Catalysing ASEAN’s Circular Transition

Introduction

Circular economy has moved from niche sustainability circles to centre stage in global climate negotiations.

Recently, the seventh session of the United Nations Environment Assembly (UNEA-7) convened in Nairobi to deliberate on binding agreements that aim to tackle plastic pollution and resource depletion.

Last year also marked the first time that the circular economy was discussed at the United Nations’ Conference of the Parties (COP) platform, underscoring the importance of the circular economy transition for countries and the circularity spillover that can enhance economic growth as well as opportunities for the member states.

Despite these developments, Southeast Asia as a region continues to generate a staggering amount of waste annually, at 150 million tonnes of municipal solid waste (MSW) in 2016. This figure is projected to double by 2030. The World Bank also projected that global waste generation is expected to increase by 73% from 2020 to 2050 (to 3.88 billion tonnes in 2050).

Waste management outcomes vary significantly across ASEAN Member States (AMS). Malaysia, for example, discards approximately 39,000 tonnes of MSW daily, yet only 37.9% of which was recycled by the end of 2024. To mitigate this problem, the government aims to ameliorate this by aiming to increase the figure to 56.2% by 2030 under the 13th Malaysian Plan (13MP).

Meanwhile, the Asian Development Bank warns that resource depletion and waste mismanagement could c

ost Southeast Asia up to 11% of its GDP by the century’s end if climate change remains unaddressed. Although some of the environmentalists projected that shifting to a circular economy could generate economic growth, more efforts need to be made in transitioning to circularity, which requires strong innovative capital as well as political will.

A more sobering news comes from the Circularity Gap Report 2025, which states that the worldwide circularity has dropped to just 6.9% in 2024. However, several regional instruments are already in pla

ce.

For example, the Framework for Circular Economy for the ASEAN Economic Community, established in 2021, outlines priority areas such as trade openness, innovation, sustainable finance and resource efficiency, while the Circular Economy Implementation Plan (2023–2030) focuses on agriculture, transport, and energy.

But barriers remain in place despite the adoption of some circular economy frameworks and policies by several AMS. Part of the problem lies in the policy fragmentation across ASEAN, which disrupts the operation of circular value chains that span across national borders.

Financing gap represents a major challenge because public funding exists but does not provide enough capital to expand circular business models from their current pilot stage to widespread implementation.

Against this backdrop, AMS should aim to establish policy harmonisation as the top priority instead of simply focusing on trade liberalisation.

Insights from ACEF 2025

The ASEAN Circular Economy Forum (ACEF) 2025, held in Kuala Lumpur on 16-17 October under the theme “Accelerate the Circular Economy Transition in ASEAN with Green Skills, Innovative Solutions, and Investments”, convened more than 500 participants from across the region to examine how capital can be mobilised to translate circular economy ambitions into market-ready solutions.

Across the discussions, a consistent message emerged. While ASEAN offers strong potential for scaling circular business models, particularly in areas such as waste management, sustainable consumption and resource efficiency, early-stage ventures continue to face structural financing constraints.

Investors and practitioners highlighted three enabling conditions that remain critical to scaling circular solutions: clear and predictable policy signals, demonstrable commercial viability, and credible impact measurement frameworks.

The discussions also highlighted the importance of patient capital in supporting c

ircular enterprises through their formative stages, where ESG integration, operational learning and innovation capabilities are still being developed.

Practical examples from across sectors illustrated how circular approaches – ranging from agricultural waste valorisation and durable materials innovation to service-based consumption models and e-waste recovery – can enhance competitiveness and long-term value creation when supported by appropriate financing structures.

Despite the diversity of sectors and solutions discussed, access to patient and well-structured capital emerged as the most persistent constraint. This points to the need for closer coordination between institutional investors and policymakers to bridge the gap between circular ambition and scalable implementation across ASEAN.

Bridging the Investment-Implementation Gap

The ACEF 2025 conference discussed that circular economy funding does not face barriers from insufficient business prospects because investors face challenges that current projects cannot address. The blended finance mechanisms operate as risk reduction tools for circular economy investments through their combination of public funding at reduced rates with commercial investment capital.

Retirement funds, financial institutions and sovereign wealth funds have an opportunity to support the circular transition by embedding circular economy assessment standards into their investment guidelines, informed by practices demonstrated by Malaysia’s public sector pension fund, Kumpulan Wang Persaraan (Diperbadankan) [KWAP].

Policy harmonisation requires immediate attention. The ASEAN region requires standardised rules that should include certification recognition systems, unified Extended Producer Responsibility programmes and established procedures for moving secondary materials between countries.

The ASEAN Circular Economy Stakeholder Platform maintains existing infrastructure for knowledge sharing. However, we need to establish this knowledge base throughout public sector organisations and private companies as well as banking institutions. All parties involved must use the same playbook during circular economy project planning and budgeting activities.

