Financing Sustainable Cities in Southeast Asia

Annex A. Project background

Why focus on financing the sustainable cities in the Southeast Asia?

The growing needs for quality infrastructure investment in cities

Urbanisation is globally recognised as a megatrend transforming cities' socio-economic landscape. Cities are already home to half the world's population and continue to attract people. By 2050, the global population living in cities is projected to reach 5 billion people, growing from 3.5 billion in 2015 (OECD/European Commission, 2020[1]). This urban growth presents opportunities and challenges, highlighting the need for quality urban infrastructure to promote well-being and economic prosperity and mitigate agglomeration costs such as traffic congestion, overcrowded public transport, and environmental issues (G20/OECD, 2023[2]).

Massive investment in infrastructure will be needed to accommodate this growth, particularly given the necessity to adapt existing and new infrastructure to climate change and benefit from the digital transition. The global investment needed to support this growth is estimated at USD 94 trillion between 2016 and 2040. Additionally, the International Finance Corporation (IFC) has estimated that cities in emerging markets will need USD 29.4 trillion in cumulative climate investment between 2018 and 2030 to mitigate and adapt to climate change effectively (IFC, 2018[3]). These figures reflect the magnitude of financing required to ensure cities not only grow but do so sustainably and resiliently in the face of future challenges.

This need for substantial investment is underscored by the benefits of high-quality urbanisation, which offers not only economic prosperity and improved well-being for urban residents, but also helps to address (or at least mitigate) significant agglomeration costs that cities face, such as traffic congestion, crowded public transport, unaffordable housing, and pollution (air, noise, and water), as well as biodiversity loss and disaster risk exposure (OECD, 2015[4]).

The need for investment in sustainable urban development is particularly evident in countries that have experienced fast and strong economic, demographic, and urban growth, such as Southeast Asia. Southeast Asia has represented one of the most dynamic areas in the world in the last decades, showing high growth patterns in population and Gross Domestic Product (GDP). At the same time, keeping up with the pace of urban infrastructure investment and public service provision with urbanisation has been a major challenge, causing multi-faceted problems, including power outages, chronic traffic congestion, low of quality of life, and air and water pollution. These problems, in turn, have made cities in Southeast Asia particularly vulnerable to “extreme” events, amplifying the risks and the impacts of natural disasters. Urbanisation will not stop in the coming decades; urban areas are expected to grow in the ASEAN region by 90 million inhabitants by 2030​ (ASEAN Smart Cities Network, 2018[5]).

Call for diversifying financing instruments and leveraging private investment

Traditionally, infrastructure investments—including those for sustainable urban development—have been financed with public funds such as taxes, subsidies, and grants (OECD, 2015[6]), and these spending decisions have often been made by subnational governments. In 33 OECD and EU countries, subnational governments accounted for 69% of total climate-significant public expenditure (0.4% of GDP). This confirms that subnational governments are key investors in climate-related sectors and infrastructure (OECD, 2022[7]). However, public deficits and budgetary constraints imposed by COVID-19 and the ongoing global uncertainties may put the resources for such investments at risk. The capacity of governments to finance quality infrastructure investments, already strained before COVID-19, has become even more challenged by monetary policy tightening in key markets and fiscal policy issues worldwide. In response to this need, there has been a call for more innovative financing mechanisms and investment models involving the private sector.

In addition, while there is a strong demand from the private sector for urban development (e.g., housing, offices), these developments may not always consider urban sustainability sufficiently. Guiding the private sector to make their developments more equitable and sustainable will require effective policy frameworks and planning. The good news is that sustainable finance has become a leading investment approach for investors seeking to pursue diverse investment options (Patalano, 2020[8]).

The ecosystem of actors and various approaches to financing sustainable urban development

Diverse actors in the landscape of financing sustainable urban development

Financing sustainable urban development involves multiple levels of government, other public sector actors, including multilateral and domestic financial institutions, and various private actors:

• National governments establish strategic orientations and frameworks to guide urban development and infrastructure investment. They can also directly fund, finance, and provide urban infrastructure, as well as stimulate investment from other sources.

• City governments are often responsible for essential city infrastructure such as public buildings, community spaces, and public transit. They are pivotal in providing local urban services and identifying long-term investment needs for quality urban infrastructure. They can leverage their influence over urban development strategies, local land use planning, and development controls to optimise the use of urban assets and reduce investment costs. Additionally, cities can engage early with key stakeholders, including potential investors, to renew urban plans and stimulate future infrastructure investments. Effective local and urban policies are important for addressing urban infrastructure challenges and enabling the use of appropriate financing mechanisms by city governments. Effective urban governance and planning are also important for shaping clear visions and strategies that guide urban investments towards sustainable long-term development.

• Multilateral institutions, such as multilateral development banks (MDBs), are key financing actors in many emerging markets and developing economies. They can support subnational governments directly through loans, technical assistance, capacity building, and credit enhancement instruments (e.g., guarantees). Indirect support for subnational government investment can come through MDB loans to national development banks or other financial institutions, which lend to subnational governments and other actors investing in urban infrastructure.

