Accelerating Impact Investments for Climate and Nature in Asia 2025

of nature-based projects cover less than 1 km².72%A key challenge facing Asia’s impact investment market is the trade-off between social and environmental impact and financial returns. Investments that deliver the highest social and environmental outcomes may not always generate the highest financial returns, and vice versa. Given the wide range of social and environmental investment opportunities in the region, aligning these with appropriate financial return profiles can be time-consuming, slowing down investment activity. Additionally, the region’s diverse and fragmented market makes it difficult for investors to identify and pinpoint the most promising opportunities.While impact investing is on the rise in Asia, the level of investment remains disproportionately low relative to the region’s carbon emissions and the potential for positive environmental impact. Several factors contribute to this lag, including perceptions of higher risk, a lack of sufficient investment data for impact-focused funds and the absence of a proven track record for climate-related investments. Moreover, the relatively nascent nature of the market means many opportunities are considered too early-stage or too small to attract significant investment. Some of these challenges are explored in case study 4. Pentagreen Capital was launched in 2022 by HSBC and Temasek with an initial capital of $150 million. Supported by strategic partners Asian Development Bank (ADB) and Clifford Capital Holdings, it aims to catalyse financing for innovative clean infrastructure projects that progress climate change mitigation and adaptation efforts in Asia, focusing on the renewable energy, energy storage, clean transport, water and waste management sectors. Through the Green Investments partnership, an innovative blended finance programme set up to address climate finance gaps and increase the bankability of green and sustainable infrastructure, the platform aims to deploy $1 billion to bridge the major climate funding gap of these projects and crowd in commercial capital for projects that would not have access to traditional finance. By using catalytic capital from public or philanthropic sources to crowd in private sector investment, it forms a blended capital pool that has the appropriate risk-bearing appetite to bridge the risk-reward gaps commonly observed in sustainable infrastructure projects in South-East Asia. With the ability to deploy capital into such marginally bankable projects, the risk-reward gap is expected to close over time, helping to accelerate such projects towards the mainstream. 2.1 Nascency of the market A common theme raised by experts interviewed for this report was the early stage of the impact investment market in Asia, where many key financial systems, such as investment taxonomies, are still underdeveloped compared to regions like North America and Europe. Several experts noted that the concept of investing for both positive environmental and social impacts alongside financial returns remains in its infancy in much of Asia. However, certain markets, such as Singapore and Hong Kong, are more actively pursuing these opportunities. This nascent stage is not only a regional challenge but also a broader industry-wide issue. Nature-based projects, in particular, tend to be smaller in scale globally. For example, the European Union reports that 72% of nature-based projects cover less than 1 km² – significantly smaller than the scale needed for meaningful restoration, given that 10 million hectares are deforested worldwide each year.19 Additionally, 81% of these projects have investment costs of less than €10 million, and only 3% report private sector funding.20 This disparity may explain why institutional capital is more frequently directed towards renewable energy investments, which have developed into a well-established asset class with clearer regulatory frameworks and defined investment pathways. CASE STUDY 4 Pentagreen Capital Asia’s diverse and fragmented market makes it difficult for investors to identify and pinpoint the most promising opportunities. 11 Accelerating Impact Investments for Climate and Nature in Asia