You wouldn’t know it from looking at Asian bond activity, but global green bond issuance is growing at a phenomenal rate, albeit from a low base.
In 2014, green bond volumes reached $32bn, and the number is predicted to increase to $100bn, according to the Climate Bonds Initiative.
But cynics have a fair point when that they say that Asia has barely played a role in the development of green bonds, with the region playing host to just two bonds — Export-Import Bank of Korea’s (Kexim) $500m trade from 2013 and last year’s $300m bond from Taiwan’s Advanced Semiconductor Engineering (ASE).
With Asia being home to many rapidly developing countries, environmental concerns in the region tend to take a back seat to growth. Images of smoke stacks and smog looming over Chinese cities certainly don’t instill much confidence in the region’s green efforts.
But there are signs that green bonds could finally gain some traction in Asia this year, with a number of high profile initiatives in the works.
At the end of 2014, the Climate Bonds Initiative announced it had been working with a pair of Chinese government task forces to develop green bonds. The not for profit organisation also highlighted efforts on the part of the Malaysian and Indonesian governments to develop Islamic green bond instruments.
The organisation has also partnered with a joint India-US effort to propose ideas for the development of the country’s green bond market to the Indian Ministry of Finance.
And this won’t be India’s first move in the sector. Late last year the Federation of Indian Chambers of Commerce set up the India Green Bonds Market Development Committee to regulate funds coming into India for the instruments.
If that wasn’t enough, the Asian Development Bank is also doing its part to promote environmentally friendly financing.
The supranational’s Credit Guarantee & Investment Facility (CGIF) is working on green bonds to fund renewable energy projects in the Philippines and Laos, with deals expected to hit the market later this year.
For the sceptics that think investors will be unwilling to invest, the evidence is quite to the contrary. The green bond issues that have already hit Asian markets were massively oversubscribed, with Taiwan’s ASE taking in $300m from an order book of $2bn and Kexim raising $500m from $1.8bn of orders.
For the moment, compared to their counterparts in Europe and the US, Asian investors tend to overlook the green aspects of a bond in favour of more traditional risk/reward metrics. So there’s no reason not to harness buyside demand for assets to fund environmentally sound projects. This is especially the case when, from a pricing point of view, there is no extra cost for the issuer in making its bond green.
So it’s time for cynics to sit back and buckle up. Asia’s green bond market is about to take off.