Asia’s sustainable debt markets
There is little doubt that climate change is the biggest risk multiplier facing the world today, and that urgent action is needed to transition to a more resilient, sustainable economy and society. Globally the shockwaves of Covid-19 are still rippling as social and economic recovery takes place, shaping government and corporate spending plans in a post-pandemic world. Banks, capital markets, and investors will play a critical role in this transition, with ESG investing a dominant theme shaping financial markets.
Across the world sustainable investment is growing rapidly, with total sustainable assets under management reaching a record $35 trillion in 2020, or about 36% of managed assets globally. With issuance volumes barely able to satiate investor demand, Moody’s ESG Solutions is expecting yet another record-breaking year for green, social, sustainability and sustainability-linked (GSSS) bonds in 2021, with issuance set to top $1 trillion – almost double the figure issued during the previous year.
In Asia, sustainability and climate change are increasingly fundamental considerations for market participants looking to seize opportunities and manage risk. For example, Moody’s Investors Service finds that green investment requirements in South Asia are as high as 82% of GDP, with requirements in East Asia and the Pacific closer to 27%. Meanwhile, initiatives to reduce carbon dioxide emissions to net zero will have a transformative (and, in some cases, disruptive) impact on Asian entities across the most exposed sectors, from utilities and energy to automotives and steel.
In Asia, 2021 is expected to yield yet another record-breaking year for GSSS bonds: Moody’s ESG Solutions forecasts issuance for 2021 in the excess of $100 billion – a meaningful step up from the $73 billion issuance in 2020. With GSSS issuance in Asia currently around 15% of global totals (according to Moody’s ESG Solutions estimates) we can expect continued growth in the region as issuers in Asia increasingly link funding needs with their sustainability projects and objectives.
Second Party Opinions
To support burgeoning investor appetite, calls for tools that evaluate the credentials of green, social, and sustainable bonds have grown. One such tool is a Second Party Opinion (SPO) – an independent assessment of a labelled bond that captures alignment to market standards and evaluates proceeds’ contribution to the United Nation’s Sustainable Development Goals. SPOs also assess the coherence between the sustainability characteristics of the bond and the issuer’s strategic approach.
For issuers contemplating a green, social, or sustainable bond issuance, an SPO can help to attract funding from investors, diversify and extend a borrower’s potential investor base, and communicate its contribution to sustainability objectives to the market.
With the surge in popularity for thematic investing resulting in a proliferation of labels, an SPO can help to cut through the confusion as an independent assessment on alignment with standards and coherence.
V.E, part of Moody’s ESG Solutions, brings over 30 years of ESG expertise to meet rapidly evolving needs. We have delivered over 370 SPOs since 2012, provide Climate Bonds Initiative verification services, and serve as an active contributor to the development of market standards. We’re a global business, having assigned SPOs to transactions originated in 30 countries worldwide. 11% of our SPOs to date have been in Asia, and we look forward to continuing to work closely with issuers and investors in the region to maximise sustainability performance and stakeholder value