ASEAN does not lack ambition. Governments have set climate targets, businesses have made ESG commitments and financial institutions are building sustainable finance frameworks. The harder task is turning commitments into investments, action into delivery and demonstrating measurable green and sustained gains for economies and people’s lives.
Asean approaches this from a position of strength.
Foreign direct investment rose by 8% to US$226bil in 2024 or 15% of global inflows, making Asean the leading recipient among developing regions for a fourth consecutive year.
Investment is flowing into, among other sectors, capital markets, electronics, electric vehicles, manufacturing and the digital economy. The question is not whether Asean can attract investment, but what domestic capabilities it builds and how widely the benefits are shared among its peoples.
ESG is not a surcharge on growth, it is an economic strategy. Yet ESG is still treated as three separate reporting lines when its pillars converge in the real economy.
Environmental action without social legitimacy meets resistance. Social promises without productive investment cannot last. Both depend on governance that sets credible rules, coordinates interests and enforces standards. The ‘G’ is not simply the third box in ESG. It is the operating system that makes environmental and social commitments credible, investable and scalable.
At its simplest, good governance builds trust and trust is a currency.
Predictable regulation, transparent procurement, reliable data, consistent enforcement and credible safeguards reduce uncertainty while their absence raises the risk premium. Technically sound projects can become financially stranded when approvals are unclear, agencies work at cross-purposes or community concerns are addressed too late. Capital does not finance ambition in the abstract, it finances confidence.
So, what would stronger governance look like?
First, delivery. Every target needs a timetable, a financing plan, accountable ownership and public indicators. Without them, projects stall, financing costs rise, businesses defer investment and confidence erodes. With them, investment confidence increases.
Second, coordination. The critical green transition spans energy, land, industry, transport, finance, skills and social protection. Governments need platforms and mechanisms that align regulation, infrastructure, finance and safeguards with the needs of firms, workers and communities. Without it, decisions are often misaligned with on the ground realities for many.
Third, compatibility across Asean. Comparable, interoperable and verifiable systems help lenders price risk, companies meet buyer requirements, regulators target action and the public track results.
Asean has important foundations. For example, the latest iteration of its sustainable finance taxonomy covers six focus and three enabling sectors and strengthens social safeguards, including for informal workers. The Digital Economy Framework Agreement seeks a secure, interoperable, competitive and inclusive regional economy. Asean does not need identical national systems. Rather, it needs sufficient compatibility for capital, data and businesses to move with confidence and fewer barriers to entry.
Fourth, nature must be treated as productive infrastructure, not an obstacle to development. Forests regulate water, healthy soils sustain food production, mangroves and coral reefs protect coastlines and support fisheries and tourism.
Nature-based services underpin 37% of South-East Asian jobs for more than 100 million workers.
Degrading them means lower productivity, disrupted supply chains and higher disaster and health costs. We already know the consequences. Indonesia’s 2019 forest and peatland fires caused an estimated US$5.2bil in losses, equivalent to 0.5% of its GDP impacting agriculture, forestry, tourism, transport, health and education.
In Malaysia, 1.07 million tonnes of key plastic resins are discarded rather than recycled each year, forfeiting 81% of their material value or approximately US$1.1bil annually.
Good governance also determines whether transitions are fair enough for all to endure. Workers and communities must be able to shape decisions on energy, land, minerals, water and infrastructure, supported by public dialogue, skills development, social protection and credible avenues for remedy. UNDP analysis is clear. A just transition requires more than low-carbon investment. It rests on the credible assessment of who gains, who bears costs, meaningful participation by affected groups, coherent policies, capable institutions, and finance for people and places, not infrastructure alone.
Excluding affected groups makes change easier to contest and slower to deliver.
Micro, small and medium enterprises (MSMEs) are the test of whether Asean’s ESG transition is sustainable and inclusive, or merely a compliance exercise. MSMEs account for between 97.2% and 99.9% of establishments across Asean member states and 85% of regional employment, yet continue to face constraints in accessing finance, technology and wider markets.
Firms unable to measure and reduce emissions risk losing buyers, while early movers can gain access to green finance, preferential procurement and stronger market positions even as investors struggle with how best to engage with what UNDP terms the ‘missing middle.’
The Asean Simplified ESG Disclosure Guide gives smaller suppliers a practical route to reporting aligned with global standards. But disclosure alone will not deliver the transition. MSMEs also need technical assistance, affordable finance and pathways to higher-value markets. Asean members must equip small businesses not merely to report the transition, but to profit from it.
Asean’s earlier competitiveness rested on location, openness, affordable labour and integrated production networks. Its next advantage will depend on reliable clean energy, traceable supply chains, skilled and protected workers, trusted data and capable institutions. Competing on cost alone is no longer enough.
Trust is not a soft value but a productive asset. Stronger governance turns commitments into confidence, confidence into investment and investment into better jobs and long-term prosperity. For Asean, trust is currency and should be viewed as the key ingredient for future growth.