• The private sector plays a crucial role by investing directly in urban infrastructure, such as private buildings, or participating in public-private infrastructure projects.

Effective co-ordination across government levels, jurisdictions, and sectors is essential, given the multiple actors involved in providing urban infrastructure (G20-OECD, 2022[9]; OECD, 2014[10]). Vertical co-ordination across levels of government enhances the efficiency and effectiveness of infrastructure investments. It helps align planning and implementation actions, ensure investments achieve their intended benefits, identify shared investment opportunities, manage joint responsibilities, and minimise contradictory investments. Vertical co-ordination mechanisms can include city deals or contracts, regional or local development strategies, platforms for inter-governmental dialogue, and dedicated regional development agencies. Horizontal co-ordination between jurisdictions is also vital, as many infrastructure investments span multiple jurisdictions. Such co-ordination ensures that investments harness economies of scale, promote efficiencies, and enhance policy synergies. Inter-municipal cooperation is particularly important in urban agglomerations involving neighbouring local authorities. Financial and non-financial incentives and agreements between jurisdictions, such as inter-municipal co-operation arrangements (common in France), can encourage cross-jurisdiction co-ordination.

Co-ordination across sectors is also necessary to adopt a place-based approach that maximises the long-term benefits of infrastructure investment. This involves identifying and co-ordinating the timing of different investments needed for high-quality urban development, such as the use of general budget resources utilities or roads and private investments in buildings. Engaging private sector and civil society stakeholders in the design and implementation of development strategies could support this process.

Various approaches to financing sustainable urban development

Innovative financing and funding mechanisms for cities could potentially bridge these gaps. Insufficient financing often limits cities' ability to deliver the necessary infrastructure for development.

General budget resources are a cornerstone of urban infrastructure development, accounting for a significant portion of total investment in cities worldwide. Subnational governments, including municipal and regional authorities, are responsible for approximately 60% of general budget resources in G20 countries and 40% globally (G20-OECD, 2022[9]). This investment is critical for providing essential services such as transportation, water supply, waste management, and public housing. However, general budget resources alone are often insufficient to meet the growing infrastructure demands of rapidly urbanising areas. Recent economic shocks and tightening monetary policies have further strained governments' capacity to finance these projects. Therefore, effective co-ordination across various levels of government and innovative public financing mechanisms are necessary to ensure that public funds are utilised efficiently and sustainably, to address immediate and long-term urban infrastructure needs.

Subnational governments can better attract investment by maintaining a balanced mix of revenues, such as grants, taxes, and user charges (OECD, 2019[11]). Borrowing by subnational governments is generally deemed appropriate, provided the fiscal risks inherent to subnational governments can be managed (IMF, 2020[12]). Subnational borrowing helps meet investment needs and can enhance accountability, strengthen financial management practices, and improve overall capacity. User charges and fees can provide an equitable revenue source to fund infrastructure, provided low-income users' accessibility is considered. These charges create a direct link between beneficiaries and payment; for many types of infrastructure, it is appropriate for beneficiaries to bear the costs (OECD, 2021[13]). However, efforts should be made to align 'willingness and ability to pay' with 'willingness and ability to offer services'.

Private investment can help supplement public funds and bridging the infrastructure financing gap in cities. By attracting private capital, cities can leverage additional resources to finance large-scale infrastructure projects vital for economic growth and urban development. Cities can collaborate with higher levels of government to create incentives for private investors to finance urban infrastructure and other urban assets. Engaging early with potential investors and stakeholders allows cities to develop robust urban plans that align with market opportunities, stimulating future infrastructure investments.

Both funding and financing are necessary for supporting urban infrastructure investment. Financing is necessary to spread the substantial upfront capital costs of infrastructure over time and bridge the gap between the timing of construction payments and future revenues. Adequate and predictable funding sources are essential for covering operational expenses, including maintenance, and for repaying financing. Insufficient funding often presents a significant barrier to investment for subnational governments, as it restricts access to finance. Indeed, the availability of sufficient and reliable funding sources is a key factor considered by credit rating agencies when assessing a subnational government’s creditworthiness (G20-OECD, 2022[9]).

Definitions of key terms

Cities and urban areas

Where possible and unless otherwise specified, this report uses the Degree of Urbanisation for the statistical analysis of urban areas. This methodology identifies different types of settlements and allows for comparing settlement structures and trends across and within countries (OECD/European Commission, 2020[14]) (Box A A.1). According to the Degree of Urbanisation, cities are defined as high-density places with at least 50 000 inhabitants, and there are 731 cities in ASEAN-5 countries.

Box A A.1. Internationally harmonised definitions of cities

The Degree of Urbanisation is a harmonised method to allow for international statistical comparisons on urbanisation, to complement the definitions used by national statistical offices. It was developed by the European Union, the OECD, the World Bank and several United Nations agencies. It uses population size and built-up areas estimated at global coverage with a high degree of detail, i.e., a grid with cells of 1 km2 ​ (European Commission - Joint Research Centre, 2019[15])​, and applies thresholds both to population size and density to identify three main spatial types: 

• Cities (or densely populated areas, or ‘urban centres’) have a population of at least 50 000 and are made up of contiguous grid cells that have a density of at least 1 500 inhabitants per km2 or are at least 50% built up.

