Why Asia's climate finance playbook isn't working
Power politics are reshaping investment
Asia’s climate finance community is suffering from growing pains. The idea that a coalition of institutional funders from the banking and investment world could leverage catalytic capital to get Asian companies onto a sustainable net zero pathway was ambitious in the right way in 2020. Some of the biggest global donors, from the Rockefeller and IKEA Foundations to the Bezos Earth Fund, and multi-lateral development banks led by the Asian Development Bank (ADB) in Asia have played leadership roles. A broad church of regional and country-level initiatives have been pushing climate solutions ever since, despite clear signs that capital markets are not cooperating.
Now, a re-set is desperately needed because the AI-driven growth of power demand and a rising focus on system stability means that the market politics of the power sector are shifting. Affordability, speed-to-supply, system security, and industrial policy choices will do more to shape climate options for Asian policymakers than net zero pathways over the next five years.
First, it’s important to ask why the key actors, investors, multilateral development banks, and policy experts are struggling to change with the times. It’s hard to overlook the aspirational websites that promise investors are moving from ambition to action. There’s a little less talk of coal phase-out and a lot more talk about grid financing. And almost everyone now agrees that there isn’t a one-size-fits all solution for Asia’s energy transition. This is a relief and may signal progress.
But conversations with participants in events at Singapore’s Ecosperity Week in May are a reminder that this is a community that is still reluctant to speak candidly about hard truths, even behind closed doors. Some of this reticence reflects understandable community dynamics. The philanthropic community, which has funded many of the key research and investor groups, is a hopeful place. Trust is the key currency, and no one benefits from finger pointing at a politically sensitive time.
Sadly, it is this reticence that robs the community of one of the truly good things that the finance world has to offer: vigorous unembarrassed debate about ideas that didn’t deliver and new ideas that might. Instead, to stay positive, the complex realities of capital markets are glossed over. Then, timelines are stretched and new tools and initiatives proliferate, often without the candid reflection that is crucial to better outcomes.
The goal of a good post-mortem isn’t a blame game. Those who come from the investment world know that letting the sales team beat up on the analysts at morning meetings doesn’t necessarily yield insight. But it is a reminder that we need to be more fearless about learning from the many initiatives that have already run their course.
That’s why it’s such a good time to consider why parts of the energy transition holy grail haven’t taken root in Asia since 2020 and what we can learn from the surprises—both negative and positive. It’s never comfortable to overlook mature gas- and nuclear-dependent markets like Japan and South Korea, or countries pivoting to renewables like the Philippines or Vietnam. But the two dominant energy transition case studies in Asia remain China and Indonesia.
The ones that got away
China, yes and…
It’s impossible to understate the importance of China in any discussion of the speed and shape of global energy transition. China accounts for one-third of all global carbon emissions and has added more new renewables capacity than the rest of the world combined.
But what’s most striking is how dramatically the analytical narrative has changed over the past five years. What was once a multi-layered story about reinforcing policy support for China’s net zero pathway, the imperative of managed coal phase-out, and market-based reforms to price in carbon has morphed into a new set of themes as China has emerged as the biggest winner of the “electrostate” sweepstakes, leading the world in the installation and production of cutting-edge renewables solutions.
Rather than pulling capital from coal and directing to clean, capital has been channeled to simultaneously support both a new coal buildout and relentless investment in renewable and EV capacity. As always, the big four state-owned banks are sensitive to a broad range of policy signals, many of which conflict. That makes it possible to see muscular narratives about clean technology dominance, energy security, and coal expansion co-exist without a coherent high impact entry point for engagement-oriented equity investors.
There’s always a lot to unpack in any discussion of China’s power sector, but the crucial takeaway for climate finance advocates is that new initiatives like green finance have reinforced a steady march toward “cleaner” energy in China but have not been a dynamic catalyst on their own. Power is a debt-driven sector in China, as it is most of the world. That means China’s power sector is more dependent on the health of China’s sovereign credit and the banking system than equity-focused engagement initiatives. And for China’s biggest energy sector investors, it’s the cost of balance sheet debt and regional grid management choices that matter the most, not marginal tweaks to independent power project (IPP) IRRs.
This doesn’t mean that there is nothing for climate-focused investors to “do” in China. But it’s crucial to first appreciate that China’s focus on carbon-intensity, not emissions caps means that growth is key to the story, and what’s “clean” in Shandong is not what you’ll see in Sichuan.
Oh Indonesia!
Few markets have offered up as much disappointment for climate advocates as Indonesia, one of the world’s most dynamic energy growth markets. As a destination for foreign capital, Indonesia is a market that matters less for equity investors than debt investors who benefitted from Indonesia’s steady track record of reform under the last Administration. By contrast, the outlook for equity investors is fragile now that the index companies, MSCI and S&P, have taken aim at governance problems due to low free float requirements at the Jakarta Stock Exchange.
