SE Asia’s Climate Finance Challenge Is Moving From Net Zero Ambition to Credible Transition Execution

SINGAPORE, July 29, 2026 – Investors across Asia are moving into a new phase of climate action, one that is less about announcing net zero ambitions and more about proving that portfolios, capital allocation, stewardship and policy engagement can support real-economy decarbonisation.

That shift is especially relevant for Southeast Asia, where fast-growing economies, high-emitting sectors, energy security priorities, industrial expansion and nature-related risks all converge.

The Asia Investor Group on Climate Change’s State of Investor Climate Transition in Asia 2026 report argues that the region’s investor climate conversation has entered an “implementation phase”. The report is based on a desktop review of 240 significant investors across Asia and the Middle East, including 116 asset owners and 124 asset managers, with a median AUM of around US$110 billion. It is supplemented by survey responses from 59 investors.

For Southeast Asia, the findings point to a clear message: climate finance is gaining momentum, but the challenge now is to translate commitments into investable transition pathways across power, grids, storage, transport, property, nature, agriculture and industrial systems.

Climate Risk Is Now a Financial Risk

The report finds that climate change is now widely recognised as a financial risk and opportunity by investors across Asia. Among all investors reviewed, recognition of climate change as a financial risk or opportunity rose from 70% in 2023 to 79% in 2025. Among AIGCC members, recognition reached 100%.

This matters for Southeast Asia because the region is exposed to both sides of the climate equation. It faces high physical climate risks, including heat stress, flooding, sea-level rise and extreme weather, while also requiring major investment in energy transition, low-carbon infrastructure and climate resilience.

The report says setting net zero targets without interim targets and credible transition plans exposes investors to reputational and implementation risk. It also notes that the gap between commitment and execution remains a key challenge.

That is a particularly important warning for Southeast Asian markets. Many economies in the region still depend on fossil fuels, carbon-intensive infrastructure and hard-to-abate sectors, even as they seek to attract green capital and remain competitive in global supply chains.

The next phase of investor climate action in Southeast Asia will therefore need to be more practical. It will need to focus on what investors finance, how they engage with companies, how they assess transition risk, and whether they can support decarbonisation without simply withdrawing capital from emerging markets.

Net Zero Commitments Are Rising, But Execution Remains Uneven

Across all investors in AIGCC’s review, net zero portfolio emissions commitments increased from 40% in 2023 to 49% in 2025. Among AIGCC members, the figure rose from 70% to 80% over the same period. Asset managers remain ahead of asset owners, with 56% of asset managers having full or partial net zero commitments in 2025, compared with 41% of asset owners.

For Southeast Asia, this raises a critical question: how can investors with net zero commitments remain engaged in markets where transition pathways are complex, policy signals vary, and high-emitting sectors remain central to growth?

AIGCC’s report indicates that investors are moving beyond exclusion strategies and passive divestment. It says investors are increasingly making intentional capital allocation and stewardship decisions to support the real-economy transition.

This framing is important for Southeast Asia. Blanket exclusions from fossil fuel-heavy or high-emitting sectors may reduce portfolio emissions on paper, but they may not reduce real-world emissions if assets are simply transferred to owners with less climate accountability.

A more credible transition approach would require investors to identify companies with viable decarbonisation pathways, finance transition-enabling infrastructure, support better disclosure, and use stewardship to push for measurable emissions reductions.

Capital Is Moving Towards Climate Solutions

One of the strongest signals in the AIGCC report is the increase in investor commitments to climate solutions and transition finance.

Among all investors reviewed, the share that had committed to increasing investments in climate solutions or transition finance rose from 13% in 2023 to 48% in 2025. Among AIGCC members, it increased from 18% to 68%. Asset owners rose from 12% to 47%, while asset managers increased from 12% to 48%.

For Southeast Asia, this is where opportunity and bottleneck meet.

The region needs large-scale investment in renewable generation, transmission, storage, resilient infrastructure, green buildings, low-carbon transport, industrial decarbonisation and nature-based solutions. At the same time, many projects face challenges around policy certainty, bankability, grid readiness, offtake risk, currency risk and the availability of blended finance.

