How governance will determine capital flows in Southeast Asia

Southeast Asia is home to nearly 700 million people and is set to drive around a fifth of global energy demand growth to 2035 – second only to India. At the same time, investors in the region are navigating two major capital reckonings that will be familiar globally: the energy transition and the rapid rise of artificial intelligence. While both offer substantial opportunities for value creation, they also introduce new forms of risk, which necessitate stronger governance. 

Against this backdrop, we recently gathered more than 100 regional delegates across two events in Kuala Lumpur, Malaysia Hosted by leading asset owners, KWAP and Jelawang Capital of Malaysia, and attended by senior leaders from across the sustainability ecosystem, the sessions explored a common question: how can investors allocate capital to the opportunities of the future while maintaining long-term resilience and fiduciary discipline?  

The discussions covered strategic priorities from across the investment spectrum: real assets and the energy transition, early-stage capital flows, how to integrate sustainability into valuations and multiple discussions surrounding AI. Despite the different themes, a consistent message of governance emerged. 

Attendees also agreed that responsible investment should no longer be viewed as a niche ethical overlay. Instead, participants framed it as a core part of fiduciary duty and long-term value creation. The institutional investors and regional capital allocators highlighted the need to embed environmental, social and governance considerations directly within investment decision-making processes rather than treating them as separate exercises.  

Reframing transition risk to unlock capital flows 

Infrastructure and the energy transition present a vast opportunity across emerging markets and developing economies, particularly in Southeast Asia, however capital often remains constrained by outdated perceptions of risk. The scale of the mismatch is stark: despite projected energy demand growth, the region attracts about 3% of global energy investment. 

Industry leaders argued that global investors frequently price transition projects using broad sovereign risk assumptions, overlooking the economics of individual projects that may offer stable and predictable returns when appropriately structured. This perception gap continues to limit investment flows into regions where significant capital is required to support decarbonisation and economic development.   

Examples of commercially viable opportunities that can deliver immediate impact while supporting broader transition objectives in the region include waste-to-energy, biomethane and biomass projects from Empty Fruit Bunches (EFB).  

Beyond simply replacing fossil fuels, energy security increasingly depends on supply-chain resilience, diversified energy sources and reducing dependence on imported technologies and critical minerals. 

“True energy security in Southeast Asia encompasses supply chain resilience, fuel independence, and macroeconomic stability. While capital is flowing, energy security means ensuring local economies aren’t just swapping a reliance on imported coal or gas for a reliance on imported transition technologies and critical minerals over which they have no pricing power” Nigel Khoo, Heyokha Brothers 

Unlocking transition finance at scale, particularly within the Southeast Asia context, demands  better risk assessment, innovative capital structuring and closer collaboration between investors and policy makers.^[1] This is exactly where the PRI is looking to focus our support in emerging markets and developing economies (EMDE).  

Capital is already responding to market signals in Malaysia: the country secured a record MYR65.9 billion (US$16 billion) in foreign direct investment for transition finance in 2025 (a 41.2% year-on-year increase), and Copenhagen Infrastructure Partners, who joined our recent sessions in Kuala Lumpur, demonstrated their commitment by launching a dedicated Southeast Asia office in Malaysia this year. 

In private markets, governance is becoming a proxy for future success 

Investors in the venture capital session were unanimous that weak governance structures are often the first warning sign of poor due diligence, ahead of any environmental or social factor. Issues such as unclear ownership structures, insufficient financial controls and concentrated decision-making can indicate an inability to scale responsibly. Conversely, firms that establish sound governance practices early are often better prepared to manage future growth and evolving stakeholder expectations.  

Governance is now more than a risk management tool as it becomes embedded in venture portfolios through exclusion lists and other mechanisms. Seeking to generate value creation, venture capital investors are now exploring early governance signals through term sheets, operational support and practical guidance that helps founders build resilient businesses that generate alpha. 

Why AI governance is becoming central to investment resilience 

The second day of proceedings focused on AI, and yet again, the same word came up: governance. One session walked delegates through a live case study built around the real-world failure of an AI-driven healthcare utilisation model. The case illustrated the cost of removing human oversight, relying on biased data proxies and not being able to explain how models had been built out. Discussions also focused on ethics, social impacts, environmental considerations and security concerns associated with AI-enabled business models.  

A particularly important takeaway from venture investors was that access to AI tools is becoming increasingly commoditised. What creates lasting competitive advantage is not the technology itself, but proprietary data properly sourced via trusted partnerships, strong governance and disciplined execution.  

Rather than asking which technology will achieve market dominance, investors are increasingly asking which organisations have the governance structures required to deploy it responsibly and sustainably. 

Whether assessing renewable infrastructure projects, valuing listed companies, supporting venture-backed start-ups or deploying artificial intelligence, investors repeatedly returned to the same conclusion: strong governance enables better decision-making, more effective risk management and greater resilience through periods of change.  

For investors operating in a world defined by transition, disruption and uncertainty, governance is no longer simply one component of ESG. It is increasingly the foundation that allows organisations to capture opportunities while navigating risk.