In 2025, the Asia Pacific has steadily built momentum for climate action amid a fraught political backdrop of geopolitical conflict, rising energy demand and high inflation.
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Most countries in the region maintained low-carbon ambitions despite anti-climate signals from the United States, with renewable energy capacity set to grow almost twofold by the end of the decade. It is this rapid expansion of clean power that is expected to support cross-border electricity trade in Southeast Asia set to gain more traction in the coming year.
Over the past twelve months, the intersection of technology and climate has also emerged as a key theme. Asia’s artificial intelligence (AI) sector is poised for robust growth in the coming year, driven by hyperscaler investments in data centres.
Eco-Business rounds up five trends that could influence sustainability in Asia in 2026, as the region positions itself in a world reeling from a politicised environmental, social and governance (ESG) backlash that continues to stir markets.
1. Renewable energy boom to fuel APG
Asia’s clean energy surge is expected to help advance the long-delayed Asean Power Grid (APG), a project that has remained largely unrealised for nearly three decades but aims to enable cross-border electricity trade within the bloc. The APG regained traction this year when Southeast Asian leaders vowed to make it a top priority to boost interoperability between member states’ electricity grids.
Solar power will lead APG’s capacity additions, with 24 gigawatts (GW) potential in Indonesia’s Riau islands and Malaysia’s Sarawak. The Philippines aims to utilise offshore wind to contribute to the regional grid, aiming to tap 50 GW of the resource by 2050. Elsewhere in Asia, new capacity additions are projected to expand by 670 GW from 2025 to 2030, with solar photovoltaic sources from India accounting for nearly three-quarters of the total.
But renewable energy sources alone will not be able to support a regional grid, warned Kitty Bu, vice president for Southeast Asia at Global Energy Alliance for People and Planet (GEAPP).
Southeast Asia still relies heavily on fossil fuels for up to 80 per cent of its primary energy supply, with coal and natural gas dominating electricity generation. For large-scale regeneration to support the APG, battery storage is a critical technology, Bu told Eco-Business.
A battery energy storage system (BESS) in a 500-megawatt (MW) solar farm in Maharashtra, India. Image: Global Energy Alliance
But the deployment of battery energy storage systems (BESS) in Asia faces key barriers such as high costs and technical gaps. Bu said GEAPP is working with the Asian Development Bank (ADB) to pool philanthropic and development finance to de-risk BESS projects. They are also providing technical assistance, which includes grid integration studies, procurement guidelines and AI-optimised business models for scalable pilots.
“Without battery storage, the intermittent nature of the renewables will become a constraint, rather than an enabler in this Asean power grid,” she said. “This growth only translates into grid reliability. If we solve the storage challenge, then we solve the grid challenge.”
2. De-risking facility could boost geothermal
Geothermal energy is expected to be another major resource in ramping up the regional grid, said Smile Yu, lawyer for resources, energy and mobility for Japan and Southeast Asia at environmental law nonprofit ClientEarth.
The trend is especially visible in Indonesia and the Philippines, which hold some of the world’s largest reserves and can offer steady, renewable power into a regional grid, she told Eco-Business.
Indonesia boasts of the world’s largest resource potential at 24 to 29 GW, while the US and Philippines have 30 to 39 GW and 4 GW, respectively, though much remains untapped.
A 112.5 MW geothermal plant in Negros Oriental, Philippines, managed by Energy Development Corporation. Image: EDC
The Philippines could address its untapped potential through the US$170 million geothermal de-risking facility launched in December, which seeks to accelerate early-stage geothermal exploration. Through the Philippine Geothermal Resource De-Risking Facility (PGRDF), companies can tap into the fund, with the government bearing at least half of the cost for geothermal exploration or drilling through a conditionally repayable grant. The facility was funded through a sovereign loan to the Philippine government from the ADB.
“There is growing interest in how improvements in drilling techniques could make geothermal development more efficient and potentially expand the types of sites that can be explored,” said Yu. “Although geothermal is seen as a mature technology, the advancement of new drilling technologies are prompting renewed discussion about geothermal’s long-term role not just in the region but globally as well.”
3. Stricter measures to curb impacts of data centre boom
As artificial intelligence (AI) adoption grows, so will the pressure to curb its environmental impact, said Andrew Young, founder and managing director of Singapore-based Envirosolutions and Consulting.
“Although power and water are significant hurdles to the growth of hyperscalers, these can be overcome. With the right [regulatory] encouragement, a cleaner, more sustainable industry might arise,” he told Eco-Business.