• Towns, suburban and peri-urban areas (or intermediate density areas) have a total population of at least 5 000 and are made up of contiguous grid cells that have a density of at least 300 inhabitants per km2 and are at least 3% built up.

• Rural areas and villages (or thinly populated areas) are cells that do not belong to a city or to a town or semi-dense area.

Source : ​ (European Commission - Joint Research Centre, 2019[15]) Global Human Settlement Layer; (UN-HABITAT, 2022[16]) World Cities Report 2022; (OECD/European Commission, 2020[1]) Cities in the World: A New Perspective on Urbanisation. OECD Publishing, Paris.

Urban development

In this report, the term “urban development” refers to a man-made process that introduces changes to urban space (or built-up areas14). It includes the development of buildings (e.g., houses, offices, factories), which account for the majority of urban assets, and infrastructure in urban space (Figure A A.1).

Urban infrastructure is commonly understood as any physical asset or system that helps the city function, such as urban transport, energy, water and green spaces. It is often developed and maintained by the public sector, while private investment can also complement the public sector through public-private partnerships (PPP).

Figure A A.1. Components of urban development

Source: Author’s elaboration

“Sustainable” urban development projects

Sustainable urban development is related to the process that creates a built environment with norms, institutions and governance systems that enable individuals, households and societies to maximise their potential and optimise a vast range of services. It requires that cities and towns are planned, built, renewed, and consolidated while restraining adverse impacts on the environment and safeguarding the quality of life, needs and livelihood of its present and future populations (UN, 2015[17]). The United Nations New Urban Agenda put forward a strong call for action to accelerate sustainable urban development through different transformative commitments focusing on social inclusion and environmental sustainability (UN-Habitat, 2017[18]). 

This report focuses on the projects that help advance environmental protection and social inclusion in cities. It draws on two of the OECD Principles on Urban Policy (OECD, 2019[19])​ that underline key aspects of sustainable urban development. Principle 5 recommends “leveraging the potential of cities of all sizes for advancing environmental quality and the transition to a low-carbon economy”, while Principle 6 advocates for “promoting inclusive cities that provide opportunities for all by improving access for all urban residents and users”.  

Sustainable urban development projects can also help advance urban green growth – which is defined as fostering economic growth and development through urban activities that reduce negative environmental externalities and the impact on natural resources and environmental services (OECD, 2013[20])​.  

In sum, sustainable urban development projects identified in this research aim to:  

• Promote efforts to reduce or limit GHG emissions or enhance GHG sequestration can help stabilise GHG concentrations in the atmosphere (OECD, 2016[21]).

• Reduce the vulnerability of human or natural systems to the current and expected impacts of climate change by maintaining or increasing resilience, increasing the ability to adapt to or absorb climate change stresses, shocks, and variability, and/or helping reduce exposure to them (OECD, 2016[21]).

• Protect, restore, and sustainably manage areas important for biodiversity and ecosystem services (e.g., ecologically sensitive and/or biologically rich); maintain and strengthen ecological connectivity; promote large contiguous areas of nature; identify areas and integrate plans for nature restoration; and promote biodiversity-rich green spaces (OECD, 2021[22])​.

• Improve access for all urban residents and users—regardless of their gender, age, ethnic background, or health status—to drive social inclusion, such as local public services, affordable quality housing, urban transport, education, health, employment and economic opportunities, cultural heritage and amenities, leisure, and safe public spaces (OECD, 2019[19])​.

Following the above-mentioned focus, the sustainable urban development projects analysed in this report are categorised into the following four groups: 

• Buildings refer to “green (sustainable) building” projects whose design, construction, or operation reduces negative environmental impacts and generates benefits for the climate and the natural environment. A sustainable building is a building that maximises energy efficiency, characterised by low energy consumption, good indoor environmental quality, low carbon emission, and efficient waste management, and is built with environmentally friendly materials ​ (Sin, Yusof and Osmadi, 2021[23]). The scope of buildings ranges from residential and commercial buildings to public facilities (e.g., governmental buildings, hospitals, and schools) (World Green Building Council, n.d.[24]). This research looks at buildings whose area is above 80 000 square metres certified by the following international standards and country-specific building rating systems (listed in the order of global certifications, other multi-country certifications, and domestic certifications): 

  • International Finance Corporation’s Excellence in Design for Greater Efficiencies (EDGE) 

  • WELL Building Standard (WELL) 

  • Leadership in Energy and Environmental Design (LEED, USGBC) 

  • Building Research Establishment Environmental Assessment Method (BREEAM, UK) 

  • Deutsche Gesellschaft für Nachhaltiges Bauen e. V. (The DGNB, Germany)  

  • Comprehensive Assessment System for Built Environment Efficiency (CASBEE, Japan) 

  • Green Star (Australia) 

  • Green Mark (Singapore) 

  • GREENSHIP (Indonesia) 

  • Green Building Index and Green Real Estate (GreenRE) (Malaysia) 

  • Building for Ecologically Responsive Design Excellence (BERDE) (Philippine’s Green Building Council)

  • Thai’s Rating of Energy and Environmental Sustainability (TREEs, Thailand) 

  • LOTUS (Viet Nam) 

• Urban transport refers to projects that contribute to reduced dependency on privately owned vehicles (cars and motorbikes), easing traffic congestion and curbing air pollution. This research investigates investments mainly related to mass rapid transit (e.g., metro, railways, tramways, bus rapid transit, including extensions and renewals), but also non-motorised urban transport (e.g., cycling infrastructure and walkability improvement).

