There’s no doubting that green bonds in China are going to be huge. The country has invited a wide range of entities to advise on the development of an environmentally friendly financing system, including the United Nations Environment Programme, the World Bank and the Climate Bonds Initiative.
To aid the development of green bonds it is widely expected that the government will offer incentives to issuers and investors. These could come in the form of tax breaks, procurement benefits, or — for financial institutions — adjusted loan-deposit ratios and risk weightings. And they could play a critical role in getting China’s green investment moving.
Yet while China steals a march, southeast Asia has been notably quiet on the matter of green bonds. This is a mistake, and one that Singapore should move to correct by taking in active role in encouraging the use of green instruments.
Singapore has southeast Asia’s most advanced capital markets but its bond market is in desperate need of a revival. During 2015, the city state has generated just $7.8bn worth of bond issuance, which leaves quite some room for catching up if there is to be any hope of exceeding last year’s total issuance of $18.1bn, according to Dealogic.
But its strong domestic investor base and its position as southeast Asia’s financial hub make Singapore an ideal candidate to lead the advent of the green bond market in the region.
Local currencies have already proved to be fertile ground for green bonds in Asia. ANZ’s debut Aussie dollar green bond saw strong demand, as did the first ever green bond from India, Yes Bank’s Rp10bn 10 year trade.
The Singaporean bond market’s active domestic investor base, including its strong pool of institutional investors and private banks, is a perfect testing ground for a new instrument. These investors are comfortable with a wide variety of credits, including those that come from abroad. So far this year, foreign issuers have executed 29 bond deals in Singapore dollars, according to Dealogic.
The city-state has garnered a reputation for serving as a hub for bond issuance by corporates from neighbouring countries like China, Malaysia and Indonesia, as well as countries further West like France, the United States and Italy.
It can and should take advantage of this aspect of its bond market, and make itself the green bond centre for southeast Asia.
Not only would Singapore be able to encourage eco-friendly financing within its borders, but it would also be able to support its listed names from foreign countries in green bond issuance who may not have the same incentives at home.
Singapore has the capital markets infrastructure and the clout to play a defining role in Asian green bonds. All it needs now is the will.