AI, Sustainability and Supply Chains-The Importance of ASEAN for global investors.

I was pleased to be at the Reuters NEXT APAC Conference in Singapore earlier this month. This piece considers where ASEAN is placed, why it is important for the European Union(EU), the United States and power blocs, and the big ideas that are likely to firm up into actions after this event. I have drawn upon what speakers have said and added my own views. 

ASEAN is the cockpit of a continent witnessing high growth. There is also manifest vulnerability to climate change. It is lagging in terms of mandatory country-specific net zero target achievements. Much is being written about and felt about peak temperatures, energy bills, disruption to crops, shifts in weather patterns and impact on urban living. As far as net zero is concerned,  the funds to achieve it are not there yet. An 800 Bn USD gap exists. The financing may come from multilateral institutions and their on-ground partners, banks interested in sustainability, infrastructure lenders and private equity players-and to an extent, the bigger family offices. There are downstream opportunities in funding, of a smaller  magnitude, where ultra high net worth individuals and smaller family offices may want to participate. For all these actors, the opportunity lies in aging building repurposing, new urban planning and real-estate propositions, shifts away from coal to gas and other alternatives,  renewable expansion at the grid and transmission levels, and micro level initiatives as well as innovations planned by start-ups. We see less talk about carbon credits now. There is a feeling that we are getting into the serious bricklaying stage to provide a long-lasting net zero foundation. There isn’t a lot of time before the temperature rise ticks past the 1.5 degree celsius mark. This basket of investible opportunities can contribute to the diversification mantra that advisors are talking about. It can also appeal to European clients who may be otherwise sceptical or at least hesitant about investing into a region which is far away and of which they do not understand much.  A sustainable future for ASEAN where it is able to be a dependable supply chain player as well as a market in it’s own right, is of interest to all significant power blocs.

The fragility of supply chains was felt the most during COVID and since then there has been a pursuit of China+One. Vietnam, Malaysia and Thailand-among others-are seen as the potential leaders in taking up this role. But supply chains need resilience and the availability of cheap and abundant energy. Resilience today means much more than bouncing back from COVID. It refers to liveability and working conditions in high temperatures; reducing dependency on fossil fuels; ensuring cold chains and raw materials survive abrupt swings in temperature and humidity; uninterrupted transport and management of insurance costs. In other words, resilience is about building models that tell us what the future looks like, and responding well in advance. Creating intelligent assets, then, is a primary need and opportunity. Leveraging those assets to create, protect and grow distributed and decentralized supply chains is the big outcome. This is where AI and sustainability, the two big themes at the Reuters NEXT Conference, come together. This is also the intersection where investment strategies may bear fruit. 

In this context, it is worth taking some time to consider how the supply chains in this region are likely to evolve. We are, of course, no longer talking only about garments being stitched in Vietnam or Bangladesh. There is a need for strategic minerals for electronics and EVs, semiconductors and chips for computing, data centres to provide computing capacity, raw and semi-processed foodstuffs, packaged goods for other markets and renewables equipment as well as knowhow. Supply chain progress of each country is demonstrated by the export of goods to a specific target destination. That destination is also likely to invest considerably into the supplier countries. It is safe to say that USA-and to an extent, the EU- fits the description of a major importer from ASEAN(and the rest of Asia) as well as a major investor into ASEAN. Indeed, the US is already the biggest overall investor in ASEAN as well as the biggest FDI player.

Access to compute is a key success factor for Singapore. With over 1.3 Gigawatts of data centre(DC) capacity today and 500 Megawatts to be added over the next few years, Singapore is a major compute player. This is being mirrored in neighbouring Malaysia with Singaporean and Malaysian companies collaborating to expand DC capacity. It is not coincidental that both countries are strong players in electronics and semiconductors. Further, computing capacity is a sustainable real-estate and renewables opportunity as well. It provides both clients for renewable power sales as well as additional space for  generation capacity. Talent, housing, downstream and upstream services and vibrant communities are likely to find fertile ground.  The increased focus on renewables and sustainable buildings will be a matter of importance for all industries. The question is how to achieve the delicate balance between addressing growth and addressing net zero targets. The way in which funds are put to use will make all the difference. That, precisely, is where the use of intelligent assets will come into play. The best laid plans can remain on the drawing board or lead to bad outcomes unless inference, insights and simulation can be put to use properly.

While there has been a lot of talk about Gen AI, we may want to turn our attention to two kinds of developments. One is the use of classical AI, where machine learning and deep learning are used to sense potential outcomes for investible opportunities. This needs to be-and can be-much more commonplace than it is today. It will be of greater consequence because all investors and asset owners have to take into account uncertainties arising from extreme weather events and cybersecurity issues. I have written about these in my past pieces and so have many others. The Crowdstrike event, while not a security breach in itself, cautioned us about how vulnerable our fundamental systems are. Platform readiness needs platform intelligence of a far higher order-and the ability of man to be in full control and fully warned in advance. That may call for a revisit of whether GenAI can be expected to make life simpler for everyone. At the same time, we have to take into account another development. This is the creation and use of Large Language Models(LLMs). There is a lot of discussion around this. Government departments, strategic companies and large organizations will have to consider quickly building out their own models in order to retain data sovereignty and processing sovereignty. 

I would like to add a few remarks here about the role of Open Banking and how the experience of UK and the EU can help. While it has not been  mentioned much at the conference, securing customers accounts, providing new funding opportunities to SMEs and using permissioned data to help people and companies see their credit future, are going to be key steps in the future of a strong supply chain. Let us keep in mind that SMEs play an outsized role in supply chains and in Asia, they contribute disproportionately to employment. This is where data ownership and protection frameworks, permissioning processes and citizen-friendly security need to come in. A progressive Open Banking schema in key markets can be of great help. 

The Reuters NEXT Conference in Singapore has sown the seeds for a short to long term roadmap for enterprises as well as a common ground for governments, investors and the private sector to have intensive discussions. The circular and intimate relationship between sustainability and AI and their direct contribution to robust supply chains should be of interest to investors, bankers and advisors. It is  time to start looking at innovation with renewed interest and certainly without the baggage of past cliches. Innovation that will be invested in now as well as capacities that will receive funding, will serve critical roles in the years ahead and lead to significant profits.