• Water, wastewater, and waste management refer to projects related to improving water supply, wastewater management, and municipal waste management to improve the sanitation of urban dwellers. Water and sanitation projects include constructing, upgrading and optimising sanitation facilities, sewage and drainage systems (tanks, pipelines, pumping stations, and connections), wastewater treatment plants and landfills. It also includes waste management facilities (i.e., landfills built based on modern and efficient standards, sorting and composting plants) serving urban populations. Evidence shows that enhanced connectivity of appropriate water and waste treatment minimises the adverse effects on ecosystems and biodiversity that is caused by soil, air and water contamination (UNEP, 2017[25]). Such improvements also reduce the risk of flooding and enhance urban resilience to disasters. 

• Integrated urban development refers to large-scale urban renewal/development projects featuring one or more of the following elements: transit-oriented development (TOD), smart cities, neighbourhood improvement, nature-based solutions (i.e., green areas), brownfield re-development, mixed-used development and city-level disaster risk reduction initiatives (construction of embankments). This also includes projects that provide co-location of utility services, reducing the need for construction, maintenance and operational costs.  With a combination of several components – upgraded infrastructure, enhanced connectivity, and increased green space – projects positively impact biodiversity, climate mitigation through minimised air pollution, higher energy efficiency and use of renewable energy, and improved urban disaster resilience. 

Funding sources and financing instruments

This report adopts the definitions of funding and financing as they are presented in the G20-OECD Policy Toolkit to Mobilise Funding and Financing for Inclusive and Quality Infrastructure Investment in Regions and Cities (Box A A.2). Funding and financing are interrelated but distinct concepts that are important to define in the discussion of infrastructure investment.

Box A A.2. Definitions of funding and financing

Funding refers to the money ultimately used to pay for an investment. It may come through various consolidated subnational government revenue sources (i.e., grants and subsidies, taxes, various user charges and fees, reserves, property income, etc.) or from a specific user-charge paid by a user to a public or private infrastructure operator (e.g., under a concession agreement). While funding is not required to pay up-front investment costs, it is always required to pay for operations, maintenance, and the repayment of financing.

Financing refers to money from private or public financiers used to pay some or all of the up-front investment costs, which comes with an obligation for future repayment. In most countries, financing for subnational governments is only permitted to cover investment needs (e.g., capital expenditure) and cannot be used to cover current expenditure (e.g., operating costs). Financing may be debt (loans, bonds) or equity, particularly in the case of a Public Private Partnership. Financing is repaid from funding sources.   

Source: (G20-OECD, 2022[9]). G20-OECD Policy Toolkit to Mobilise Funding and Financing for Inclusive and Quality Infrastructure Investment in Regions and Cities. OECD Publishing, Paris.

To illustrate funding sources and financial instruments this report further separates them into the categories of public and private (Figure A A.2) and offers some important definitions below:  

Figure A A.2. Taxonomy of funding sources and financing instruments and vehicles for sustainable urban development

Note: *Guarantees are not a direct source of finance, but rather a financial instrument that de-risks financing from other sources via credit enhancement or credit substitution.

Source: Author’s elaboration based on ​ (OECD, 2022[26]). G20-OECD Policy Toolkit to Mobilise Funding and Financing for Inclusive and Quality Infrastructure Investment in Regions and Cities.

Funding:

• Grants and subsidies: transfers from upper levels of government (national and regional), international organisations and, in some cases, philanthropy.

• General budget resources: governmental spending on infrastructure using their own budgets. This research classifies the governmental spending that does not specify its financial sources, either from subsidies, grants, and taxes among others, as general budget resources.

• Community contribution: cash or material contribution (such as land) from the intended beneficiaries of urban projects, provided that communities are well-informed and engaged in the project development. It can help subnational governments raise funds for local community infrastructure projects.

• User charges: fees collected by public entities (e.g., governments, local authorities) from individuals or organisations in exchange for access to infrastructure. These charges are a mechanism to directly fund the costs of providing public services.

Financing:

• Loan: refers to borrowing that is given to a borrower in exchange for the repayment of loan principal and interest, including those from multilateral development banks (MDBs), bilateral Official Development Assistance (ODA) (international development banks) and private financial institutions (private banks). This can include concessional and non-concessional loans from MDBs and bilateral ODA.

• Bond (including Sukuk1): refers to borrowing from investors in the capital market given to a borrower (i.e., issuer). Issuers can be sovereign governments, subnational governments and private enterprises that finance their projects and operations or refinance existing projects. Green bonds, climate bonds and other similar instruments are structurally akin to normal vanilla bonds, but through the labelling and adherence to relevant standards, provide a signalling function for investors in search of investment opportunities with sustainability features.