AIGCC’s survey shows that investors are prioritising areas that align closely with Southeast Asia’s transition needs. In 2025, energy storage was the most frequently cited climate solution investment opportunity, selected by 82% of respondents. Renewable generation was selected by 71%, renewable transmission by 60%, green infrastructure by 58%, green property by 58%, low-carbon transport by 51%, nature-based solutions by 49%, low-emission fuels by 40%, and green manufacturing by 40%.

These priorities map directly onto Southeast Asia’s energy and industrial transition.

Energy storage is essential for integrating more solar and wind into grids. Renewable transmission is critical for connecting generation to demand centres. Green infrastructure and property are particularly relevant in rapidly urbanising markets. Low-carbon transport will matter as cities expand and EV adoption rises. Nature-based solutions are important in a region with major forests, wetlands, peatlands and coastal ecosystems.

Barriers Are Still Material

Despite rising interest, barriers to climate investment remain significant.

AIGCC’s 2025 survey found that the most frequently cited barriers to climate solution and climate-aligned investments included lack of risk-return opportunities at 56%, client mandates or demand among asset managers at 53%, unclear definitions and frameworks at 49%, lack of tools or data at 47%, regulatory uncertainty at 44%, and government incentives at 42%.

These barriers are especially relevant in Southeast Asia.

The region has strong climate investment potential, but not every opportunity is immediately investable for institutional capital. Renewable energy projects may face grid constraints, unclear tariff frameworks or delays in permitting. Nature-based solutions may face challenges around measurement, permanence, land rights and revenue models. Transition finance for industrial companies may require clearer taxonomies, credible company transition plans and policy support.

The report’s message is therefore not that climate finance momentum is lacking. Rather, it is that climate capital needs stronger enabling conditions.

For Southeast Asia, that means clearer regulation, stronger disclosure standards, better data, credible taxonomies, blended finance structures, and policy frameworks that make transition projects commercially viable.

Nature and Deforestation Are Central to Southeast Asia’s Transition

AIGCC’s report makes an explicit Southeast Asia link in the area of nature and deforestation.

It notes that deforestation disclosure has increased from 23% to 30% over three years, reflecting growing scrutiny of land-use change and forest-related risks across sectors such as agriculture, food and materials. The report adds that investor exposure to deforestation risk is particularly significant in Southeast Asia, given the region’s role in palm oil, agriculture and extractives.

This is a critical point for CarbonWire readers.

For Southeast Asia, climate transition cannot be understood only through energy. Land use, forests, commodities and biodiversity are also central to the region’s emissions profile and transition risks.

Palm oil, rubber, timber, agriculture, mining and extractives are deeply linked to trade, livelihoods and national development. Investors therefore need approaches that can identify and manage deforestation exposure, support sustainable commodity production, and engage companies on land-use practices.

The report says nature considerations are increasingly being integrated into Asian investor thinking through risk assessments, investment policy and stewardship priorities.

This suggests a broader transition lens is emerging. Climate risk is no longer just about portfolio carbon intensity. It increasingly includes physical climate risk, biodiversity, deforestation and Just Transition considerations.

Physical Climate Risk Becomes a Core Pillar

The report says physical climate risk has emerged as a core pillar of transition planning, with disclosure among AIGCC members more than doubling from 29% to 61% over three years.

This is especially relevant for Southeast Asia, where climate impacts can directly affect infrastructure, agriculture, real estate, supply chains and labour productivity.

For investors, this requires more than emissions analysis. It requires portfolio-level assessment of exposure to heat, flooding, storms, drought, sea-level rise and supply chain disruptions. It also requires closer examination of how investee companies are adapting their operations and capital expenditure plans.

In Southeast Asia, physical risk and transition risk are deeply connected. Renewable energy, grids, ports, logistics hubs, manufacturing zones, plantations and cities must all be assessed not only for decarbonisation potential, but also for resilience.

