Green bond issuance in the Asia-Pacific region has reached record levels for a calendar year, as investors increasingly embrace a market they have traditionally shunned.
In the year to date, $18.89bn has been raised from 44 green bond issuances that were open to international investors, according to Dealogic data. That compares with $17.68bn from 43 issuances across the whole of 2018 and $500m from one deal in 2013.
Companies that are known for their green credentials in the equity markets have an “interest to be recognised similarly in the fixed-income market”, said Celine Pastor, director of capital markets origination at Citi, one of the biggest green bond underwriters in the region.
That has coincided with growing interest from investors in green finance, particularly over the past 12-18 months, she added.
Regional interest in environmental, social and governance, or ESG, investing has historically lagged behind global interest.
The size of China’s green bond market in 2019, accounting for 43 per cent of the regional total
In a recent HSBC report on sustainable financing report, more than a third of Asian investors surveyed noted that the bulk of their clients had negative perceptions of ESG investing, compared with a global figure of around a fifth.
But led by China and South Korea, the region is now “catching up” to more established markets in the west, said HSBC. China’s green bond market has seen $8.13bn of activity this year, equivalent to 43 per cent of the regional total, according to Dealogic. In South Korea, $4.23bn has been raised.
Interest in social and sustainable bonds has been keener still. In 2016, when those products debuted for regional issuers, one deal worth $500m was concluded. This year, more than $7bn worth of deals have gone ahead, 59 per cent of them in South Korea.
In Hong Kong, interest in ESG issues is more limited. A third of issuers in the territory disclose no ESG data and only four in five described such issues as important, compared with 93 per cent globally, according to HSBC.
Growth in the green bond market was helped by the introduction of guidelines on the asset class by the People’s Bank of China in 2015, and the addition of Chinese stocks to global indices, beginning with the creation in 2016 of the Hong Kong-Shenzhen Stock Connect and bolstered by the inclusion of 230 stocks to international indices in 2018.
Global investors sought out local partners to help them navigate the new market, and encouraged them to integrate ESG considerations into their investment decisions, according to Gabriel Wilson-Otto, head of Asia-Pacific stewardship at BNP Paribas Asset Management.
“Integrating ESG into an investment process has now become a source of competitive advantage for local asset managers seeking to attract funds from international investors,” he said.
Growth has also been helped by the broadening of the definition of what constitutes “green”.
In 2013, bonds were issued by pure-play green companies and would go to funding renewable energy or similar projects, said Ms Pastor. Now there are a wider range of issuers and “light green” bonds might finance something like a waste management scheme for a retailer, said Ms Pastor.
“Gone are the days where this is a niche product,” she added. “The amount of enquiries we get tells us that in the future every bond will need to be marketed with an ESG component.”