Green finance strong despite headwinds

Issuance of green, social, sustainability and sustainability linked (GSSS) bonds in Apac reached $700bn in the first six months of the year, showing the resilience of the asset class against a challenging market backdrop.

Around two-thirds of the total onshore sustainable bond volume came from China, Japan and Korea, according to data from Moody’s ESG Solutions.

While green bonds remain the most common type of sustainable debt instruments in the region, the share of green bonds declined to 53% in 2021 from 88% in 2018, finds the firm.

Further, social bonds now account for about 26% of total GSSS issuance, followed by sustainability bonds (16%), sustainability-linked bonds (3%) and transition bonds (1%) in that same period.

“Apac issuers are diversifying into social, sustainability, and sustainability linked (SLBs) bonds from traditional green bonds,” said Young Kim, analyst, sustainable finance at Moody’s ESG Solutions.

Keeping the sustainability promise

Overall, in the first half of this year, sustainable bond volume slowed amid global market headwinds.

For example, the $86bn of GSSS bonds marks a 31% decline from the same period in 2021.

However, SLB volume has shown itself to be resilient, with growing appetite to finance sustainability plans using more flexible use of proceeds.

“Green and transition financing will continue to grow moving forward despite market headwinds in 2022,” added Kim.

This is aligned with various net zero commitments across different countries in the region. China is key to this opportunity going forward, given that this is the dominant market for green bond issuance in the region amid its national green finance policies to support its 2060 carbon neutrality goal.

Further, Moody’s believes that the challenges Apac faces from its high proportion of hard-to-abate sectors, coupled with an insufficient number of eligible projects to finance using use-of-proceeds bonds, bodes well for transition financing via SLBs and other transition instruments.

“Financing social projects via issuance of social bonds or sustainability bonds will focus on addressing public health and socioeconomic issues,” explained Kim. “This comes as governments shift their Covid-19 pandemic response from crisis containment to recovery.”