ASEAN sees sustainable increase in debt

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Enthusiasm across Asean to allocate capital to the Covid-19 response, as well as to facilitate long-term, low-carbon and climate-resilient economic growth, has led to record issuance of sustainable debt .

In the region’s six largest economies, green, social and sustainable (GSS) debt reached $24 billion last year, up from $13.6 billion in 2020, or 76.5% year-on-year. Additionally, sustainability-related debt totaled $27.5 billion, a 220% jump from $8.6 billion in 2020.

This is based on a new report from Climate Bonds Initiative and HSBC.

It highlighted various market driving factors including favorable regulatory developments. “Work is underway to establish green taxonomies that will provide a clear and common definition of sustainable activities,” the report says.

Investor demand has also increased from multiple sources, including a better understanding of climate risk. Additionally, there is enthusiasm for explicitly aligning sustainable investments with the United Nations Sustainable Development Goals and Paris Agreement goals.

At the same time, there is a growing trend of more companies aligning climate risk into their business strategies.

“In particular, this has led to a noticeable increase in corporate interest in sustainability-linked loans, which offer flexible product usage while allowing companies to meet their sustainability goals and targets,” said Kelvin Tan, Managing Director, Head of Finance and Sustainable Investments, Asean, at HSBC.

Green the region

In the GSS market, green-labeled debt – encompassing green bonds and green loans – remained the most popular in 2021, accounting for nearly two-thirds (63.9%) of Asean’s GSS transactions.

In particular, buildings and energy continued to represent the main use of the proceeds of this debt; they were collectively responsible for 79.5% of the cumulative use of proceeds from green debt issued by ASEAN between 2016 and 2021.

While non-financial corporate issuers were generally responsible for most (79%) of regional green volumes in 2021, research showed that sovereign issues dominated the social and sustainable market, accounting for 51% of issues.

Growth potential

Despite a record broadcast in 2021, however, there are still gaps to fill.

“High-emitting and hard-to-mitigate sectors need to move quickly from brown to green. This includes activities, assets and projects related to energy, heavy manufacturing and agriculture,” said Sean Kidney, Managing Director of Climate Bonds Initiative.

While grassroots initiatives such as Singapore’s Green Financial Industry Taskforce (GFIT) are a good start, Kidney believes there is more urgency to making vulnerable regions like Asean less exposed to the consequences of climate change.

Further work is underway at the regional level, with the Asean Taxonomy Council publishing a draft Asean taxonomy in November 2021. In addition, a growing number of countries are making progress in developing their own taxonomies, such as Malaysia, Singapore, Thailand and Vietnam.

Tan added at HSBC: “Much more finance needs to be deployed to mitigate and adapt to climate change. This mobilization of finance will support our transition to a low-carbon economy, which will be key to achieving the goals of the Paris Agreement and mitigating the devastating effects of climate change for the Asean region.

As an example of the potential for growth, the transition bond market is still nascent. Asean saw its first transition bond in 2021 with the Chinese Construction Bank in Singapore issuing a $2 billion deal designed to support China’s carbon-intensive industries, such as gas and other generators. electricity, manufacturing and steel production.

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