Southeast Asia’s rapidly expanding cities and industries rely heavily on fossil fuels for energy. But if no further action on climate change is taken, losses to the region’s GDP could be roughly double the global average by mid-century.[1]
For Singapore, rising heat levels alone hold profound implications. The National University of Singapore estimates productivity losses could reach $2.22 billion by 2035.[2]
That is before accounting for increased storm or drought intensity, or accelerating sea-level rise.
Meanwhile, the trilemma of energy security, affordability and sustainability remains a core challenge.
“Sifting through the complexities of physical risks and energy transition to find clear opportunities has become a material issue for investors,” said Anthony Chan, Vice President, MSCI APAC ESG and Climate Research.
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Anthony Chan, Vice President, MSCI APAC ESG and Climate Research
Divestment from high-risk sectors or companies is a potential defensive strategy. But it may not always be possible or productive. A more balanced approach is to integrate climate risk into investment and stewardship efforts while exploring opportunities in transition and adaptation.
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MSCI’s Sustainability & Climate Trends to Watch 2025 report offers insights for investors seeking that balance.
Investing amid escalating physical risks
As highlighted in the trends report, intensifying physical risks may push up insurance premiums and shrink coverage availability for businesses and homeowners in highly insured regions, such as Europe and the US.
Southeast Asia faces similar issues, but its overall lower insurance penetration rate may exacerbate difficulties.
Higher-risk properties are likely to draw rising insurance premiums, hiking costs for companies. On the other hand, the high-risk properties could become uninsurable, potentially affecting property values and creating a drag on the real estate market. This could then pose wider risks to financial stability and the economy.
Property and infrastructure owners can take steps to adapt and limit risk exposures, such as installing flood defences, elevating building floors or adding backup power systems. The trends report finds that globally, some companies in the utilities sector have used green bonds — traditionally used to fund renewable energy and efficiency projects — to finance such resilience measures.
By 2023, 18% of utilities’ green-bond proceeds[3] supported adaptation measures. While examples are currently limited in number, they may hint at growing investment opportunities.
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Investors can also look beyond major infrastructure projects. Companies providing goods and services that help prevent, prepare for, or recover from climate hazards may also benefit from rising adaptation spending. The trends report highlights that the MSCI Sustainability Institute worked alongside the Global Adaptation and Resilience (GARI) Working Group to identify over 800 public companies offering such solutions.
According to Chan, more than 50 ASEAN-domiciled companies were within this group, providing goods and services spanning from construction and infrastructure development to smart water solutions.
“While ASEAN companies’ overall exposure to climate solutions remains low, at just over 2% of total revenues, opportunities may grow as more companies address climate risks,” he added.
Investing in energy transition
Global investors are realising that their net-zero portfolio targets may be slipping out of reach without faster progress in the real economy. To keep pace, many are shifting focus to key energy transition themes — looking beyond risk mitigation to seize opportunities in renewables, green mobility or energy storage.
Private markets are emerging as fertile ground for these.
As of June 2024, publicly-listed low-carbon solution providers had a market cap of US$4.4 trillion ($5.9 trillion) — nearly 23 times larger than their private-market counterparts, which held a net asset value of US$189 billion. However, private investments have been growing faster, with a five-year compound annual growth rate (CAGR) of 17.0%, versus 11.9% for public markets.
Report data also suggest that globally, private low-carbon investments have delivered cumulative returns of over 120% in the past five years, outpacing public market counterparts. Similar observations were made for Asia-Pacific.
In public markets, the consumer discretionary sector accounts for about 30% of the value of climate solutions, led primarily by electric vehicles. Asia-Pacific is a leader in EV and component manufacturing (12% of investments) compared to North America (2%) and Europe (1%).
In private markets, utilities dominate, with over 50% of value concentrated in electricity generation. Again, Asia-Pacific is formidable, accounting for 14% of private-fund net asset value (NAV) in renewable energy, green mobility, and energy storage[4].
Carbon markets: quality over quantity
Another investment area the report highlights is the voluntary carbon market (VCM) and its role in channelling private financing into climate solutions.
Over the past decade, Southeast Asia contributed approximately 10% of total carbon credit issuances globally.
The report highlights an improving trend in carbon-project integrity globally, based on the MSCI Carbon Project Rating. These observations also hold for Southeast Asia, where the share of new registered projects in low-rated bands (CCC and B) is declining.
Globally, companies using carbon credits from 2017 to 2022 outperformed non-users in key climate metrics, such as transparency in disclosing emissions, credibility of climate targets, and rate in reducing emissions.
Asia-Pacific firms that used carbon credits cut Scope 1 and 2 emissions at a median annual rate of 2.4% compared to 0.6% for nonusers over the same period.
With COP29 having finalised a global carbon trading framework and new demand sources rising, VCMs may be at an inflection point. Depending on supply and demand scenarios, the market value could climb from US$1.5 billion in 2024 to between US$7 billion and US$35 billion by 2030.
Looking ahead
The convergence of Southeast Asia’s physical climate risks, energy transition ambitions and carbon market innovations unfolds against a tightening regulatory framework. Policymakers and regulators across the region are driving transition efforts with a laser-focused agenda to improve disclosure standards and enhance market transparency.
Meggin Thwing Eastman, MSCI’s Global Head of Sustainable Finance Research, highlights 2025 as a pivotal year. “Adapting to these shifts while integrating robust sustainability strategies will be critical for mitigating transition risks and seizing emerging opportunities,” she notes. Investors that are adept at managing these exposures while seeking transition and adaptation opportunities could stand to gain an edge as the region’s sustainability landscape evolves.
Meggin Thwing Eastman, MSCI Global Head of Sustainable Finance Research
Download the MSCI Sustainability & Climate Trends to Watch report for 2025.
[1] https://www.swissre.com/risk-knowledge/mitigating-climate-risk/economics-of-climate-change-impacts-for-asia.html
[2] https://medicine.nus.edu.sg/news/heat-stress-causes-lower-fertility-productivity-and-reduced-cognitive-capacity-project-heatsafe/
[3] based on MSCI ESG Research’s green-bond data feed
[4] as of Q2 2024
