Asia Bolsters its Position as a Sustainable Bond Hub
As Asia-Pacific economies focus on the path to clean energy and net-zero emissions, the region’s sustainable fixed-income market is following suit with robust issuance and sales of ethically focused bonds.
The growth of Asian green bonds has continued unabated this year, with US$74.3 billion raised in the six months to 30 June 2022. This represents a third of total sustainable issuance globally. China accounted for the bulk of the deals, with 116 organizations tapping the market for US$48.2 billion through 190 deals1. This trend looks set to continue, with China’s National Association of Financial Market Institutional Investors saying in June that it would promote transition bonds, especially in sectors such as power, construction, and aviation, in a bid to help the China meet its carbon-neutrality target by 2060.
The Pace of Regional Developments
Elsewhere in the region, Japan’s prime minister Fumio Kishida revealed plans to sell ¥20 trillion (US$157 billion) worth of green bonds2. This pace was mirrored by Japan’s industrials, which are accelerating their pursuit of net zero with significant transition bond deals that comfortably outstrip the volumes witnessed in 20213.
And in Singapore, the government sold the world’s first 50-year sovereign green bond, which came to the market in early August 2022. The S$2.4 billion (US$1.7 billion) oversubscribed deal will help fund environmentally friendly infrastructure projects across the city-state4.
Smaller markets have also been active this year, with an inaugural ethical bond sale by the biggest lender in the Philippines that raised PHP53 billion in late January 20225. More broadly, the Asian Development Bank is now the second-largest issuer of social debt6. It helped a state-owned bank in Thailand issue its debut social bond, with the money earmarked for projects aimed at poverty reduction and narrowing the equality gap7.
Energy-Focused Issuance Dominates
Drilling deeper and what emerges is the regional dominance of energy transition bonds, with Japan, as noted earlier, being an excellent example of this development. Across the region, roadmaps are being drafted to help companies achieve a timely transition toward cleaner energy. In tandem, we see bond issuance by utility companies, heavy industry, and airlines and automotive manufacturers.
Bond investors should also be mindful of current newsflow that could signal future developments in the fixed-income market. These include a focus on renewable energy, with a leading Indian banker predicting U$150 billion of investment in the sector by 20308.
Similarly, Indonesia’s state utility company has earmarked US$35 billion for hydropower and solar projects9, while in Singapore, companies have been invited to tender for the development of a cross-border renewable energy network10. On a separate note, Asia’s leadership in manufacturing electric vehicles and related elements could boost bond markets as companies seek funding to expand.
A Lack of Standards Remains Challenging
That said, the current backdrop may appear encouraging, but challenges remain. The European Union has already cemented its leadership in unifying ESG finance standards by establishing a bloc-wide common green taxonomy. In contrast, Asia lacks a similar regional framework, which, if created, would make it easier for investors, businesses, and governments to move towards net zero.
Currently, there is a fragmented mix of individual taxonomies from each jurisdiction. For instance, in January 2022, climate reporting by bond issuers became mandatory at Singapore’s SGX, which is in line with the Task Force on Climate-related Financial Disclosures (TCFD). Contrastingly, Hong Kong Exchanges and Clearing won’t make such reporting compulsory until 2025, whereas Bursa Malaysia is still formulating its position.
The Emergence of a Common Taxonomy
However, that’s not to say a unified approach is out of scope. Indeed, efforts to forge a common ground with green taxonomies remain a work in progress. Still, we see positive developments with ASEAN’s Catalytic Green Finance Facility and the Green Recovery Platform. These form part of the ASEAN Taxonomy for Sustainable Finance, an initiative proposed by regional finance ministers and central bank governors. Unveiled at the COP26 meeting in Glasgow, it seeks to promote sustainable activities and investments. It has already enjoyed some success, with the Thai central bank pledged to align its rules with those principles.
Activity in fixed-income markets may be outstripping the establishment of taxonomy frameworks, but with developments in Europe acting as a blueprint of what can be achieved, the two should eventually align. Ultimately, this should be supportive of investors in Asia’s local-currency bonds.