The Emergence of Green Bond
The green bond (GB) market began with a climate awareness bond issued by the European Investment Bank in 2007. Since then the World Bank Group has created a notable supply of investable GBs. A landmark transition came when International Finance Corporations (IFC) partnered with Europe’s largest asset manager, Amundi, to launch the world’s largest green-bond investment vehicle focused on emerging markets: the Amundi Planet Emerging Green One (EGO) fund. The fund closed at $1.4bn and is expected to deploy $2bn into emerging-markets GBs over its lifetime. IFC’s $256mn anchor investment helped mobilize roughly four times that amount from other investors — $1bn of the funds came from private institutional investors.
Global Scenario: Highlights and Trends
Since the first issuance of GBs by the European Investment Bank (EIB) in 2007, the market has rapidly grown to about $500bn in value. The market for this asset class has been growing rapidly, as investors are investing their money more responsibly. For example, there was a $167.3bn worldwide investment via GB issuance in 2018, up 3% on the adjusted 2017 figure of $155.5bn. However, the highest year-on-year growth was 78% in 2017 over 2016. The bond in 2018 was disbursed in 1,543 green projects from 320 issuers across 44 countries. However, in 2018, there was a dramatic rise in the issuance of sustainability, SDG, and social bonds, i.e., $21bn for SDG, $14.2bn for bonds and $23.7bn. This offers an increased label diversification for GBs. So far till 2019, there was another $18.9bn investment of GB issuance.
GB market also acts as an effective tool for mitigating climate risks. In terms of climate financing, the GB market has experienced unrivalled growth in the past decade. The supranational has seen explosive growth from zero to more than $155bn globally. Although the major economies are spearheading this journey, GB’s real breakthrough is just beginning in emerging countries.
Worldwide, 15 countries are the major issuers of GBs and among them, the USA, China, and France accounted for 47% of the global issuance in 2018. US issuers contributed $34.1bn to the total, Chinese – $30.9bn and French – $14.2bn. Canada, Germany, Mexico, Netherlands, Spain, and Sweden fill out the remaining top positions. Although, countries in Asia and the Pacific have been leading in GB technologies, Asia, by and large still lags into GB issuance.
The GB market is currently less than 1% of the global bond market. The market is, however, poised to grow as issuance rises. IFC estimates that the global agreement on climate change adopted in Paris can open up nearly $23tr in opportunities for climate-smart investments in 21 emerging markets between now and 2030. More incentives to help issuers offset the higher costs of certification, compliance as well as a harmonization of green standards and definitions can also help to attract more issuers.
Demand currently exceeds supply. Investors controlling $60tr of assets management have signed the Principles for Responsible Investment (PRI), pledging to incorporate the environmental, social and governance factors (ESG) into their investment decisions.
Market Overview in Asia
For analysis, the paper has focused on the Asian Market which includes and covers the countries that lie within the geographic definition set by ADB, i.e., Central Asia, East Asia, Southeast Asia, South Asia, the Pacific, and Oceania. To focus on the best practices with larger economics and countries that lack the GB initiatives, the paper has focused on some of the most successful economic hubs from Asia (e.g., China, Japan, Korea, India, Singapore, Indonesia, and Malaysia) and some of the emerging markets (e.g., Bangladesh, Philippines, and Viet Nam). These countries' GB status and their drivers and bottlenecks for successful GB integration have been discussed here.
China and Japan are active in GB issuance. China has adopted green finance as an engine of development and growth in its 13th five-year plan (2016–2020). Japan has moved toward more green financing and investments. ADB estimated that the Asian countries will require $1.7tr per annum for new infrastructure spending which cannot be solely achieved by public sector funding. Realizing the need for the private sector’s sustainable finance for achieving low carbon non-polluting growth, ADB and World Bank have been raising green capital in Asian currencies since 2018.
Brief Cases
Some notable cases in successful GB issuance are mentioned below:
Being one of the world’s best GB performers, Australia was the second-largest source of GB issuance in the Asia-Pacific in 2018. This amounted to $2.6bn cumulative GB issuance in Australia in 2018, up by 5.3% since the same period last year.
China established itself as a leading GB market in 2016 and it accounted for more than 75% of Asia’s issuance volume in 2018, totaling more than $21.5bn. The world's largest carbon emitter issued around $25.4bn of GB in 2017.
Since its issuance of enabling the regulatory system in 2017, India has issued the first $650mn GB in 2018. The final order amounted to over $1.25bn with 114 accounts.
As the fifth-largest emitter of greenhouse gases (GHG), the Indonesian government is combating climate change by decarbonizing its energy mix infrastructure. In February 2018, the Government issued a green Sukuk worth $1.25bn.
Japan has set targets for sustainable investment and now heavily investing in SDG bonds. In 2017, Japan secured a $1bn SDG bond via HSBC and now it is introducing GBs and asset-backed securitization under its SDG scheme.
Malaysia boasts a $6.7bn climate-aligned bond universe with almost $1bn of GBs. In terms of GB issuance, Malaysia spent 58% on green buildings and 42% on energy-related issues.
The Philippines emphasis GBs which are mostly aligned with climate tackling issues. The country features a $630mn climate-aligned universe with $226mn of GBs.
Singapore’s $2.6bn outstanding climate-aligned universe is dominated by GB issuance. Over 70% of this amount of proceeds raised by Singaporean GB issuers go to low carbon buildings. To date, the government has cumulatively issued $1,763mn worth GB investment.
South Korea has issued $2.05bn to date in only six GB projects. However, in the Asia-Pacific, Korea is the fifth largest cumulative issuer after China, India, Japan, and Australia.
There were 23 GB issuances in Taiwan till 2018, reaching a total of up to $1.8bn with more potential investment in the pipeline. Foreign investment contributes to 35% of the total GB issuance.