Stewardship Is Moving Beyond Company-by-Company Engagement

AIGCC’s report also shows that stewardship is becoming more systemic.

The report notes that investors are moving beyond high-level engagement to clearer examples of engagement outcomes, with the number of AIGCC members reporting engagement case studies rising from 23% to 30%.

It also introduces system stewardship as an important metric. In 2025, 31% of AIGCC members demonstrated system stewardship through sector or cross-sector engagement, compared with 11% across all investors.

This matters in Southeast Asia because many climate challenges cannot be solved through isolated company engagement alone.

Power-sector transition depends on grid policy, tariffs, planning and public-private coordination. Industrial decarbonisation depends on technology availability, finance, energy access and demand signals. Deforestation risk depends on land-use policy, supply chain traceability, certification systems and buyer behaviour.

System stewardship can therefore be particularly relevant to Southeast Asia. Investors need to engage not only companies, but also regulators, industry associations, banks, multilateral institutions and policymakers.

Policy Advocacy Is Becoming Part of Investor Climate Action

AIGCC’s report finds that disclosure of climate-related policy advocacy among AIGCC members has tripled over two years, from 19% to 58%. The report says this reflects growing recognition that investor climate action must extend beyond portfolio decisions to actively shaping the policy environment.

The report also shows that advocacy through investor organisations was the most common form of policy engagement, rising to 89% in 2025 among survey respondents. Public seminars and events reached 64%, private roundtables with regulators 64%, and policy consultations 49%.

For Southeast Asia, policy advocacy could be one of the most important levers for scaling climate investment.

Investors need clearer rules for transition finance, renewable procurement, carbon markets, grid access, disclosure, taxonomy alignment and nature risk. Governments, in turn, need private capital to support energy security, industrial competitiveness and decarbonisation.

AIGCC’s findings suggest that climate-aware investors are increasingly recognising this mutual dependence.

Thailand Case Study Shows Emerging-Market Transition Reality

The report includes a case study on Kasikorn Asset Management, a Thai asset manager with US$62 billion in assets under management as of February 2026. The case study says climate change is a material source of investment risks and opportunities in markets where high-carbon industries, economic growth imperatives and accelerating transition pathways converge.

KAsset’s approach is particularly relevant to Southeast Asia because it reflects the realities of an emerging market. The report says KAsset prioritises supporting credible corporate transitions over blanket exclusions, seeking to manage downside transition risks while positioning portfolios to benefit from decarbonisation, the energy transition and evolving policy.

This is an important model for the region.

Southeast Asia cannot decarbonise by simply cutting off capital to every high-emitting sector overnight. It needs transition finance that can help companies move from current emissions profiles towards credible lower-carbon pathways.

That requires data, engagement, targets, sector pathways and investment discipline. It also requires investors to distinguish between companies that are genuinely transitioning and those that are merely rebranding existing practices.

The Southeast Asia Takeaway

AIGCC’s 2026 report shows that Asian investors are making progress on climate integration, but the hardest work now lies ahead.

For Southeast Asia, the implications are clear.

First, climate risk is now a financial risk, but recognition must translate into portfolio action. Second, net zero targets need credible transition plans, interim targets and measurable outcomes. Third, climate solution investment is rising, but barriers around risk-return, definitions, data, regulation and incentives remain significant. Fourth, nature and deforestation must be part of the transition conversation, not a side issue. Fifth, investors need to engage policy systems, not just individual companies.

The region’s opportunity is substantial. Southeast Asia needs capital for renewable power, grids, storage, low-carbon transport, green buildings, resilient infrastructure, sustainable commodities and nature-based solutions. These are all areas investors are increasingly prioritising.

But to unlock that capital at scale, Southeast Asian markets will need stronger enabling frameworks, credible transition plans from companies, better climate data, and clearer pathways for emerging-market transition finance.

The climate finance conversation in Asia is no longer about whether investors should act. It is about whether their actions are credible, measurable and capable of supporting a real-economy transition.

For Southeast Asia, that is now the central test.