Malaysia started introducing strict water use regulations this year, driven by water shortages related to new data centre demand. The country’s regulators have increasingly conditioned approvals on sustainable design and resource use, with some projects in Johor reportedly rejected when operators failed to show credible plans to reduce power and water footprints. Malaysia has been leading the region’s data centre boom as tech giants like Microsoft and Google have invested about US$2 billion each in it, including a US$236 million deal awarded to local construction firm Gamuda for further expansion.
Together with Vietnam, Malaysia has also introduced data‑sovereignty and localisation rules that drive domestic build‑out, prompting authorities to stress that new facilities must meet modern energy‑efficiency and resilience standards. Thailand’s regulators have also started to combine cyber and data rules with infrastructure expectations, signalling that future data-centre growth must align with power‑system stability and national climate targets, even as detailed green metrics are still evolving.
Singapore was the first to put a moratorium on data centre development in 2019, primarily due to its demand for power and water outstripping what could be sustainably supplied at the time.
Southeast Asia is emerging as a hotspot where large AI players are investing about US$2.3 billion in cloud services and data centres. In the wider region, hyperscaler investment has been projected to rise sharply in 2026, reaching US$552 billion, according to research by Goldman Sachs.
Tech giants have been fueling AI infrastructure growth in Asia, positioning the region for major expansion in the coming year. Google is investing US$15 billion in a data hub in India, while Taiwan’s Foxconn is expected to spend up to US$1.37 billion to procure equipment for an AI compute cluster and a supercomputing centre.
4. West–China rivalry intensifies over global critical minerals
At a meeting in the Canadian city of Toronto in October, the Group of Seven’s (G7) energy ministers agreed to establish a critical minerals production alliance, countering China’s overwhelming global share of minerals like nickel, a key mineral used for electric vehicle battery manufacturing.
G7, which consists of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, agreed to channel up to US$6.4 billion of critical minerals projects, including 26 new investments, partnerships and research initiatives.
G7 leaders have been focused on improving the traceability of minerals and stabilising these supply chains, primarily following Russia’s war with Ukraine and China’s efforts to impose export controls on minerals and rare earth elements.
Canada’s energy minister Tim Hodgson has reportedly said that the alliance is intended to “secure transparent, democratic, and sustainable supply chains” by drawing in private capital from across the group.
The China Pavilion at COP30. The global clean-energy transition hinges on critical minerals, yet opaque reporting, weak community engagement and uneven ESG compliance remain persistent risks for Chinese-led overseas mining projects. Image: UNclimatechange, CC BY-SA 3.0, via Flickr
Tae‑Yoon Kim, acting head of the critical minerals division of the International Energy Agency, described the gathering as a “major opportunity … to start shifting market power,” underscoring worries that China’s state‑directed system can manipulate prices, build strategic stockpiles and influence global material flows.
However, Abigail Hunter, executive director of Washington-based research institute Center for Critical Minerals Strategy, warned in a rare earths platform that true progress requires traceability and transparency to “box out” opaque Chinese entities.
The platform noted: “Whether the G7 can align around strict traceability rules remains uncertain. Without them, any alliance may look more symbolic than structural. The market’s imbalance rooted in decades of Chinese industrial planning won’t be reversed by declarations alone.”
5. Uneven progress in ESG reporting timelines
Southeast Asia’s ESG reporting landscape highlights stark differences in commitment and enforcement as the region enters the new year. This comes amid a global pushback against sustainability reporting requirements. Earlier this year, the European Union moved to ease its Corporate Sustainability Reporting Directive (CSRD) requirements and later, its deforestation-free regulations (EUDR).
Singapore, a regional sustainability leader, said it would delay International Sustainability Standards Board (ISSB)-aligned climate reporting requirements for smaller listed firms by up to five years.
Singapore’s revised rules now put the city-state, which was among the first in Asia to propose mandatory ISSB-aligned reporting for companies in 2023, behind Malaysia in mandatory sustainability reporting requirements. Listed and large non-listed firms in the neighbouring Southeast Asian nation are expected to start ISSB-aligned reporting, including on Scope 3 emissions, by 2027. It has vowed aggressive action against non-compliant firms under its updated Bursa Malaysia rules, enforcing phased reporting from 2024 to 2026 with penalties for laggards.
The Philippines also announced early this year that it will begin implementing mandatory sustainability reporting by 2026, as it aligns itself with the ISSB regulations under a “transitional or phased approach” to mandate sustainability reporting from companies, allowing them to smoothly adjust to new reporting requirements.
