Regulators and local innovators drive progress in southeast Asia

Asia’s green finance story is not just about China and India. Although the US has threatened to pull out of the Paris Agreement, southeast Asia has reiterated its commitment to sustainability. As Morgan Davis reports, that is beginning to be felt in its financial markets, where countries such as Malaysia, Singapore and Indonesia are exploring ways to foster green financing.

  • By Morgan Davis
  • 29 Sep 2017
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Southeast Asian countries have struggled to keep up with their counterparts in Asia when it comes to green financing efforts. But 2017 has been a year of firsts for the region. 

Singapore produced its first green bond in its own currency when CDL Properties, a local company, sold a two year note in April. DBS Group followed in July, issuing Singapore’s first international green bond. Just to the north, Malaysia’s first green sukuk was issued in July. 

Conversations and questions about sustainable financing are blossoming in the region. 

“Asian companies have been seen as average performers, in terms of sustainability ratings, because they have not been reporting for as long as Western peers,” says Hans Biemans, head of sustainable markets at ING in Amsterdam. “But they are catching up rapidly, so you will see Asian investors gradually enter responsible investment funds.”

For green bond enthusiasts, the struggle now is to put words into action.

Up to September 5, southeast Asian issuers, excluding supranationals, had issued $624m of green bonds. That modest figure is an improvement from the complete lack of issuance before 2017. 

“The transition to renewables is relatively slow in southeast Asia,” says Frank Kwong, head of primary markets for Asia Pacific at BNP Paribas.

The region still relies heavily on coal, and most infrastructure is far from environmentally friendly.

Just as importantly, many of southeast Asia’s capital markets are underdeveloped. If the markets are struggling to issue bonds for international investors generally, they can’t be expected to sell green bonds, says Martin Wehling, head of debt origination for Asia Pacific at DZ Bank in Singapore.

“There’s a whole lot more consciousness of the subject at the government level, but it’s nowhere near happening in capital markets,” he says. 

Debashis Dey, partner at White & Case in Dubai, calls it a chicken and egg problem. “The green investor base isn’t quite there,” he says. “And equally, the issuers haven’t yet seen the need to do it.”

It must happen

While southeast Asia’s approach is still tepid, more green financings are inevitable. The Paris Agreement, signed in 2016, is already putting pressure on countries to use energy more efficiently and cut carbon emissions. Many southeast Asian countries are simultaneously trying to build and repair their infrastructure, forcing the two efforts to partner. 

“Involvement of private sector capital in sustainable development seems to be an absolute marriage of necessity,” says Robert Barker, head of sustainable finance and investment,  global markets for Asia Pacific, at BNP Paribas in Hong Kong. “Given the scale of identified funding it requires, it is many trillions of dollars over the next 15 years.”

Asia’s rapid urbanisation will require vast swathes of building in the coming years. “How that urban environment is built must be on green principles,” says Barker.

Any move to further green financing must come from the government, argues Wehling. 

“If a state-sponsored fund comes up, you’ll see issuers looking at this more,” says Rahul Sheth, an executive director in Standard Chartered’s capital markets team. “Sovereign issuance will lead to more education, understanding and a mainstream movement of green products.”

Even in Singapore, the enthusiasm is still lukewarm. Local banks — other than DBS, which tends to lead the way with any new financial product — see little incentive to issue green notes.

Supranationals’ involvement may be critical, Wehling adds. Many potential issuers are ill-equipped to handle green financing on their own. The World Bank, for instance, collaborated with Malaysia to establish its SRI sukuk framework. The Asian Development Bank and International Finance Corporation are also partners in the sector.

Regulators press ahead

The Monetary Authority of Singapore has been at the forefront of regulatory incentives for green issuers. In March, it introduced a scheme to pay the cost of an external review for qualifying green bond issuers.

“In southeast Asia in particular, the market hasn’t been driven by investor needs, but by incentive schemes that have encouraged issuers to categorise issuance as green,” says Dey. 

Malaysia, which has become a leader in Islamic financing, established a framework in 2014 through its Securities Commission for Sustainable and Responsible Investment Sukuk issuance. But it took until this summer before a company, Edra Power Holdings’ solar unit Tadau Energy, used the framework for a green bond. 

