The finding was one of several inadequacies in a fast-growing ESG asset class in Asia that was highlighted in a report released by the non-government organisations (NGOs) this week.
Other revelations include that fewer than one in 10 green bond issuers explained how they manage environmental risks, just 3% mentioned climate resilience measures in their green bond frameworks despite claiming to contribute to climate goals, and a mere 1% indicated that they adopted best available technology in project design.
The Oxfam report, entitled “Making Green Bonds Work: Social and Environmental Benefits at Community Level”, analysed 249 green bonds issued in Asian emerging markets between January 2018 and September 2019, with an aggregate issue amount of $84bn.
Green bond issuance in Asia-Pacific hit record levels in 2019, raising $18.9bn (a 29% year-on-year increase), with mainland China’s green bond market alone accounting for $8.1bn, according to the Hong Kong Information Services Department.
Meanwhile, the cumulative amount of green bonds arranged and issued in Hong Kong had reached $26bn by the end of last year, which also saw the Hong Kong government launching its debut green bond in May.
Hong Kong Exchanges and Clearing Limited (HKEX) said in June it will launch a central hub for data and information on sustainable and green finance investments later this year. The HKEX Sustainable and Green Exchange (Stage) will act as a repository of information on sustainability, green and social bonds and ESG-related exchange-traded products listed on HKEX. Issuers with products that meet international standards or principles and provide post-issuance reports annually can join Stage without the need to pay any fees and to display their products on the platform.
Green bond popularity
Green bonds are often viewed as an important tool to shift money flows to environmentally friendly projects and to achieve the carbon reduction targets under the 2015 Paris Climate Agreement.
Indeed, demand for sustainable investments has grown rapidly in Asia-Pacific during the past three years, and will continue to expand further, concluded a survey of 161 investors in Australia, Hong Kong, Japan, New Zealand and Singapore by the Economist Intelligence Unit (EIU) in March.
The report, entitled “Financing sustainability: Asia-Pacific embraces the ESG challenge”, found that 68% of investors intend to increase their allocations to sustainable finance over the next year, adding that 27% of survey respondents expect to have 25% to 50% of their AUM in sustainable investments in three years time.
It defined sustainable financial instruments as green bonds/loans, social bonds/loans, sustainability bonds/loans, sustainability-linked bonds/loans and green deposits. Sustainability and green bonds are the most popular category, although products such as sustainability-linked loans and green deposits are gaining traction.
However, the research by the two NGOs found that only 6% of green bond issuers adopted a process to identify the social impact of their bonds and 4% embraced a process to manage social risks. Whilst 15% attempted to show some evidence of positive social impact, only 3% mentioned some contributions to the UN Sustainable Development Goals (SDGs) in the green bond frameworks.
“Although green bonds do not embed explicit social goals in their design, there is high expectation in the investor community that they, at the minimum, do not have any negative social impact,” said Mayling Chan, international programme director at Oxfam Hong Kong.
“None of the green bonds in the study had identified action to prevent negative impact on the UN SDGs,” she added, urging that green bond issuers embed more social safeguards in their issuance so that vulnerable communities in developing countries, such as villagers affected by hydropower dams or onshore windfarms, do not suffer from unintended consequences.
Oxfam Hong Kong and Carbon Care Asia also suggested other recommendations on how to improve the standards and practices of the green bond market. These include the assessment and disclosure of environmental contributions through quantitative measures; use of best available technologies to maximise environmental benefits and minimize social risks; application of the do-no-harm principle to UN SDGs; assessment of climate resilience; community engagement at various stages of the project cycle; and the adoption of science-based targets for carbon reduction.
