Palm oil is almost everywhere – from the snacks we eat to the shampoo we use – and increasingly as biofuel. Indonesia and Malaysia dominate global production but decades of oil palm expansion have, in some instances, been associated with deforestation, biodiversity loss, pollution and greenhouse gas emissions.
Sustainable palm oil offers a way to break this cycle. By following strict environmental standards, producers can ensure forests, peatlands and wildlife are protected. China, currently the world’s second largest palm oil importer, is beginning to use green procurement to drive the industry towards sustainability.
In 2024, China imported 4.36 million tons of palm oil. Nearly 500,000 tons of this was certified sustainable by the Roundtable on Sustainable Palm Oil (RSPO), the leading certification body for promoting ethical palm oil. By July 2025, 480 Chinese companies were members of the RSPO.
There is huge potential for China to support green agriculture like this across Asia’s developing countries.
At the Institute of Finance and Sustainability, a think-tank based in Beijing, we recently published a report on the issue. We found that China stands at a turning point: it has the opportunity to go from being just a source of demand for agricultural produce to a catalyst for the region’s shift to green farming.
In a nutshell, China can buy more sustainable agricultural products, creating green value chains. While on the supply side, it can use and improve green finance mechanisms to invest in sustainable farming practices.
Agriculture needs a faster green transition
As well as providing nourishment, farming accounts for a large share of jobs and GDP in the Asian developing nations our report covered. These nations are also highly vulnerable to climate change and will suffer some of its worst impacts.
The report focussed on the 10 nations belonging to the Association of Southeast Asian Nations (ASEAN), excluding the high-income nation of Singapore. These are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Thailand, Vietnam, Timor-Leste. It also covered the eight South Asian countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
Currently, in parts of these countries, agricultural expansion may involve land conversion, inefficient water use and overapplication of agricultural chemicals. A coordinated transition to greener farming models is urgently needed in these countries. This is not just to meet environmental and climate goals, but also to provide inclusive growth for people in rural areas.
More buyers and investments are needed
Two main things are hampering the green transition of agriculture in Asia’s developing nations.
The first is a lack of buyers for sustainable agricultural products, both at home and abroad. This makes it hard for projects to get investment and means farmers and firms lack motivation to shift to greener models.
When it comes to selling overseas, these countries struggle due to a lack of detail in their sustainability standards and because their certification regimes are not well established or widely recognised. Few mechanisms exist to aid mutual recognition with standards in target markets, such as China and the European Union, or green-trading mechanisms that might be built on that alignment. Such markets increasingly demand sustainable food products but buy little from Southeast and South Asia.
The second problem is a lack of commercial investment. This comes down to an unfavourable risk-reward ratio for green agriculture projects. Green finance tools and policy support are sorely needed.
The need to improve green finance
In Asia’s developing nations, much of green finance is anchored in debt instruments – green loans and green bonds. The ecosystem for green investment funds and climate-linked insurance remains nascent. It is mainly governments and a handful of big financial institutions that participate in green finance markets. The market lacks vigour due to a paucity of smaller institutional and private investors.
In these nations’ agriculture sectors, sustainable finance standards are not yet fully formed and policies incentivising use of green finance are lacking.
Green finance from overseas could do much more. This kind of investment in Southeast Asia up to 2023 stood at USD 45 billion – far less than the estimated USD 1.5 trillion the region needs until 2030 to fund its green transition. In any case, little of that went to agriculture.
Investment is constrained by the lack of common standards for sustainable agricultural financing and associated certification, as well as product labelling. This increases risk and compliance costs for international companies.
Sustainable agriculture projects tend to be small, diverse and scattered. International investors find it difficult to package them up for large-scale investments and to use standardised financial instruments, as they can in the energy and transportation sectors.
Something that can help is the blended finance mechanism. This sees public or philanthropic funds helping to mobilise private investment, for example through subordinated debt so smallholder farmers can make green upgrades. But less than 10% of blended finance in Southeast and South Asia is spent on agriculture, according to a 2024 report by Convergence.
China’s strengths: Purchasing power and green finance
China imported USD 215 billion of agricultural products in 2024, but only 16% came from Southeast Asian nations.
As China is importing large amounts of agricultural products from developed economies like the US, EU and Australia, a portion of those purchases could be shifted to developing Asian nations, with a focus on certified sustainable agricultural products, demand for which is growing in China.
China’s leading agri-food companies could create the necessary supply chains, from field to factory to port. They have predictable market demand, can use contract farming embedded with sustainability requirements, provide technical guidance and build processing and cold-storage facilities.
These companies could then support smallholders and small food businesses in meeting sustainability requirements, through transfers of agricultural technologies and capacity building.
If China establishes mutual recognition of sustainability certification for key products such as rice, fruit and palm oil, and simplifies certification and customs processes, green imports from Asia’s developing nations will jump.
China has the world’s largest green loans and green bonds markets and a good range of green financial products. However, these are mainly used domestically. Most Chinese agri-food companies have not yet used innovative green financial instruments, like sustainability-linked loans, to promote a green transition in Southeast and South Asia.
Such loans depend on the performance of the borrowing company. The interest rate will fall if it hits given targets, such as 50% of its output or purchases being certified sustainable.
Most Chinese agri-food companies still lack awareness of such financial products. Across developing Asia, basic climate and environmental data is generally lacking for agricultural products, while sustainability certification and green trading mechanisms are not yet in place.
Changing this situation could empower Chinese firms to drive a wholesale green transition in Asian agricultural value chains.
China as the green catalyst
As China’s engagement in green finance, trade rules and regional cooperation continues to grow, the country can help accelerate Asia’s agricultural green transition as a catalyst.
First, China can collaborate with regional partners to promote greater alignment of sustainability standards and enhance mutual recognition of agricultural products and financial mechanisms. These collaborations could reduce compliance costs and lower entry barriers to green products and financial markets. Linking these efforts with measures to facilitate green trade, such as by lowering tariffs and raising import quotas for certified sustainable products, would incentivise producers to shift practices.
Second, China can play a constructive role in supporting sustainable market practices and promoting corporate engagement. Strengthened sustainability disclosure requirements for large agri-food companies would help promote a green transition along value chains, rather than at isolated production sites. Combined with large-scale green procurement and greater outbound investment in sustainable agriculture across Asia, these efforts could send a clear demand signal to producers. Expanding the use of green financial instruments – along with RMB-denominated financing for agricultural trade and logistics – would also help lower the cost of capital for the green transition, particularly where RMB financing offers relatively lower borrowing costs.
Finally, China can help de-risk investment through regional financial cooperation. Favourable lending terms remain crucial for agricultural production and trade infrastructure in developing Asian countries, particularly when blended finance mechanisms are used to crowd in private capital. China can play a role in such lending through multilateral development banks it plays an important role in, such as the Asian Infrastructure Investment Bank, as well as through its national development banks. At the same time, improving “interoperability” among Asia’s voluntary carbon markets, especially for agricultural carbon credits, could improve the bankability of green agriculture projects and unlock new revenue streams for farmers.
Taken together, these actions would help to turn Asia’s agricultural green transition from a policy aspiration into an investable reality.
