Introduction

This report analyses Australian financial institutions’ (FIs) intentions and capabilities to finance climate and clean energy in South and Southeast Asia, based on interviews with 11 banks, superannuation funds and asset managers. It builds on Australia’s Southeast Asia Economic Strategy to 2040, highlighting underinvestment despite strong regional growth. Government initiatives, including a $2 billion Southeast Asia Investment Finance Facility, aim to expand engagement.

Key findings

FIs view climate and clean energy as a growing sector, with opportunities in renewables, electric mobility, and transmission infrastructure across markets such as India, Indonesia, Vietnam and the Philippines. All interviewed institutions have net zero targets by 2050 and increasing focus on sustainable finance.

Exposure to emerging markets varies. Australian-headquartered FIs generally have limited exposure and lower risk appetite, citing concerns over returns and transaction costs. In contrast, globally headquartered FIs with local presence are more active and confident in managing risks.

Interest in expanding exposure is uneven: 58% of respondents report high interest, largely among international FIs, while Australian FIs show moderate or low engagement. Opportunities are constrained by limited pipelines of bankable projects, particularly due to inadequate infrastructure, permitting barriers, and lack of creditworthy off-takers.

Barriers include geopolitical, regulatory, currency and governance risks, as well as inconsistent sustainable finance policies. Australian regulatory settings, including superannuation performance tests, may further discourage investment. Local presence and familiarity significantly influence risk perception and investment willingness.

Public finance vehicles play a mixed role. While multilateral development banks and export credit agencies can de-risk projects and mobilise capital, some FIs report instances of crowding out private finance. Blended finance is widely seen as critical but must be structured to complement, not compete with, private capital.

Gender considerations are primarily incorporated through ESG screening, with some institutions adopting gender targets or gender lens investing approaches.

Key challenges

Australian FIs remain cautious due to perceived risk-return imbalances compared to OECD markets. Limited familiarity and lack of on-ground presence reinforce this caution.

Investment opportunities often lack sufficient scale or quality, with fragmented project pipelines and challenges in aggregating smaller assets. Policy uncertainty and weak sustainable finance frameworks in the region reduce investor confidence.

Blended finance mechanisms are not always effective in crowding in private capital, indicating a need for more targeted and catalytic approaches.

Overcoming the barriers

Blended finance solutions, including guarantees, credit enhancements and local currency facilities, can improve project bankability and attract private capital. Aggregation platforms and transition finance instruments may help scale investment. However, concessional finance should avoid distorting markets.

The report recommends that the Australian Government partner with FIs to design blended finance products using vehicles such as Australian Development Investments and the Private Infrastructure Development Group. It also calls for clearer ‘additionality’ principles to ensure public finance complements private investment, and for independent review of existing mechanisms.

Transaction support is critical. Sharing due diligence, building awareness of successful deals, and connecting investors with local intermediaries can reduce information barriers. Capacity building and knowledge-sharing on regional markets and blended finance models are also recommended, alongside encouraging local presence through initiatives such as secondments.

Policy development in the region should focus on harmonised sustainable finance frameworks, including taxonomies and disclosure standards, to improve investment conditions and credibility of transition plans.

Domestically, regulatory reform may be needed to address constraints on Australian investors, including reconsideration of performance benchmarks and capital requirements to better support climate-related investments.