Indonesia could be next. In early 2017, its Financial Services Authority said it would launch regulations for green bond issuance, defining what qualifies as “green” for the country and offering incentives, in line with the internationally accepted Green Bond Principles and Sharia law.

A halfway house

Despite these impressive developments, southeast Asia has been held back by what issuers assume they need to be in order to issue a green bond. 

Dey argues that green bonds do not need to be infrastructure-linked, any more than they need to be tied to a blatantly green project such as a solar power farm. Issuers could earmark funds for green research or refitting old buildings to be energy efficient. “It’s a very broad spectrum,” he says. “The imagination of issuers hasn’t yet been triggered in southeast Asia.” 

Perhaps the way to make the region greener is not to force the pace of full-blown green financing, suggests Kwong. 

In July, Hong Kong’s Castle Peak Power Co issued its first international bond, raising $500m. Because it is a company that burns fossil fuels, many would argue that Castle Peak should not issue a pure green bond. Instead, it issued an “energy transition bond” and will use the proceeds to make its facilities more environmentally friendly. 

However, it is unlikely that transition bonds will be embraced by the masses. “A lot of green bond investors would find it difficult to stomach a green bond from an airport company, for example,” says Barker (though the Mexico City and Orlando airports have issued). But companies such as these would benefit from refitting their infrastructure to more environmentally friendly standards, he adds.

Sheth agrees that transition bonds may be a good fit for certain issuers, more comfortable being “one step away from being able to issue a green bond”. However, market participants warn that such issuers should not try to pretend the notes are green.

Bonds make an impact

On a much smaller scale than green investments, impact investing also had a first this year. An $8m Women’s Livelihood Bond was issued, structured by the Impact Investment Exchange (IIX) and supported by the US Agency for International Development, the Australian Department of Foreign Affairs & Trade and others, to benefit women in southeast Asia.

It was billed as the first social sustainability bond with a focus on financial returns to be listed on a stock exchange.

“We have been flooded with enquiries from a range of investors in Asia and abroad, eager to take part in such instruments,” says Durreen Shahnaz, founder of IIX in Singapore. “The concept of impact investing is still new to many people in the region,” but future notes should be an easier sell. 

These social bonds present another opportunity for partnership with supranationals to benefit the developing nations, and bankers say investors like the tangible good they can do with the bonds.    


Australia: ESG flourishes as savers express their values

 Australian interest in socially responsible investing is growing, in line with the country’s overall awareness of environmental and social issues.

For debt and equity investors, environmental, social and governance (ESG) factors have become leading drivers of investment choices, say market watchers.

“Half the market considers investing in responsible investment important,” says Simon O’Connor, CEO of the Responsible Investment Association Australasia in Melbourne. “We have seen in the past couple years listed companies doing damage to share prices with E, S or G.” 

Issues of culture, unethical behaviour, environmental regulation breaches and the like have led to heavy fines and damaged reputations, driving home the case for ESG awareness in investing. 

The demand for products has shifted in the past two years. “Australians have become more engaged in how their retirement is being invested,” O’Connor says. “People want to align their savings and their investments with their values.”

Managers of traditional equity and debt funds are looking at ESG screens, says Sameer Chopra, head of Australia research at Bank of America Merrill Lynch in Sydney.

“The asset owners themselves are driving this,” he says. “It’s not just about feeling good. This is a valid way to think when you’re making investment decisions.” 

If a company cuts waste, it improves its environmental impact, but also signals that it is focused on cost cutting.

In this climate, Australia has produced six green bond issues totalling nearly $2bn this year, more than three times the volume in the same period last year.

“From the issuer side, there seems to be an understanding that this has really opened up a whole new area of investors,” says O’Connor. And they fit well into existing portfolios without investors having to carve out alternative allocations. 

For social bonds, issuance is just beginning. “That’s a part of the market that’s really taking off right now, and has a long way to run,” says O’Connor. “There’s an appeal to being able to tell the stories to members and the clients through these issuances. The conversation is shifting to what role they have in shaping the future of Australia.”


  • By Morgan Davis
  • 29 Sep 2017

Global Green Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 513.56 3 9.05%
2 Mitsubishi UFJ Financial Group 413.42 2 7.28%
3 Bank of America Merrill Lynch 356.81 2 6.28%
4 Danske Bank 343.95 2 6.06%
5 TD Securities Inc 335.83 2 5.91%