1 April 2024

Australia and Singapore’s green ambitions need financing

The 2023 Green Economy Agreement is an example of where all the boxes have been ticked and the opportunity is there for the taking.

During the Summit, both the Australian and Singaporean governments provided sharper clarity and incentives around the development of cutting-edge fuels and technologies to support low carbon shipping between the two nations, further advancements in regional energy grid connectivity, and alignment on renewable energy standards.

This detail and focus should come as no surprise given both nations possess what the other needs: Australia has the renewable energy supply and transmission experience. Singapore can leverage its strength as a hub for talent, research and investment, and as a gateway to ASEAN.

Of course, building solutions to these challenges will come from the two nations’ innovators and entrepreneurs: a point reinforced when the first wave of Australian and Singaporean SMEs to receive grants under the $20 million Go-Green Co-Innovation were announced.

Taken together, the clarity and detail and financial incentives will mobilise more businesses, stakeholders and investors to further innovate in these directions.

But this is only one piece of the puzzle. The next challenge will be how to scale the technology and customer demand.

This is where an unprecedented level of collaboration across governments, banks, and other holders of investment capital across Singapore and Australia will be needed. The challenge is worth unpacking a little more.

The good news is that a lot of the needed climate technology – solutions like clean hydrogen, carbon capture, waste-to-value – is well within our grasp.

While both governments are pulling financial levers to help channel the innovation, scaling new tech to commercial viability is capital-intensive, and the profitability of climate tech startups is often many years away, which does not lend itself to the typical risk appetite of private investors.

Indeed, the International Energy Agency (IEA) says that 35 per cent of the emissions reductions needed by 2050 will come from technologies under development and not yet at commercial scale.

To our mind, there are a few areas where further financial innovation can be advanced to support the technology development and its commercialisation – and Singapore and Australia can be integral partners.

First will be driving stronger investment flows into the venture capital firms that will fund the early-stage companies needed to drive solutions.

The well-publicised funding winter for VCs globally – including within Australia and Singapore – has continued into 2024, with no end in sight. This has downstream implications for founders’ ability to raise much needed funds.

Southeast Asia – through its family office network hub in Singapore – should be seen as a critical source of funding. By the end of 2022, Singapore boasted a 1,100 Single Family Offices, up from a mere 700 in 2021. Moreover, Singapore family offices began to enjoy tax incentives for climate investments in 2023 to cover blended finance structures, even those beyond Singapore's borders. By bringing public and private financing, philanthropy together, Singapore and Australia can unlock the massive flows of capital required to support businesses in their transition and to channel resources towards climate tech solutions.

Whilst many other markets are vying for this same pool of institutional wealth, the announcements at the Summit should place Singapore's vibrant ecosystem of 4,000 start ups, 220 venture capital firms and over 200 accelerators at the forefront of climate funding. For example, Antler, a Singapore-based venture capital firm embeds ESG metrics so its portfolio companies can access HSBC's venture debt and working capital propositions.

This leads to our second point: the role banks can play in upping their venture debt funding pools to act as a continuum beyond the VC’s early-stage investment.

This won’t just magically happen; it will require the industry to invest in more dedicated climate tech funds and tailored financing teams to apply capital into earlier stage investments as a complement to VCs - or even in funding the VCs.

It will also require banks to further invest in understanding how to assess the risk differently - being more deliberate in structuring where the funding will be applied and having a more precise return-on-investment application and giving stronger comfort in earlier stage capital outlays.

One good example of this different approach is last year’s launch of HSBC Innovation Banking, our new global, specialised banking proposition for businesses in cutting-edge sectors, such as tech and life sciences, and their investors, combining the expertise of the former Silicon Valley Bank UK with our international network. We’ve also announced plans for a US$1 billon financing to support early-stage climate tech companies, including a US$100 million investment in Breakthrough Energy Catalyst, a platform that funds and invests in first of a kind commercial scale projects that use emerging climate tech.

Solving the funding gap also requires new ways of thinking about funding models. Pentagreen Capital, a debt financing platform which HSBC launched with Singapore’s Temasek to support marginally investible sustainable finance projects in Southeast Asia. Pentagreen provided financing to Citicore Renewables which will support 6 solar projects in the Philippines, and is expected to deliver 691 gigawatt hours of renewable electricity and prevent 430,000 tonnes of carbon dioxide emissions.

The ambitions of Australia and Singapore to collaborate on stronger low carbon outcomes across their various trade and investment corridors is admirable. More than ever, to realise these ambitions we need innovators to develop the critical technologies across all sectors and for financial innovation to align.

This article first appeared in The Straits Times on 1 April 2024.