and the findings were from this work that you've been doing.

SPEAKER_01 5:04

You know, we need to disaggregate the problem, focus on the right segments. You know, we discuss workers, communities, consumers, and SMEs. These four distinct groups, we need to think of them differently. We need to think of the risks that they face, and we need to think of the opportunities. For example, for workers, we are expecting 14 million new green jobs in Asia by 2030. That's a huge opportunity. For communities, especially those who've been dependent on fossil fuels, the green transition is an opportunity to diversify and become more resilient. For consumers, there are cost savings potentially. Better public health by not having to uh breed polluted air, which can come from cars and power plants, etc. So improvement in quality of life. For SMEs, they can be cost savings if they adapt uh and adopt energy saving technologies and perhaps potentially leapfrog and become more competitive. We've identified seven stakeholders who are quite critical to make this change happen, all the way from the government, of course, industry. We've called out standard setters because we need many more rules of uh how to do this well. The role of NGOs and uh community-based organizations, philanthropies, uh, multilateral development banks like the World Bank and the ADB and the development finance institutions, and lastly the private financial institutions. So there's a role for these seven different funder types, and the report goes into a lot of detail about what they need to do, how they can engage in this.

SPEAKER_03 6:28

Maybe looking at all of these different stakeholders, how do you feel like they can synergize or what is needed to help them with collaboration and kind of close this funding gap?

SPEAKER_01 6:37

We all know this is a difficult problem. None of us have a ready answer, but by coming together and creating a partnership, we can perhaps make a dent on this over the next decade. So we are setting up a platform called the Ascent platform, which is really about taking this people-centric energy transition agenda in Asia forward. Uh, and we are really excited about building this out over the next 12 to 18 months in partnership with AVPN.

SPEAKER_03 6:59

Oh, congratulations on that. Perhaps for the investors that are here listening, you know, when we talk about people-centric solutions, what do you think can be done to make some of these ideas more investable?

SPEAKER_01 7:09

I think firstly, we need to create a much better taxonomy of what we mean by people-centric solutions. And one of the first activities we want to do as part of the Ascent platform is to create a repository of people-centric transition solutions by looking at examples from across Asia. Step number two is we need to create some sort of mechanism for investors to figure out whether these are a good fit for us or not. We keep coming back to this, but we need to find innovative funding structures so that we can create uh models that work for different types of types of funders, right? Just as an example, in the Philippines, we're doing a lot of work right now on adaptation resilience financing, where we are trying to bring together commercial investors, local companies, and development finance institutions from outside, right? And the and the key is to create a structure that works for all of them. So we need innovative financial structuring that makes it easier for investors to come in.

SPEAKER_03 8:01

I mean, as someone that's working so closely with all kinds of stakeholders, you're working with the investors, you're also working on the government side, you're working with philanthropic organizations. What do you feel the mood is on the ground right now? Are people excited about these opportunities when we talk about the people-centric ideas, or are they nervous? Are they worried about the challenges, frustrated even?

SPEAKER_01 8:19

Well, it's a great question. And when I go to events like New York Climate Week or the COPS, the good news is everybody is on the table. When I was in the government and doing climate negotiations 15 years ago, it was not the case. There were negotiators and then there were some people protesting outside from, you know, civil society and nonprofits. Today, everybody is on the table talking about this, taking it seriously. It's a CEO level conversation, a head-of-state level conversation almost every table. That's the good news. But we need to move much faster from rhetoric to implementation. It's a problem which is unlike any other problem we faced as humanity, right? One, it's an existential threat. We are way past the red line, according to many scientific analysis. And therefore, what we need is almost a fundamental retooling of our way of life and in a very short span of time. And so we need to channelize the best of human ingenuity, the best of our spirit of cooperation if we are to tackle the most existential problem we have faced as humanity. We can all be part of the solution if we put our mind to it. The 2020s is a decisive decade, right? So I hope to see a lot more action on climate finance, the number, you know, 5x. If we can't make it five times, it can we make it at least three times by the reach time we reach 2030? Can we have an ambitious, not just goal, but beginning to see the emissions curve bend? Uh it's still going up. We need to we need to bend it. I hope that'll happen in the 2020s. And lastly, I think, you know, to the point of adaptation and resilience. I hope we will have much more robust national adaptation plans and implementations because the effects of climate change are now upon us. And this year has been the not just the hottest year in record, but also with the most number of uh climate-induced uh extreme events. So uh we need to be prepared. Uh, while we plan to be a net zero world eventually, we need to be prepared for the challenges we face here and now. And so I'm hoping that five audience remaining of this decade can see that decisive action and we can change the trajectory of where we are headed.

SPEAKER_03 10:18

Amazing. That's a perfect place to end. Thank you so much for your time. Uh it was wonderful speaking to you.

SPEAKER_01 10:23

Uh, real pleasure. Thank you so much for inviting me and engaging on this.