• Equity: refers to capital-at-risk that is provided in return for an ownership share of an asset or entity. Investors can make equity investments via Private Equity (including infrastructure funds), REIT, SPV, Foreign Direct Investment or Joint Ventures.

• Guarantees: Although not a direct source of ‘finance’, these financial instruments provide credit enhancement or credit substitution for debt instruments, helping to improve the credit worthiness of subnational government debt for investors.

Sustainable finance and investment

Sustainable finance is generally referred to as the process of considering environmental, social and governance factors when making investment decisions, which in turn leads to increased longer-term investments into sustainable economic activities and projects (OECD, 2022[27]). Environmental factors might include climate change mitigation and adaptation, biodiversity, pollution prevention and the circular economy. Social factors could refer to issues such as inequality, inclusiveness, labour relations and human capital. Governance factors could include public and private institutional management structure, employee relations and executive remuneration (European Commission, n.d[28]). Investors have become aware of the significance of climate change to their portfolios, referring to such risks by investing in ESG-focused projects. Investors are increasingly pressured to consider ESG elements in their financial investments. Sustainable investments have successfully disincentivised the high carbon-emission projects (World Bank, 2021[29]).

Sustainable investing has evolved to become a leading investment approach for investors seeking to make positive impacts through their investments. Yet, there is little clarity on what ESG investing is in concept or practice, and a range of objectives, approaches and metrics that are all loosely associated with the term ESG raises attention to the integrity of the investment process (OECD, 2022[27]) (Figure A A.3).

• Green bonds/loans raise capital and invest in new and existing projects with environmental benefits. The Green Bond Principles encourage the financing of environmentally sound and sustainable projects that foster a net-zero economy and protect the environment. Examples of the eligible projects include renewable energy, pollution prevention and control, ecosystem restoration, environmentally sustainable management of living natural resources and land use, clean transportation, sustainable water and wastewater management, climate change adaptation and green buildings (ICMA, 2018[30]; ICMA, 2021[31]).

• Social bonds/loans raise funds for new and existing projects with positive social outcomes. The target projects include, but are not limited to, affordable basic infrastructure, access to essential services, affordable housing, job creation, food security and sustainable food systems, and socioeconomic advancement and empowerment (APLMA and LSTA, 2021[32]; ICMA, 2021[33]).

• Sustainability/GSS bonds (green, social and sustainability bonds) are a hybrid of the aforementioned green and social bonds, whose proceeds will be used for both green and social project (LMA, APLMA and LSTA, 2022[34]; ICMA, 2021[33]). Unlike GSS bonds whose proceeds are allocated to specific projects, sustainability-linked bonds/loans are performance-based instruments.

• Sustainability-linked instruments are linked to the issuers’ sustainability objectives within a predefined timeline (ICMA, 2020[35]).They can also be used as working capital or short-term financing to achieve the issuers’ organisational sustainability objective (LMA, APLMA and LSTA, 2022[34]; Deloitte, 2022[36]).

Figure A A.3. Mapping of green financing instruments

Source: Author’s elaboration

Analysis of urban development projects

The findings presented in this report are supported by analysis of 129 sustainable urban development projects in the ASEAN-5 countries: Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam. These projects encompass both public and private initiatives, spanning the four categories defined in the previous section: (i) integrated urban development, (ii) urban transport, (iii) water, wastewater and waste management, and (iv) buildings. The analysis focused on understanding the funding and financing mechanisms used in these projects and identifying legal and institutional obstacles that hinder the flow of private investment into sustainable urban development.

The 129 projects were identified through desk-based research. Primary sources include project databases from international organisations and initiatives (Table A A.1), while secondary sources include several individual resources from national and local institutions and project websites (Annex B). All resources consulted in this research are publicly available online.

Table A A.1. Primary sources used to develop the list of sustainable urban development projects.

Name of database	Organisation	Type of data used	Additional details
Climate Change: DAC External Development Finance Statistics	OECD	Recipient/Provider-based development finance data	Track development finance with recipients, providers, funding agency, financing amount and project descriptions.
Sovereign Project Database	Asian Development Bank	ADB-involved projects in low- and middle-income countries	Provide project summaries, progresses, sources of fund, financing amount (estimates and actual if available), project-related documents and news releases.
Private Participation in Infrastructure Database	World Bank	Information on infrastructure projects with private participation in low- and middle-income countries	Track contractual arrangements, sources and destination of investment flows and information on the main investors.
Project & Operations (“What we do”)	World Bank	World Bank-involved projects in low- and middle-income countries	Provide project summaries, progresses, sources of fund, financing amount (estimates and actual if available), project-related documents and news releases.
Sustainable Bonds Database	International Capital Market Association (ICMA)	A list of sustainable bonds issuance (green, sustainable and social) database	Track issuers, bond categories and jurisdictions.
Certified Bonds Database	Climate Bonds Initiative	A list of certified bonds and loans by Climate Bond Initiative	Track issuers, issuance date, size, tenor, jurisdictions, verifiers, and sector criteria.
Project Database	U.S. Green Building Council	A database of projects certified with LEDD rating system.	Track buildings certified with any LEED certification including location, project size and type of certification.