But for climate advocates Indonesia is a coal story that has been a magnet for some of the best climate finance thinkers in Asian markets. This reflects Indonesia’s role as the largest global exporter of high-emitting thermal coal and its poor track record on power sector reform which has resulted in coal lock-in.
The Just Energy Transition Partnership (JETP) backed by leading Western developed countries as well as Japan promised Indonesia a package of US$20 billion of concessionary funding partially supported by funding from the private-sector members of the Glasgow Finance Alliance for Net Zero (GFANZ).
The centrepiece of the JETP programme in Asia was to be the deals to finance the early retirement of large-scale coal power projects. So-called energy transition mechanism (ETM) deals were meant to re-wire the Indonesia power sector by slimming the coal fleet and building strategic capacity for large-scale renewables projects.
That was the dream—and meaningful policy capacity was devoted to efforts to breathe life into the many policy and market variables needed to satisfy increasingly cautious funders. Unfortunately for Indonesian climate advocates, the slow collapse of the hallmark Cirebon coal phase-out deal was never taken seriously as a prompt for a strategy reality check. There have been noble efforts to talk up solar and grid investments, but there is a lack of political will compounded by a complex legacy of legal and regulatory roadblocks related to the rules on state loss.
This should not be a surprise. Indonesia is a market where the carrot and stick of the COP process, backed by GFANZ promises, has been put to a grueling test and failed. PLN, the state-owned power company, is the Indonesian power sector. Its financial problems are political—and foreigners under-estimate this at their peril. Meanwhile, corporate IPP investors from Japan, China, and South Korea, whether favouring fossil fuels or renewables, have always relied on their own strategic and national interests, and non-deal incentives to enhance and protect returns. Deals are often tied to other deals—like nickel and other commodities—and only occasionally count on narrow power sector policy pronouncements.
This complexity was papered over in the effort to turn the Cirebon ETM into a bankable deal. Credit should go to ADB and others who showed interest, but without more candour, ETM advocates may never learn to identify the market conditions that sank this deal and might favour less ambitious ones.
A forensic review would be healthy because there can be a time and place for creative thinking about smart opportunities in Indonesia. The JETP Secretariat produced a valuable library of research on options to improve its neglected power sector. But any “finance” conversation that leaves out political risk and a careful analysis of the new role in the market of Indonesia’s sovereign wealth fund, Danantara, is likely to come up short.
And now that Indonesia’s policymakers are facing the ultimate bond market rebuke—a possible downgrade to sub-investment grade status—it’s also time to consider how this could reshape the power sector investment landscape. This is not a pretty scenario, and it is unlikely to favour bite-sized injections of blended finance for the grid, but this is a threat that could be a catalyst for change. It could even open the door to a handful of bankable domestic and regional players who might be eager to carve out select renewables opportunities for local markets or export if cost and reliability issues can be addressed.
What’s next for 2026? Navigating this shape-shifting space
It’s clear from recent meetings of funders, strategists, and investors that a more balanced playbook has emerged. As always, the high-level themes are well intended and come with a welcome recognition that each country, region, sector, and technology may benefit from more targeted strategies.
That said, there is still plenty of Christmas tree activity where the previous year’s disclosure or target-setting initiative is quietly replaced by a shinier 2026 version with little meaningful discussion of why the goalposts needed to shift. This isn’t healthy for over-burdened investors with budget constraints, cautious regulators, or companies that are trying to balance conflicting messages about priority disclosures and methodologies.
The result is predictable. Boxes get ticked but investors are often no wiser about more strategic issues including how companies are really addressing conflicting market developments or making investment decisions.
There are, of course, good engagement opportunities to pursue, especially when broad coalitions come together to develop useful data sets. In markets like China, this can inform a fresh understanding of what transition will really look like in a rapidly diversifying market.
But if you’re not thinking about what transition in Asia means in an era when “cleaner” will mean something different from pure play renewables companies, you’re missing the point. There will be electrostate winners in most countries, but the harder calls will be what to do with companies like SoftBank, Doosan Enerbility, China General Nuclear, National Thermal Power Company, Barito Pacific, and Vietnam’s Vinh Group. These are companies that have a claim on legacy energy and power assets, and a role to play in consequential new investments that will shape the power investment landscape for years to come.
That’s why investors would be smart to broaden their lens from disclosure to deals. It’s difficult to sustain meaningful corporate dialogue about climate impacts if you aren’t tracking the investments these companies are making now. They have the resources and political leverage necessary to be first movers in key technologies or a market consolidator. But that also means they will often face complex macro governance challenges. How they manage their political footprint, efforts to influence policy, and their funding strategies will set the tone for the sector and for their competitors.
Copyright of Ninepin Limited, 2026