Accelerating Sustainable Infrastructure Investments

Executive summary

Central and Southeast Asia are at a critical juncture in developing their infrastructure, with ambitious plans for improving infrastructure services in response to rising demand. The scale of planned infrastructure expansion presents both a risk and an opportunity: without reform, current investment patterns could entrench carbon-intensive and climate-vulnerable systems, but with the right policies, countries can leapfrog toward sustainable, resilient and inclusive infrastructure. Demand for infrastructure in these regions is rising quickly, driven by demographic growth, urbanisation, trade, industrialisation and rising incomes. However, current investment patterns fall short of overall investment needs, rely on fossil fuels, and remain heavily exposed to climate risks and environmental degradation. In Central and Southeast Asia, the infrastructure gap is acute, amounting to an annual gap of about 5-7% of GDP, but the additional cost of aligning infrastructure with climate and sustainability objectives is relatively modest (in most countries about 1% of GDP) compared to total investment needs (5-7% of GDP).

Without targeted reforms, countries risk locking in carbon-intensive and vulnerable assets, increasing long-term fiscal and social costs. At the same time, aligning relevant policies could yield significant benefits. Improved planning frameworks, stronger project preparation and better-aligned financial systems can unlock more sustainable investment at scale. By aligning policies, strengthening project pipelines and mobilising finance, governments can unlock infrastructure investments that support long-term growth while reducing emissions, enhancing resilience and improving social outcomes.

This report consolidates findings from the Sustainable Infrastructure Programme in Asia (SIPA), implemented in the period 2021-2026, which supported six countries – Indonesia, Kazakhstan, Mongolia, the Philippines, Thailand and Uzbekistan – in strengthening infrastructure planning, project evaluation, sectoral frameworks and sustainable finance. It assesses enabling conditions for sustainable infrastructure across three core areas: strategic planning frameworks, sectoral policies (energy, transport and industry) and financial systems, complemented by regional analysis.

Key findings

Infrastructure investment is expanding rapidly but remains misaligned with sustainability and climate goals. Across both regions, infrastructure pipelines continue to prioritise carbon-intensive assets, particularly in energy and transport. Coal and gas investments remain significant, with approximately 31 GW of new coal capacity under development across the six SIPA countries, and road-based transport dominates future investment plans. This misalignment risks locking countries into high-emission pathways and exposing them to stranded assets and climate risks.

Strategic frameworks are strengthening, but implementation gaps persist. All six countries have adopted national development and climate strategies, including Nationally Determined Contributions (NDCs) and, in several cases, long-term low-emission development strategies (LT-LEDS). However, these commitments are not yet systematically translated into investment decisions. Fragmented institutional responsibilities, insufficient co-ordination and limited integration across planning, budgeting and sectoral policies hinder effective implementation.

Project pipelines are constrained by inadequate preparation and evaluation practices. A shortage of well-prepared, bankable sustainable infrastructure projects remains a major bottleneck. Traditional project appraisal often excludes environmental and social impacts, leading to underinvestment in projects with strong long-term benefits. SIPA analysis shows that incorporating these factors through integrated approaches can improve the economic case for sustainable investments. In SIPA’s experience, integrated cost-benefit analysis can increase the benefit-cost ratio of sustainable projects by up to tenfold by accounting for benefits overlooked by traditional methodologies.

Financial systems are being developed but are not yet fully mobilising funds for sustainable investment. While progress has been made in strengthening green finance frameworks, the use of financial markets remain underdeveloped in several countries, particularly in Central Asia. Limited non-bank participation in the financial sector, only nascent uses of risk-sharing instruments and persistent fossil fuel subsidies constrain the flow of capital toward sustainable infrastructure.

Climate resilience and nature-based solutions are insufficiently integrated. Climate-related phenomena, including floods, droughts, heatwaves and sea-level rise, are already affecting infrastructure systems across both regions. However, resilience is not consistently embedded in planning, appraisal or financing processes. Nature-based solutions, which can provide cost-effective resilience and environmental co-benefits, remain underutilised despite growing evidence of their effectiveness.

Institutional capacity and co-ordination are critical cross-cutting constraints. Across all pillars, limited technical capacity and fragmented governance structures hinder effective planning and implementation. Weak co-ordination between ministries and across levels of government reduces the effectiveness of policies and delays the development of sustainable project pipelines.

Key recommendations

Align strategic planning, investment and budgeting frameworks. Governments should strengthen links between national development strategies, climate commitments and infrastructure investment plans. Embedding sustainability criteria into public investment management systems and budget processes can ensure that project selection reflects long-term objectives.

Strengthen project preparation and evaluation methodologies. Expanding the use of integrated appraisal tools that better capture environmental and social benefits can improve project selection and build robust pipelines of bankable investments. Developing project preparation facilities and standardised methodologies is essential to scale up sustainable infrastructure.

Accelerate sectoral transitions through coherent policy frameworks. Clear and consistent policy signals are needed to shift investment toward low-carbon and resilient infrastructure. This includes strengthening renewable energy targets, reforming fossil fuel subsidies, promoting low-emission transport and supporting industrial decarbonisation pathways tailored to national contexts.

Mainstream climate resilience and nature-based solutions. Resilience should be integrated across the infrastructure lifecycle, from planning to operation. Governments should adopt risk-informed planning, improve access to climate data and systematically incorporate nature-based solutions into infrastructure design and spatial planning.

Mobilise finance at scale. Strengthening financial frameworks through green taxonomies, disclosure standards and risk mitigation instruments can improve capital allocation. Expanding blended finance, public-private partnerships and capital market instruments will be key to attracting private investment for more sustainable infrastructure.

Enhance institutional capacity and governance. Building technical expertise and strengthening co-ordination mechanisms across government institutions are essential for implementation. Whole-of-government approaches and clearer roles across agencies can improve policy coherence and delivery.