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How to emerge stronger with smart and sustainable cities

Photographic portrait of Benjamin Chiang
Benjamin Chiang

EY Asean Government & Public Sector Leader; Technology Assurance Leader, Ernst & Young LLP

5 minute read 28 Jul 2022
Related topics
Infrastructure
Sustainability
Government and Public Sector

Governments and other stakeholders must collaborate on green projects and address challenges to shape sustainable economic recovery.

In brief

  • As urbanization accelerates and cities grow, environmental and climate risks must be managed alongside economic growth.
  • While there are many opportunities in clean energy development and management, private investors are held back by barriers, such as regulatory uncertainty.
  • Strong government leadership and consistent, coordinated action from various stakeholders are critical to addressing these challenges.

Economic growth can no longer be pursued at the expense of addressing climate change and environmental degradation. The theme of this year’s World Cities Summit, “Liveable and Sustainable Cities: Emerging Stronger”, aptly reflects this urgent and important imperative.

According to a new report from the Intergovernmental Panel on Climate Change, Southeast Asia is one of the most vulnerable regions to climate change. At the same time, the region is also expecting an urban population surge of 90 million by 20301, and about two-thirds of Asia’s population is projected to be urban by 2050.2 What this means is there will be an increasing burden on existing infrastructure systems and escalating stress on the environment.

How can Southeast Asia build cities that are both smart and sustainable? A focus on four principal areas is key: citizens, technology, collaboration and resilience.

Firstly, governments should take a citizen-centric design approach when addressing problems in services and processes — essentially, develop solutions that prioritize the needs and experiences of the people who use them. Secondly, technology is the key enabler to harness digital power as a growth catalyst and improve user and citizen experience. Next, effective collaboration among the government, businesses, investors and the community is necessary for codesigned projects to be funded and delivered. Finally, governments must plan for long-term economic resilience so that cities survive, adapt and thrive against the impact of stresses and shocks such as climate change.

Capturing green opportunities for sustainable cities

As urbanization accelerates and cities grow with the expected post-pandemic economic recovery, environmental and climate risks must be managed simultaneously.

To that end, governments around the world are tapping into an arsenal of policy interventions and financing measures to support the transformation of sectors (especially energy and industrial), improve energy efficiency and tackle environmental pollution. Many are adopting a carrot-and-stick approach, including green taxes on harmful environmental activities, tighter regulations as well as new environmental standards and certification for energy performance, emissions and pollution. Subsidies and tax rebates are used to boost demand for green products and services such as electric vehicles, solar panels and renewable energy. Loans and grants are also provided to promote green investments in sustainable agriculture, renewable or low-carbon energy sources, energy-efficient buildings, transport and public infrastructures. 

Governments are also offering subsidies and grant funding to research institutes, academic institutions and private investors to boost innovation and develop transformative technologies in renewable energy, carbon capture, waste management and energy efficiency. 

Private investors can participate in a wide array of green projects or collaborate with governments on them. For example, an EY study commissioned by the European Climate Foundation, Green recovery opportunities in Southeast Asia, Japan, South Korea and Taiwan, found a pipeline of over 800 clean energy projects with a total investment potential of US$316b. These plans present a multitude of opportunities in clean energy development and management for the private sector. Yet, private investors are held back by various reasons.

How EY can Help

Barriers to private investments

Regulatory and policy uncertainty is an oft cited risk. Uncertainty raises project revenue risk, reducing project viability, investment, interest and innovation. Institutional investors may also face significant bureaucracy and onerous reporting and disclosure requirements, such as demonstrating that investments satisfy regulatory criteria.

Another reason is the lack of attractive incentives in some markets. Many green technologies have large up-front R&D costs and long, risky development periods. Further, payback is only realized in the long term. The potential for knowledge spillovers means that investors only earn a fraction of the total rate of return as benefits also accrue to other companies. These issues are exacerbated if the end market is small and fragmented, as investors are less confident of recouping large, risky up-front investments in R&D or new production capacity.

In some cases, the lack of robust market data also makes it challenging for investors to assess the expected risks and benefits of investment, and this can push up the cost and limit access to external finance. In other cases, private-public partnerships can fail to deliver due to ill-defined outcomes, insufficient private sector capacity and a lack of high-level skills and experience among both private and public players. 

Strong leadership and collaboration needed

Addressing these challenges will require consistent and coordinated action from various stakeholders from governments and investors to corporate leaders and individuals. Market forces alone won’t solve the problem, and governments must continue to affirm their role in taking the lead.

Importantly, governments and city leaders must provide robust governance frameworks and strategic action plans with clear accountability to drive investor and citizen confidence. Sector-specific roadmaps produced in collaboration with the industry can bridge the gap between long-term pledges and short-term action plans with measurable targets. These should set out specific policy measures and initiatives, desired outcomes, timelines, and necessary resources. 

Both government leadership and market forces are needed to effectively address
barriers to private investments in clean energy projects.

How EY can Help

Aligning policies across all governments’ activities — from infrastructure, housing, transport and defense to education, health and social services — is also key. This helps mitigate situations where individual government department priorities may conflict with climate goals. Having a new or existing single entity to drive oversight and help enable a coordinated, whole-of-government approach across diverse sectors will be instrumental to identifying synergies and dependencies and anticipating potential issues.

 

As city leaders also have a vital role in implementation, they should be engaged in policy design from the outset and given the necessary resources to deliver and monitor green initiatives.

 

While the government must demonstrate strong leadership, achieving climate resilience will no doubt require whole-of-society commitment. The choices today will certainly shape the cities of tomorrow.


Summary

Southeast Asia needs to focus on citizens, technology, collaboration and resilience to build smart and sustainable cities. Consistent and coordinated action from stakeholders is required to overcome barriers to private investments in clean energy projects. A coordinated, whole-of-government approach across diverse sectors is essential to help identify synergies and dependencies and anticipate potential issues.

About this article

Photographic portrait of Benjamin Chiang
Benjamin Chiang

EY Asean Government & Public Sector Leader; Technology Assurance Leader, Ernst & Young LLP

Forward-thinking advisor. Helps governments address complexities in public service innovation and build future-fit cities. Experienced technology assurance professional.
Related topics
Infrastructure
Sustainability
Government and Public Sector

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