Source: Author’s elaboration 

Projects were selected for inclusion per the following criteria:  

• Location: this report focuses on the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Thailand, and Viet Nam), which have relatively developed yet fast-growing economies compared to the other ASEAN countries (bar Singapore, which was excluded from the scope of this report given its status as a ‘high-income’ country, characterised by a developed financial market).  

• “Hard” or “physical infrastructure” projects, rather than projects dedicated to capacity and institutional development (e.g., staff training, roadmap development, etc.).

• Timeframe: this report focuses on “planned”, “under construction”, and “completed” projects within a 20-year period (2002-2022).  

• Availability of information: the list only includes projects whose cost, adopted financial instruments, and types were publicly available. The project list is also limited to projects with a financial commitment already in place within the defined period.  

For each selected sustainable urban development project, the following information was collected and summarised in the project list (Annex C) featuring the main characteristics of the projects: 

• Project name 

• Project categories: referring to the sector (i.e., buildings; urban transport; water, wastewater and waste management; and integrated urban development)  

• Location

• Leading entity 

• Project status (planned, ongoing or completed) 

• Timeframe (from project initiation to the actual/estimated completion) 

• Source of investment (private, public or mixed) 

• Funding and financing information 

• Instruments (subsidy, grant, general budget resources, community contribution, loan, bond, equity and guarantee) 

• Total project cost 

• Project cost breakdown (if available) 

It is important to note that, although efforts were made to identify a broad breadth of projects, the final project list analysed for this report, available in Annex C, is not representative of all sustainable urban development projects in the ASEAN-5 countries. Due to information availability constraints and reliance on sources from international organisations, such as the OECD, ADB, World Bank, ICMA and CBI, (Table A A.1), large-scale projects that have a component of international donor funding and financing are likely over-represented in the final project list. However, given the current dearth of information on the financing of sustainable urban development projects in Southeast Asia, the findings drawn from analysis of this project list are still valuable.

Analysis of institutional and legal frameworks

The analysis of this report also draws on desk research on institutional and legal frameworks shaping urban development in the region. Table A A.2 outlines major legal instruments, guidelines and initiatives studied in this report.

Table A A.2. Major legal instruments, guidelines and initiatives studied in this report

