CARI Policy Brief: Greening ASEAN – Paper 3: Review and Recommendations for Overseas Investments

By CARI | 20 January 2021

Author: Eleen Ooi Yi Ling | Editor: Aznita Ahmad Pharmy; Imran Shamsunahar | Webmasters: Nor Amirah Mohd Aminuddin; Nuratiqha Abd Razak | Research Director: Hong Jukhee
With special thanks to Matthias Gelber, Director of Sustainability of Global Sustainability Exchange; Erin Sinogba, Independent Sustainability Consultant; Chris Humphreys, Executive Director of EU-ASEAN Business Council, for providing input.

CARI is pleased to release a new series of policy papers focusing on the sustainability agenda impacting ASEAN. Particularly, by examining the COVID-19 related measures that were released since the pandemic has started. Following the onset of the COVID-19 pandemic, ASEAN countries have come up with stimulus packages focusing on several priority areas covering healthcare, workforce, tax, business, households, education, food security, and priority sectors such as tourism, hospitality, aviation and small/informal businesses.

Paper 3 on Overseas Investments reviews ASEAN countries’ stimulus packages and investment-related instruments that have been announced in response to the pandemic and identifies areas which can be supplemented with green measures that would lead the country towards a low carbon economic recovery pathway. These are presented in a list of recommendations which can be implemented as part of ongoing and/or future stimulus packages.


1) Pandemic drove ASEAN FDI down in the short term. However, FDIs have been identified as key drivers of recovery with green initiatives a must to ensure a resilient and sustainable recovery.

Southeast Asia, which saw a record FDI inflow in 2019, has experienced a major economic slowdown in 2020, in part due to major disruptions of production and supply chains.
  • By the end of the second quarter of 2020, based on preliminary data, ASEAN’s FDI inflows fell by 31.5% compared to the previous year.
  • While countries are tightening their foreign investment laws to protect businesses in distress from being acquired without appropriate oversight, most ASEAN member states (AMS) have generally not changed their FDI policies.
  • On the contrary, countries like Indonesia, Malaysia, and Thailand have issued packages for investors in the form of tax relief, business licensing facilities, and opening up of more sectors to foreign ownership to further attract foreign investors.

2) ASEAN Comprehensive Recovery Framework (ACRF) focused on saving livelihood and a stable recovery, and green investments are critical in ensuring a sustainable and resilient recovery.

The sustainability agenda has also seen an increased uptake in visibility at both national and ASEAN levels. The ACRF adopted at the 37th ASEAN Summit reinforces the commitment of the member states to intensify intra-ASEAN trade and investment while focusing on achieving sustainability in ASEAN in all dimensions, particularly in investment, energy, agriculture, green infrastructure, disaster management, and sustainable financing.

3) Existing and newly signed International Investment Agreements (IIAs) and Free Trade Agreements (FTAs) involving ASEAN will influence transnational investment activities, but minimal evidence of environmental protection provision is present.

  • FTAs and IIAs will be a key driver for foreign investments to ASEAN’s economic development however, these trade pacts need to be climate aligned.
  • Eleven large scale bilateral or multilateral FTAs and Treaties were signed from 2018-2020 involving ASEAN which included Investment Provisions (TIPs) and three containing sustainability provisions.
  • Regional Comprehensive Economic Partnership Agreement (RCEP) will be an important catalyst in reviving trade and investment flows, supporting incomes and employment across the region however it lacks  environmental protection provision.
  • ASEAN needs to extend the common understanding of the comprehensive environmental and social (E&S) risks on sustainable infrastructure and harmonise the use of sustainability standards in project assessment.

4) Despite the drop in FDIs, green investments have picked up in ASEAN, driven by funding from international green funds.

  • Clean energy transition is not a priority area in the short term regional recovery response.
  • In the medium to long term, Renewable Energy, Gas and Agriculture are key areas of interest in ASEAN green financing.
  • ASEAN’s massive infrastructure gaps can be bridged by green and sustainable  investments. With the acceleration and need for digitalisation due to the pandemic, the gap in infrastructure development is more acute, which hinder rapid economic growth.
  • ASEAN’s growing population and natural resource reserves present huge opportunities for green investments in multiple sectors.

Source: Bain and Company, Southeast Asia’s Green Economy: Pathway to Full Potential, November 2020

5) Recommendations for ASEAN to ensure a green post-pandemic recovery.

The brief identifies more than 30 opportunity areas for action by ASEAN and its AMS. Below are some \ of the proposed climate actions that can be incorporated into overseas investment related agenda to ensure a climate-aligned approach and quick policy wins to investing in ASEAN member states.

  • Provide financial and tax  incentives to attract foreign investments of green technologies and green infrastructures into ASEAN. 
  • Efforts should also be made in diffusing sustainable technologies throughout the industry though incentivising more foreign investments into relevant green aviation technologies in the forms of R&D, production, and commercialisation.  
  • Financial and fiscal support to micro, small and medium enterprises (MSMEs) should be specifically directed towards local businesses heavily interlinked with sustainability-focused foreign investors to uphold regional supply chains.
  • Sustainability reporting requirements as a condition for investment can encourage companies to disclose their environmental performance and implement improvements that provide sustainability, resource efficiency, and cost saving benefits.

At a regional level, key initiatives are recommended to further drive climate-aligned agenda in relation to overseas investment in the region:

  • Mainstreaming sustainability into national investment policy frameworks by setting minimum regional environmental and social standards.
  • Developing a common understanding of sustainable infrastructure and harmonising various sustainability standards used in environmental and social assessment of projects.
  • Establishing monitoring systems to assess the effectiveness of investment promotion schemes for sustainable development. 
  • For financial regulators: deepening the integration of environmental, social and governance (ESG) provisions into financial markets by establishing an ASEAN-wide monitoring mechanism with a harmonised approach to disclosure. 

ASEAN is a region rich in resources, and with huge reserves of underexplored mining potential in Cambodia, Vietnam and Myanmar, it is imperative that a sustainable framework ensuring resilience is adopted so that the economic benefits of mining are weighed in tandem with the environmental and social impacts.