ACEF 2025 identified that the constraints to circular economy investments are not due to a lack of opportunities but the systemic mismatches between what investors seek and what ventures are able to provide. To this end, blended finance mechanisms have the ability to de-risk circular economy investments—combining concessionary public financing with commercial capital.

Institutional Investors as Catalysts: The KWAP Model

Across ASEAN, public pension funds and long-term institutional investors are increasingly exploring how sustainability objectives can align with fiduciary responsibilities. Malaysia’s public pension fund, KWAP, provides one example of how such alignment can be operationalised through long-term capital deployment.

Managing over RM185.6b (approximately US$45b) in assets, KWAP shows that long-term financial returns and sustainability objectives can reinforce each other through commitments that include achieving a Net Zero Portfolio by 2050 and increasing investments in transition assets to RM20b by 2030.

Thus far, KWAP has launched three catalytic investment programmes. Dana Perintis (RM500m) invests its funds into local start-ups through venture capital support for agritech and automated manufacturing businesses.

The Dana Pemacu (RM6b) investment fund operates through a co-General Partner model, which unites international investment experts with Malaysian-based professionals to support food security and energy transformation initiatives.

Last but not least, Dana Iklim⁺ (RM2b) investment fund serves as Malaysia’s initial climate-focused investment fund, which operates under an impact measurement system that monitors climate resilience and SDG-related co-benefits.

At the same time, KWAP has also launched various initiatives and activities to further promote this agenda domestically. The KWAP Inspire Conference 2024 took place to advanc

e circular transformation for a climate-smart Malaysia through the theme Advancing Circular Transformation for a Climate Smart Malaysia. The Conference also launched the Circular Economy Young Leaders for Change (CYCLE), a youth-driven initiative that promotes circular economy principles.

Others include the “Fuel the Future” campaign, which collected 742kg of used cooking oil for conversion into Sustainable Aviation Fuel (SAF). This was part of a collaborative initiative with Petronas Dagangan Berhad (PDB) and FatHopes, demonstrating

KWAP’s dedication to developing closed-loop systems that benefit both the company and its members.

Renewable Energy as Circular Economy Infrastructure

While the circular economy seeks to improve material flow, the transition towards a circular economy requires a simultaneous transformation of energy systems. KWAP’s investment in Vantage Solar UK Ltd (VSUK) demonstrates how renewable energy is a part of circular economy infrastructure.

VSUK has generated a consistent amount of greenhouse gas (GHG) emissions avoidance through its 365MW solar generation capacity, which equates to avoiding 49,057 tonnes of CO₂e in FY23 and 46,141 tonnes of CO₂e in FY24. These amounts were derived using Partnership for Carbon Accounting Financials (PCAF) emission factors and Project Finance methodologies.

The kind of transparency demonstrated by KWAP’s disclosure of VSUK’s carbon impact represents an important step forward in the development of institutional investor accountability for climate-related disclosures.

According to PCAF reporting standards, KWAP must measure and disclose the total amount of GHG emissions associated with its portfolio. This transparency makes the carbon impact of the project quantifiable. Additionally, the avoided emissions data, designated as PCAF Data Score 2, provide high-quality proof of the contributions made to decarbonisation by VSUK while providing clean electricity to approximately 87,000 UK households per annum.

To understand what the circular economy actually entails, it is useful to think about the requirements of the circular economy: manufacturing recycled materials, operating reverse logistics and powering remanufacturing facilities. All of these requirements necessitate energy. Where that energy comes from renewable resources, the potential for climate impacts of the circular economy increases.

KWAP’s portfolio-based approach enables synergies to exist when both clean materials and clean energy are used together, while at the same time maintaining strict reporting and measurement standards to ensure that there is real accountability.

The Path Forward

Experie

nces from across ASEAN demonstrate that circular economy solutions can be financed, scaled and mainstreamed from within the region.

Yet important questions remain. If circular business models are increasingly viable, why do they continue to struggle to access patient capital at scale across ASEAN?

The direction is clear. The region has begun to lay the foundations for a circular transition through policy frameworks, growing investor interest and emerging business models. However, progress will not be automatic, nor is success guaranteed.

Advancing the circular economy requires deliberate and coordinated action through a triple helix approach. Policymakers must continue to shape enabling and coherent frameworks. Industry players, including investors and entrepreneurs, must deploy patient capital and scale circular solutions. Meanwhile, citizens must increasingly demand products and services designed for circularity. Whether ASEAN can capture the economic opportunity of the circular economy while addressing its environmental imperatives will depend on the choices made today. The pace and coherence of those choices will shape the region’s long-term resilience and prosperity.