Asia’s appetite for sustainable finance – green bond growth in emerging markets and need for capacity building
As 2018 comes to an end, it is an opportunity to reflect on some of Asia’s progress in green finance. Asia is home to a diverse range of financial systems that vary in maturity and sophistication including developed and emerging markets. Despite this diversity, CSR Asia’s regional mapping research conducted as part of the Fair Finance Asia Programme found commonalities in 1) the growing appetite for green finance across the region and 2) the realisation of the need for increasing the capacity of financial institutions regarding sustainability and topics related to Environment, Social and Governance (ESG).
Status on Green Bonds
One piece of evidence of the region’s growing interest in sustainable finance this year, has to do with green bonds in emerging markets. Despite having been around for over a decade, green bonds have finally recently become prevalent in less mature, emerging markets where we have seen a number of milestones for green bond development in 2018.
ASEAN Green Bond Standards
This year, ASEAN countries increased collaborative efforts on green bond issuance with the launch of the ASEAN Green Bond Standards. These standards will help ASEAN countries implement their commitments to reduce carbon emissions under the Paris Agreement and is intended to enhance the transparency for issuers of green bonds, reduce due diligence costs and help investors make informed decisions.1 In Southeast Asia, issuance of green bonds is predicted to reach US$5 billion, more than double from 2017.2
Countries issuing their first green bonds
Of the seven countries reviewed under the Fair Finance Asia Programme, three issued their first green bonds this year: India, Indonesia and Thailand, all of which are emerging markets.
The State Bank of India, the largest public-sector bank of the country, issued the first US$650 million green bond in 2018. The final order amounted to over US$1.25 billion with 114 accounts.
Indonesia became the first sovereign green bond issuers in Asia, raising US$1.25 billion. The bond is designated to renewable energy projects, green tourism and waste management. In addition to being green, the bond is also an Islamic Bond, which means it complies with Sharia — Islamic religious law.. Compared to other green bonds that have been issued in Asia, this government-issued bond is the first of its kind in Asia as other green bonds in the region are issued by corporate entities.
Around the same time in Indonesia, the first Corporate Sustainability Bond in Asia was also issued.3 This US$95 million bond will finance a sustainable rubber plantation on heavily degraded land in Indonesia. The project is expected to conserve 450 square kilometres of the total 880 square kilometres for community livelihoods and nature conservation.
Thailand’s TMB Bank launched their first green bond with the World Bank’s IFC as the sole investor. The funds are intended to support private sector investments for projects that address climate change, in particular, renewable energy. It is intended to support Thailand to achieve its target of reducing greenhouse gas emissions by 20% by 2030.
China continues to dominate the scene
It is impossible to leave China out of the conversation when talking about green bonds. China continues to be the largest driver of the green bond market in Asia with more than 75% of the region’s share of green bonds. Back in 2017, China’s green bond issuance already made up 15% of the global bond issuance, the world’s second largest green bond market.4 As of the end of Q3 in 2018, China continues to be the second largest issuer in the world, following the U.S. The total amount of green bond issued in the first three quarters of 2018 reached US$21.5 billion.5
Growing interest – need for capacity building
The popularity of green bonds is one of many examples demonstrating the growth momentum of green finance in Asia6. It is the market’s early stage towards a more mature sustainable financial system. Emerging markets are often developing countries that are more likely to experience pressing environmental and social issues compared to developed countries. Thus, the sustainable development of emerging markets can be better secured when there is a green financial system in place.
With the rapid growth of emerging markets in Asia, in parallel with the growing interest in green finance, this presents an optimal window of opportunity for sustainability professionals to engage with key financial institutions to develop their knowledge and capacity of ESG. Back in 2016, the Sustainable Banking Network (SBN) had already identified the need for capacity building as one of the key barriers for greening the banking system.7 We are seeing evidences where countries are realising the need for capacity building as knowledge gaps and lack of training are hindering financial institutions from securing opportunities to develop new sustainable financial products.8 Members of the SBN, particularly Philippines and Vietnam, have committed to building the capacity of key players within their financial systems.
As part of the Fair Finance Asia Programme, CSR Asia will provide support to meet this capacity building need by engaging financial institutions, especially those from emerging markets, and to strengthen their internal capacity through a series of training on ESG-related topics. Covering issues ranging from climate change, gender equality, supply chain risks, to financial inclusion, we will draw on our experiences in Asia to demonstrate the strong business cases for financial institutions to act responsibly. Most importantly, we will work with financial institutions and support in identifying opportunities to convert this information into tangible business solutions in the form of green financial products and services.
To learn about the Fair Finance Asia Programme or to express your interest in getting involved, please contact us at Jocelyn.ho@elevatelimited.com.
More on the Fair Finance Asia Programme:
The Fair Finance Asia Programme aims to reduce the negative impacts of investments of regionally operating banks and insurers in Asia on human rights, environment and climate change, and on increasing their investments in pro-poor inclusive economic development. The cross-border nature of the industry requires an approach targeting both national and regional levels. The programme operates in seven countries: Cambodia, India, Indonesia, Japan, Philippines, Thailand and Vietnam. The programme will work with different stakeholders and their networks such as civil society organisations, governments (at national and regional level), financial institutions, financial regulators, investors and development banks. This five-year programme will work in close alignment with the Fair Finance Guide International network and its methodology to assess and policy and practices of financial institutions. The programme will influence and engage financial institutions and regulators to promote a sustainable financial sector in Asia, with financial sector institutions operating at national and regional levels, being more transparent and accountable and adhering to ESG criteria.
3. http://www.csrwire.com/press_releases/40803-First-Corporate-Sustainability-Bond-in-Asia-Issued-by-TLFF-for-a-Natural-Rubber-Company-in-Indonesia