Country	Name	Type of Intervention	Geographical scale	Plans, strategies and initiatives	Link
Improving public finance and other financial frameworks to enable private investment in sustainable urban development
Indonesia	Policy framework for PPP	Subsidies, guarantee, regulation	National	Policy framework, including improved PPP regulations for infrastructure, the provision of subsidies for PPPs, and credit enhancement for PPPs and SOEs in the form of sovereign guarantees, gap viability funding, and availability payments, was introduced to support more participation from the private sector, with an increased focus on green finance.	Link
Indonesia	Sustainable Finance Roadmaps	Guidance	National	The Sustainable Finance Roadmaps (Phase I, 2015 – 2019 and Phase II, 2021 – 2025) incorporate plans for the development of a complete market ecosystem for sustainable finance and co-ordination of appropriate taxonomies with other institutions.	Link
The Philippines	Public-Private Partnership (PPP) Center	Capacity building	Local	Public-Private Partnership (PPP) Center of the Philippines intensified its technical assistance in the development and implementation of climate change-resilient PPP projects, particularly at the local and regional levels outside Metro Manila. Supported by ADB’s Urban Climate Change Resilience Trust Fund (UCCRTF), the PPP Center helps assist the capacities of local implementing agencies (IAs) to prepare and identify projects that can be considered as green.	Link
The Philippines	Resolution 2018-12-02 on Safeguards in PPP	Guidance	National	PPP Governing Board (PPPGB) passed a resolution in 2018 that aims to integrate environmental and other safeguards into the entire PPP project cycle. Such integration can serve as a robust benchmark for the Philippines’ effort in accelerating the development of green infrastructure projects. In the future, the Philippines could potentially use a sectoral approach to identify how different infrastructure sectors contribute to reducing GHG emission and to further align the growth of green projects with its national climate targets.	Link
Removing barriers and providing incentives to broaden the range of funding sources and financing instruments for sustainable urban development
Malaysia	Green SRI Sukuk Grant Scheme	Tax exemption	National	The Green Sustainable and Responsible Investment (SRI) Sukuk Grant Scheme was introduced in 2018. It represents a case of incentive structures that provide tax exemption benefits for green sukuk issuers. The scheme expanded its scope in 2021 to cover all Sukuk or bonds.	Link
Indonesia	Measures to promote private investment	Deregulation	National	The government furthered simplified regulation and fiscal incentives to enable investments in urban projects. Changes include streamlining approval and procurement procedures for infrastructure projects; removing the withholding tax on interest payments in foreign-currency denominated government bonds; opening up direct lending from multilateral organisations to SOEs; as well as the creation of the Investment Coordinating Board of Indonesia (BKPM), a centralised service, responsible for issuing more simplified foreign investment licences, and the government’s non-budget financing scheme (PINA), a scheme that encourages private involvement in infrastructure development.	Link
Indonesia	Sustainable Finance (No. 51/POJK. 03/2017)	guidance	National	Sustainable Finance was applied in 2017 to enforce financial services agencies, issuers and public companies to provide the funding to achieve sustainable development goals and ensure adequate financing for the efforts to address climate change. It also requires targeted entities to prepare sustainable finance action plans and ensure that they have adequate environmental and social management policies and processes in place.	Link
Strengthening urban planning and legal systems to leverage private investment for sustainable urban development
ASEAN countries	ASEAN Taxonomy	New guidance	Cross-border	The version 1 of ASEAN Taxonomy was released in November 2021. It stipulates a list of focus sectors: agriculture, forestry and fishing; electricity, gas, steam and air conditioning supply; manufacturing; transportation and storage; water supply, sewerage and waste management; and construction and real estate. It also incorporates sector-specific guidance for the member countries and entities, positioning itself as a benchmark to guide capital and funding for more sustainable societal transformation.	Link
ASEAN countries	Asian Bond Market Initiative (ABMI)	New guidance New policy Capacity-building	Cross-border	Asian Bond Market Initiative (ABMI) was launched in 2002, under the collaborative leadership of ASEAN, the People’s Republic of China, Japan and the Republic of Korea. The initiative aims to develop local currency bond markets, which in turn would enable ASEAN economies to mobilise domestic savings to finance their long-term investment needs and vulnerability to the sudden reversal of capital flows.	Link
Indonesia	Governor Regulation No.38 on Green Buildings	Regulation	Provincial / Local (Jakarta)	In 2012, Provincial Government of DKI Jakarta has issued Governor Regulation No.38 concerning Green Buildings. It serves as a reference for the implementing apparatus and building owners in meeting the requirements of green building construction. New buildings must meet green building requirements.	Link
Indonesia	Presidential Decree No. 59/2017	Plan	National	The Decree commits to launch National Action Plan to achieve Sustainable Development Goals (NAP SDGs), a comprehensive and integrated development plan developed in a collaboration between governmental and non-governmental stakeholders. It also mandates the establishment of a National Coordinating Team (NCT) to take part in the implementation of SDGs.	Link
Malaysia	Green Building Index (GBI)	Certification	National	Pertubuhan Akitek Malaysia (PAM) and the Association of Consulting Engineers Malaysia introduced Green Building Index (GBI) in 2009. It provides guidance for certifying green buildings based on six criteria, including Energy Efficiency, Indoor Environment Quality, Sustainable Site Planning and Management, Materials and Resources, Water Efficiency, and Innovation. As of the end of 2020, 563 projects have been awarded GBI, covering a total gross floor area of 24.7 million square metres.	Link
Malaysia	Penang Green Office Assessment Tool	Guidance	Local (Penang)	The Penang state government established the Penang Green Council in 2011, which then founded the Penang Green Office Assessment Tool. The tool focuses on the daily practices of the office buildings, namely, the purchase of office furniture & stationary, waste management and recycling, energy saving, water conservation, paper use, printer, photocopier, fax & cartridges, indoor air quality as well as employee and community engagement.	Link
Malaysia	Malaysia Carbon Reduction and Environment Sustainability Tool (MyCREST)	Certification	National	Malaysia Carbon Reduction and Environment Sustainability Tool (MyCREST) was introduced in 2016 to quantify carbon emissions and sustainable impacts on the built environment. It is considered to be the most comprehensive of all tools, as it takes into account both a criteria checklist and a carbon calculation. MyCREST is focused on buildings design, construction and operation and offers 4 rating tools: (i) New Construction, (ii) Existing Building, (iii) New Construction for Non-Air-Conditioned Buildings and (iv) New Construction (Healthcare). Kementerian Kerja Raya Tower (KKR Tower) is the first building to achieve a MyCREST rating of five.	Link
