ASEAN sustainable debt market hits record issuance volume

HDBank was granted a loan of US$50 million by Proparco - the French Development Finance Institution to serve green projects to promote sustainable development.

This growth reflects the regions’ enthusiasm to allocate capital for the response to the COVID-19 pandemic along with facilitating long-term, low carbon, and climate-resilient economic growth.

Green-labelled debt, encompassing green bonds and green loans, remained the most popular in the GSS debt market in 2021. 63.9% of GSS deals originating from ASEAN in 2021 were green, followed by sustainability (35.5%), with the latter showing an increase compared to 2020 (26%). The region saw a small volume of social debt issuances (0.6%) in 2021.

Buildings and Energy continued to represent the main use of proceeds for green-labelled debt in ASEAN. The two sectors received two-thirds of proceeds in 2019 growing to 79% in 2020. The cumulative regional picture remained the same in 2021. Buildings and Energy combined accounted for 79.5% of the cumulative use of proceeds of green debt issued from the ASEAN region between 2016-2021.

Non-financial corporate issuers were responsible for most (79%) of the ASEAN green volumes in 2021, while sovereign issuance continued to dominate the social and sustainability market, responsible for 51% of issuances.

Sustainability-linked debt saw an exponential growth, adding USD27.5bn of sustainability-linked bonds (SLB) and sustainability-linked loans (SLL) in 2021 and thereby exceeding the traditional GSS debt volumes. The cumulative figure for the SLL and SLB markets at the end of 2021 was similar to that of the green-labelled debt at around USD39bn.

The transition bond market is still nascent. ASEAN saw its maiden transition bond in 2021 with the Chinese Construction Bank in Singapore issuing a USD2bn deal designed to support China’s carbon-intensive industries, such as gas and other power generators, manufacturing, and steel production.

Growth in the ASEAN sustainable debt market continued to be encouraged by supportive regulatory developments in 2021. Work has been underway to establish green taxonomies that will provide a clear and common definition of sustainable activities. At the regional level, the ASEAN Taxonomy Board released a draft ASEAN Taxonomy in November 2021, while an increasing number of countries are progressing in developing their own taxonomies, such as Malaysia, Singapore, Thailand and Vietnam. Government grant schemes to subsidise the cost of GSS bond issuers has remained available, such as in Singapore and Malaysia. Requirements regarding sustainability reporting for corporates have been strengthened, as seen in Singapore, Indonesia and Thailand.

Investor demand is also growing from multiple sources. This includes greater understanding of climate risk from investors as well as enthusiasm to explicitly align sustainable investments with the UN Sustainable Development Goals and Paris agreement goals.

Mr. Kelvin Tan, Managing Director, Head of Sustainable Finance & Investments, ASEAN, HSBC said: “We are encouraged by the significant growth in sustainable debt issuance across ASEAN in 2021. While this growth is partly driven by enhanced regulatory support, there is an increasing trend where more companies are aligning climate risk with their business strategies. In particular, this has led to a notable increase in interest from corporates in sustainability-linked loans, which provide the flexible use of proceeds while still enabling corporates to achieve their sustainability objectives and targets. However, significantly more financing needs to be deployed, to mitigate and adapt to climate change. This mobilization of finance will support our transition into a low carbon economy, which will be critical to achieve the Paris agreement goals and mitigate the devastating effects of climate change for the ASEAN region.”

Mr. Sean Kidney, CEO, Climate Bonds Initiative said: “Several regional policies contributed to a rapid growth in sustainable finance in ASEAN and it’s clear there’s greater understanding of climate risk from both policy makers and investors. Despite the enthusiasm we see in the market, there’s still a huge gap that needs to be addressed - and quickly.  High-emission and hard-to-abate sectors must transition from brown-to-green rapidly. That includes activities, assets and projects linked to energy, heavy manufacturing industries and agriculture. Local initiatives such as the Green Financial Industry Taskforce of Singapore (GFIT) are a good start, but we need to move quicker to make vulnerable regions like ASEAN less exposed to the consequences of climate change.”