Green FDI and Sustainable Infrastructure in a Changing World 

Foreign Direct Investment (FDI) plays a crucial role in economic development, providing capital, technology, and expertise. Green FDI, a subset of sustainable finance, refers to foreign investments that actively contribute to environmental and climate goals while avoiding negative impacts. This type of investment is essential for driving sustainable development, particularly in Southeast Asia, where there is already an urgent infrastructure investment gap of US $3 trillion by 2040, before considering the potential impact of climate change    

Green FDI encompasses a broad range of investments, including renewable energy projects, sustainable infrastructure, energy-efficient industries, and climate adaptation initiatives. Unlike traditional FDI, Green FDI prioritises sustainability by integrating Environmental, Social, and Governance (ESG) principles, ensuring long-term economic and environmental resilience.  

Southeast Asia is one of the most vulnerable regions to climate change, with frequent flooding, rising sea levels, and extreme weather events. Infrastructure in the region needs to not only expand but also to upgrade infrastructure to be climate-resilient and inclusive.  

In Southeast Asia, 95% of all energy and transport assets are exposed to 3 or more earthquake or climate related hazards. Over 40% of these assets are rated as ‘red flag’ or ‘high’ risk in two or more hazard categories. This level of exposure if unaddressed creates a huge risk of economic and well-being risks for communities and governments and significantly limits private investment potential within the region.  

Supporting access to diverse infrastructure finance and investment  

Governments across ASEAN have recognised the urgency of green financing, with several implementing sustainability reporting frameworks and green finance policies. However, the funding gap remains significant, necessitating increased Green FDI to support large-scale projects in renewable energy, sustainable transport, and resilient urban planning.  

P4I assists partners in policy and regulatory reform to attract finance and investment, including Green FDI, to help close the infrastructure financing gap. P4I supports policy and regulatory reform to meet sustainable financing criteria and supports project preparation and capacity to receive and implement sustainable investment.    

The role of green FDI in financing inclusive and climate-resilient infrastructure  

Renewable Energy Expansion  

Green FDI and sustainable finance can drive investments in renewable energy sources such as solar, wind, and hydroelectric power. Southeast Asian countries, including Laos, Vietnam, and Indonesia, have vast renewable energy potential. For example, Laos has issued over USD103 million in green bonds for hydropower projects, demonstrating the potential of sustainable finance in energy transition.  

Sustainable Transport and Mobility  

With urbanisation accelerating, Green FDI can fund low-carbon transport solutions, including electric public transport systems, high-speed rail, and eco-friendly urban mobility initiatives. Countries like Thailand have developed green taxonomies to attract investments in sustainable transport projects.  

Climate Adaptation and Disaster Risk Reduction  

The impact of climate change could potentially reduce Southeast Asia's GDP by up to 11% by the end of the century. Green FDI can support flood-resistant infrastructure, improved water management systems, and disaster preparedness initiatives to mitigate these risks and enhance community resilience.  

Financial Mechanisms to Mobilise Green FDI  

Green financing instruments such as green bonds, sustainability-linked loans, and blended finance can enhance Green FDI flows. ASEAN nations have started integrating sustainable finance frameworks to provide clear investment guidelines, boosting investor confidence.  

Green FDI is not just an investment tool; it is a strategic enabler for Southeast Asia’s sustainable and climate-resilient future. By prioritising policies that attract and facilitate Green FDI, governments in the region can bridge the infrastructure financing gap, support economic growth, and enhance climate resilience. With increasing global interest in sustainable finance, now is the time for Southeast Asia to position itself as a leader in Green FDI, ensuring long-term prosperity for both people and the planet.