Is the sustainable finance focal point Asia-bound?

Environmental, Social and Governance (ESG) has quickly gained advocacy, reflecting a shift towards investing with green, social and sustainable options. As the appetite for sustainable finance in Asia is rising fast, Asia could be the primary focus for sustainable finance.

Green and sustainable finance has seen more Asian-based issuers lately.

Hong Kong has emerged as an Asian capital markets hub for green bond issuance, with an estimated $11 billion in green bonds issued in 2018. The rapid growth of green bonds has been driven by large-scale new green bond issuance in China in 2017 and last year. China has opted to embrace green finance as part of its 2015 five-year plan. Last year, China’s green bond issuance totaled $34 billion, with Chinese lenders responsible for more than 50% of total green bond issuance by banks, according to data compiled by the ratings agency S&P Global.

In India, Adani Green Energy, the renewable power arm of Gautam Adani-controlled Adani Enterprises, is set to raise $500 million through an overseas bond sale. GMR group controlled Delhi International Airport (DIAL) raised $350 million via similar type of issuance where bonds were priced at 6.45 per cent, 30 bps tighter than the 6.75 per cent initial guidance.

Large numbers in terms of people and liquidity, the change in mindset and the bolstering actions of regulators and government officials are stimulating the adoption of green and sustainable finance in Asia.

Asia-Pacific has been very active

Financial institution groups across the Asia-Pacific have been very active in sustainable finance. Japan’s massive pension fund GPIF is committed to investing a hefty share of its US$1.5 trillion assets into green bonds and Singapore, Hong Kong and Indonesia are promoting green finance.

In July, a statement issued by the British High Commission in New Delhi said Britain welcomes Indian organisations looking to access green financing. Indian issuers have raised 1.5 billion pounds on the London Stock Exchange through green bonds over the past two-and-a-half years — including through Indian Renewable Energy Development Agency’s (IREDA) ground-breaking 216 million pounds green masala bond.

At the recently concluded Hong Kong Green Finance Association (HKGFA)’s Annual Forum, HKGFA announced the plan to establish the Green Finance Alliance to facilitate the greening of the Greater Bay Area. Hong Kong, working jointly with Shenzhen, Guangzhou and Macau, has the potential to create the world’s most dynamic green finance market in the Greater Bay Area in the coming years.

The report ESG New Era: Corporate Insights and Facts in China Market, by HKGFA and CECEP Environmental Consulting Group Limited (CECEPEC) revealed that 70% of respondents believe that companies that attach importance to ESG have greater comparative advantages and are more competitive in the marketplace compared with their peers. In addition, more than 90% of respondents said that they had already incorporated ESG into their corporate governance or considered incorporating ESG into their corporate governance practices over the next three years.

The Hong Kong government issued the first US$1 billion inaugural green bond in May this year under the HK$100 billion Government Green Bond Programme, the proceeds for which will be used to finance or refinance public works projects that provide environmental benefits and support the sustainable development of Hong Kong.

Center of gravity of sustainable finance

The growing demand in Asia for green financing and it coming from multiple sources was highlighted in a recent interview with Raj Malhotra, managing director, head of debt capital markets Asia-Pacific, at Societe Generale by The Asset.

While sharing his observations and some details on the positive and growing impact of sustainable finance in Asia, Raj added:”By sector, sovereigns, supranationals and agencies, these tend to be the largest issuers in Asia. We’ve seen Indonesia with their green sukuk, and then Hong Kong did a green bond and South Korea issued its debut this year as well.

“There’s going to be a significant need for renewable energy, for ways of producing and transporting food more efficiently, for healthcare and for education. With a young population in Asia, we’re also going to need a lot of infrastructure in place for the coming smart cities.”

Investors and issuers green bonds in Asia expect an alignment of standards to take place as this asset class is gaining traction in the secondary markets.