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China leads in green bonds among emerging markets

By Rajiv Biswa | China Daily Global | Updated: 2019-05-08 08:56

The global green bond market has grown at a rapid pace since the first issue in 2007. Globally, new green bonds worth $167 billion were issued in 2018, with the Asia-Pacific region accounting for around 30 percent of the total.

China has been leading the region's shift toward financing with green bonds, whose proceeds are used to fund environmentally friendly projects.

The rapid growth of the global green bond market has been boosted by the policy commitments of 195 sovereign governments to the UN COP-21 (21st meeting of the Conference of the Parties) Paris Agreement on Climate Change in 2015.

The total issuance of green bonds in the Asia-Pacific region rose from an estimated $43 billion in 2017 to around $50 billion in 2018. The rapid growth of green bonds has been driven by large-scale new green bond issuance in China in 2017 and last year.

China is by far the largest issuer of green bonds among the world's emerging markets. Total Chinese green bond issuance in 2018 is estimated at $31 billion, amounting to around 19 percent of total global green bond issuance last year.

Hong Kong has also emerged as an Asian capital markets hub for green bond issuance, with an estimated $11 billion in green bonds issued in 2018. Chinese mainland companies are playing an important role in boosting Hong Kong's position as an international market, since an increasing number of non-Hong Kong entities choose Hong Kong for their green bond issuance.

The Association of Southeast Asian Nations has also started playing a more significant role in the green bond market, after the introduction of ASEAN Green Bond Standards in 2017. Indonesia issued a $1.25 billion sovereign green sukuk bond in 2018 and a $750 million sovereign green sukuk bond in February 2019. Sukuk refers to Islamic financial certificates that are issued and traded in compliance with Islamic religious law.

Australia and Japan are among the largest sources of green bonds. The Treasury Corporation of New South Wales, an Australian state government issuer, successfully placed a A$1.8 billion ($1.3 billion), 10-year green bond in November that was heavily subscribed by domestic investors as environmental, social and governance mandates become increasingly important for the asset allocation strategies of Australian asset managers.

Environmental, social and governance criteria refer to main factors that investors consider regarding a company's ethical impact and sustainable practices.

In 2018, the Auckland Council became the first local government in New Zealand to issue a green bond to successfully raise NZ$200 million ($132 million) to fund investment in electric trains and associated infrastructure.

The decision taken by ASEAN finance ministers at a meeting in Chiang Mai, Thailand, on April 4 to launch a $1 billion ASEAN Catalytic Green Finance Facility in partnership with the Asian Development Bank highlights the increasing momentum in the Asia-Pacific region to mobilize green finance for sustainable development.

The finance facility will be used to fund green and environmentally sustainable infrastructure projects such as clean energy and water sanitation. ASEAN institutional investors are also gradually adopting environmental, social and governance principles in their investment strategies, which will accelerate the development of the ASEAN green bond market.

India has been a relatively late entrant to the green bond market, with its first green bond issued in 2015. In 2016, the Securities Exchange Board of India, the country's market regulator, released guidelines related to disclosures required for listing green bonds, helping to lay the foundation for further development of the green bond market.

The total cumulative green bond issuances in India grew significantly in 2017 and 2018, exceeding $7 billion. The policy shift under Prime Minister Narendra Modi toward ambitious renewable energy targets also helped to boost the domestic green bond market.

China has been at the forefront of using green bonds to finance sustainable development. In addition, ASEAN nations have been intensifying efforts to develop an ASEAN green bond market.

At the same time, an increasing number of major institutional investors in the Asia-Pacific region are adopting environmental, social and governance guidelines for their investment strategies, increasingly putting pressure on governments and the private sector to issue green bonds that meet such standards, notably the UN Principles for Responsible Investment.

At the Second Belt and Road Forum for International Cooperation in Beijing in April, the International Coalition for Green Development on the Belt and Road was launched by China to promote greater use of green financing for Belt and Road infrastructure development.

Thus, the momentum for growth in the Asia-Pacific green bond market is likely to increase over the medium term. The total cumulative issuance is likely to exceed $200 billion this year, and surpass $500 billion by 2025.

The author is Asia-Pacific chief economist with IHS Markit. The views do not necessarily reflect those of China Daily.

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