Malaysia	Low Carbon Cities Framework	Guidance	National	The Low Carbon Cities Framework (LCCF) was introduced by the then Ministry of Energy, Green Technology and Water in 2011. It provides guidance for local authorities, residents and businesses on how to transition their cities into low-carbon cities; and looks at addressing carbon emissions in four main areas: Urban Environment, Urban Infrastructure, Urban Transportation and Buildings. One of the pioneering and flagship green townships is the Federal Government Administrative Centre of Putrajaya. It is taking the lead with a goal to reduce its GHG emissions intensity by 60% by 2025 compared with 2012 levels, making the city cooler by two degrees Celcius.	Link
Malaysia	National Physical Plan	Plan	National	National Physical Plan was prepared and reviewed in every five years. The plan intends to translate the sectoral policies involving socio-economic development, conservation, climate change and resource management into spatial form; establish a spatial framework for planning at regional, state and local levels which serve as the main reference for any planning; provide physical planning plans for the implementation of sustainable development strategies; guide the actions of sectoral implementing agencies in supporting the national spatial framework; and identify programmes and key actions to further improve the spatial planning of the nation.	Link
The Philippines	National Urban Development and Housing Framework 2017-2022	Guidance	National	The newly developed “National Urban Development and Housing Framework 2017-2022" provides an overarching framework for urban development and housing, consisting of a vision, policy statements and strategies, and encompassing core development sectors and spatial elements. It intends to guide the national government, private sector and other stakeholders in improving the performance and efficiency of the country’s urban systems.	Link
The Philippines	Green Building Code	Regulation	National	The Green Building Code (GB Code) was introduced by the government in 2015, aiming to reduce emissions through increasing energy efficiency in building design, construction, land operation. It sets the minimum green standard related to energy efficiency, water and wastewater management, solid waste management, site sustainability, and indoor environmental quality. The scheme is consistent with existing international green building certification entities.	Link
The Philippines	Standards for Climate Smart Buildings	Certification	National	Standards for Climate Smart Buildings is currently under development. The developing standards are intended to integrate green designs and climate resilience with the end goal of providing support and recommendation to national government agencies on appropriate standards for implementation.	Link
The Philippines	National Urban Development and Housing Framework 2017-2022	Policy	National	This newly developed national framework provides an overarching framework for urban development and housing, consisting of a vision, policy statements and strategies, and encompassing core development sectors and spatial elements. It intends to guide the national government, private sector and other stakeholders in improving the performance and efficiency of the country’s urban systems.	Link
The Philippines	Philippines Energy Efficiency and Conservation Roadmap	Guideline; regulation	National	The Philippines Energy Efficiency and Conservation Roadmap (2017 - 2040) provides a trajectory for the Philippines to achieve its energy efficiency goal by 2040. The Philippines commits to reduce energy consumption in commercial buildings by 25% and in residential buildings by 20%, against a 2014 baseline, by 2040. One of the key outcomes of the roadmap was the passing of the Energy Efficiency Conservation Act, which was signed into law on 12 April 2019, aiming to standardise energy efficiency and conservation measures by regulating energy efficient technologies in buildings.	Link
The Philippines	Ecological Solid Waste Management Act No. 9003	Law	National	Ecological Solid Waste Management Act No. 9003 of 2000 makes provision for the efficient solid waste management, for the volume reduction of the waste, its environment friendly disposal, composting, recycling, re-use, recovery, green charcoal process. It also concerns the protection of groundwater from pollution. The act promotes the national research and development programs for improved solid waste management and resource conservation techniques.	Link
Thailand	Building Energy Code	Regulation	National	The Building Energy Code (BEC) was introduced in 2009 as a ministerial regulation under the 1992 Act. BEC sets the minimum energy efficiency standards for new and renovated buildings.	Link
Thailand	Green Bangkok 2030	Guidance	Local (Bangkok)	The Green Bangkok 2030 project was launched at the end of 2019, as the national commitment to the GHG reduction by 20-30% by 2030. The project aims to increase the number of sustainable, quality green spaces across Bangkok, targeting 1) increase the ratio of green space in the city; 2) trees covering 30% of a city’s total area; and 3) ensuring footpaths meet international standards.	Link
Viet Nam	LOTUS	Guidance	National	LOTUS, a voluntary green building rating system, provides a holistic assessment of environmental performance over the life cycle of buildings. It provides an integrated approach for evaluating buildings in terms of energy consumption, water use and waste management, as well as indoor environmental quality. The key areas of performance include: Energy, Water, Materials & Resources, Health & Comfort, Site & Environment, Project Management, Exceptional Performance.	Link
Viet Nam	National Strategy on Green Growth for 2021 – 2030	Guidance	National	Following the previous strategy for 2014 – 2020, the National Strategy on Green Growth for 2021 – 2030 was approved, aiming to accomplish green growth, contributing to the restructuring of the economy in conjunction with renewing the growth model. It is to achieve economic prosperity, environmental sustainability and social equality; strive towards a green and carbon neutral economy; contribute to the realisation of the goal to reduce global warming. The green growth is imagined through the development of investment guidelines and methodologies for prioritising investment opportunities and mobilising public & private finance into green economic recovery projects.	Link

Source: Author’s elaboration based on desk research and interviews.

References

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[5] ASEAN Smart Cities Network (2018), ASEAN Smart Cities Network, Centre for Livable Cities, https://isomer-user-content.by.gov.sg/50/93ef993f-d8be-42b8-904a-210a32032382/book-asean-smart-cities-network.pdf.

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[33] ICMA (2021), Green Bond Principles, https://www.icmagroup.org/assets/documents/Sustainable-finance/2022-updates/Green-Bond-Principles_June-2022-280622.pdf.

[31] ICMA (2021), Green Bond Principles: Voluntary Process Guidelines for Issuing Green Bondos (with June 2022 Appendix 1), https://www.icmagroup.org/assets/documents/Sustainable-finance/2022-updates/Green-Bond-Principles_June-2022-280622.pdf.

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Note

← 1.  Sukuk is an Islamic variation of a bond. An issuer will procure the funding by selling a certificate. Following Islamic finance principles, instead of paying interests, an issuer buys back the bond at a future date.