Insights

How Asia Allocates the Proceeds of its Green Bond Sales

Amid rising green bond issuance among ASEAN+3 markets, we explore sustainable capital allocation across the region and assess the outlook for the remainder of 2023 and beyond.

November 2, 2023 5.6 min read

Kheng Siang Ng, CFA, CAIA

Asia Pacific Head of Fixed Income, Head of SSGA Singapore

At the end of June 2023, the sustainability-linked fixed-income market across the ASEAN+3 bloc (the ten member states of the Association of Southeast Asian Nations, plus Japan, Korea, and China) had reached USD 694 billion in value. Globally, the sustainability-linked bond market touched USD 3.6 trillion in outstanding issuance.¹

The sustainability-linked bond market encompasses a broad range of instruments with specific ethical objectives. These include green bonds designed to fund renewable energy projects that help improve power efficiency, boost climate-change adaptation, and reduce pollution levels. Other examples of issuance under the sustainability-linked umbrella include social bonds, which target improvements in social infrastructure, such as housing, and transition bonds that help companies move from non-sustainable business models to more ethical structures.

Ethically Financed Projects Across Asia

As with many investment concepts, behind market definitions and statistics lie real-world examples of how global finance is harnessed. In ethical terms, we’ve taken a closer look at how Asia’s local-currency bond market helps underpin sustainability-linked projects across the region.

For instance, in Singapore, SGD 700 million from an SGD 2.4 billion tranche of sovereign green bond issuance has been earmarked for the development of two new train lines. It is estimated that this expansion of the public transport network could remove the equivalent of 22,000 cars from Singapore’s roads every year, thereby supporting the government’s efforts to decarbonise the economy. The bonds were issued with a 50-year maturity and sold to the general public and institutional investors.²

Meanwhile, as part of its drive to become an international green financing hub, the Hong Kong government issued nearly USD 16 billion in green bonds from its inaugural offering in 2019 to January 2023. The capital has been used to fund projects such as water and waste management systems and the development of environmentally friendly buildings.³ Elsewhere, 2023 also saw the Indonesian government enter the ‘blue bond’ market as it raised capital to fund marine-related conservation projects.⁴

Corporate Asia Sees an Increase in Issuance

Activity is not limited to sovereign issuance, with a leading Philippine bank releasing its third tranche of green bonds in 2023. The money will be used to pay for climate-friendly agriculture projects, sustainable buildings, and electric vehicle adoption.⁵ Similarly, one of Thailand’s largest utility providers raised THB 500 million to fund solar energy projects.⁶

In August 2023, a Malaysian renewable energy specialist revealed that they would sell MYR 390 million of green bonds to pay for the rollout of solar-power installations. This move is also significant as it will be the world’s first certified green sukuk that could act as a foundation stone for a more established sustainability-linked sukuk market.⁷

Farther north in Korea, a major energy solutions firm successfully sold USD 1 billion in green bonds to help develop its range of battery and energy storage solutions.⁸

A Transitioning Market

The lessons learned from the growth of its green fixed-income market are encouraging China to develop a transition bond market. In the wake of a pilot scheme launched in 2021, 2022 saw USD 19.6 billion in transition issuance that will, for example, assist energy companies with their shift to hydrogen power and encourage the growth of China’s electric vehicle segment.⁹

Cross Border Initiatives and Strong Investment Tailwinds

In a recent research paper, S&P Global said it expects global sustainable bond issuance to breach the USD 900 billion barrier in 2023. That said, the journey ahead may inevitably encounter roadblocks, with the report noting that elevated interest rates have made shorter-maturity green bonds issued by financial institutions in China, for instance, less appealing, and issuance declined in the first half of 2023 compared to 2022.¹⁰

Efforts to create a consistent regulatory framework for green bonds are also proving fruitful. China and Singapore announced in April 2023 the development of a Green Finance Taskforce.¹¹ This will allow for the cross-border issuance of sustainable bonds. In the future, other ASEAN members may join the initiative. China has also been working with the European Union to create common definitions for sustainable bonds, which should enable cross-border issuance and trading.

The pressure on governments and businesses to meet future emission reduction commitments is likely to provide a robust tailwind for the issuance of green bonds. Additionally, growing regional collaboration regarding frameworks will help define exactly what a ‘green’ bond is, providing regulatory clarity for issuers and investors alike.

Footnotes

Disclosure

All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone.

Past performance is not a reliable indicator of future performance.

Diversification does not ensure a profit or guarantee against loss.

International Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

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Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

The example mentioned is for illustrative purposes only.

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Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.

The views expressed in this article are the views of Kheng-Siang Ng through the period ended 24 October 2023 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

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