Global sustainable bond issuance dropped for the first time by 25% y-o-y to US$849 billion ($1.14 trillion) in 2022, according to estimates, weighed by tighter financing conditions and increased scrutiny by investors.
Asean, however, bucked the trend, with sustainable bond supply growing 18% y-o-y to US$21.1 billion owing to a relatively low base, says Maybank Research in a March 4 note.
Label issuances for corporates in the region actually fell last year, but growth was driven by sovereign green and sustainability debuts such as the Philippines’ 25-year sustainability US dollar bond and multi-tranche Sustainability Samurai Bonds — yen-denominated bonds issued in Tokyo by non-Japanese companies
Other factors driving Asean’s issuance spurt include Singapore’s inaugural 50-year SGS (Infra) and HDB green bond, as well as Malaysia’s 15-year sustainability Government Investment Issues (GII).
Singapore remains the regional leader, though with a lower share of 29%, followed by Thailand with 21%, Malaysia and Philippines 18% with each, and Indonesia with 13%.
See also: MAS prices Singapore’s $2.4 bil 50-year inaugural sovereign green bond
By type, Asean’s sustainability bond issuances remain primarily driven by green and sustainability bonds, according to Maybank Research analysts.
See also: HDB to issue $800 mil in five-year green senior bonds with 4.09% p.a. coupon
Elsewhere, issuances from the Europe, the Middle East and Africa (EMEA) and North, Central and South America (AMER) regions declined, while Asia Pacific (APAC) increased slightly.
APAC’s share of issuance rose to 31% from 23% in 2021, though EMEA still leads with a slightly lower share at 42% from 44% the year prior and AMER at 12%, down from 14%.
The key drivers in APAC issuance were China and Japan, where central bank policy directions diverged from major developed markets.
In Europe, the energy crisis complicates energy security against climate efforts, while more rules have been implemented, such as mandatory reporting and disclosure compliance with the EU Taxonomy and Sustainable Finance Disclosure Regulation (SFDR).
According to Maybank Research, issuances may resume growth this year on continued drive to invest in climate change, but the pace will depend on evolving policy and regulations as well as global demand for bonds.
See also: Asia ex-Japan ESG bonds to remain flattish from all-time high in 2021: J. P. Morgan
Transition, or 'brown' bonds
The shift towards clean energy is unlikely to be reversed, but rather than solely removing fossil fuel funding, more focus will likely be paid towards decarbonisation to protect energy security, especially after the Russia-Ukraine war and high commodity prices last year drove a surge in energy prices, note the Maybank Research analysts.
Transition bonds are useful for companies aspiring to shift to more sustainable business practices, but may not be considered entirely green, they warn.
One example is JERA Co Inc, Japan’s largest power generation company, which issued 20 billion yen ($0.20 billion) transition bonds to fund the development of decarbonisation technologies, such as the cofiring of fossil fuel and ammonia/hydrogen at power plants.
Transition bonds took off in Japan during 2022 after the release of its climate transition finance guidelines.
Other major markets for transition bond issuance have been Canada, Italy, Hong Kong and the US, but transition bonds are still negligible in the global sustainable bond space, making up less than 1% of global sustainable bond issuances.
There is room to grow with Japan planning to issue 1.6 trillion yen of sovereign transition bonds for the next fiscal year, note Maybank Research’s analysts.
Asean has yet to see a transition bond issuance, probably due to lacking relevant framework, and remains primarily driven by green and sustainability bonds, they add. “However, there are concerns about investing in transition bonds given the risk of greenwashing accusations, financing of stranded assets and lack of agreed standards for using such labels.”
Mitigating greenwashing
Regulators are attempting to address greenwashing concerns. Research from the Hong Kong Monetary Authority (HKMA) suggests that green taxonomies and more comprehensive environmental disclosure requirements help reduce the probability of greenwash behaviour, write Maybank Research’s analysts.
“The EU’s taxonomy was among the first to be implemented, and the downgrade of at least US125 billion funds from Article 9 to Article 8, according to BloombergNEF, indicates the taxonomy is having an impact,” they add.
Article 8 funds promote environmental or social characteristics but do not have them as the overarching objective. Article 9 funds, meanwhile, specifically have sustainable goals as their objective. For example, investing in companies whose goal is to reduce carbon emissions.
