Asia Pacific continues to outpace all other regions in terms of capital investment into the energy transition, and this is creating a pipeline of investment opportunities that is already starting to be reflected in the issuance of sustainable bonds in the region.
2022 was another record year for global investment into the energy transition, with $645bn from Asia Pac, representing a 53% year-on-year growth rate.
The first few weeks of 2023 were marked by a flurry of USD-denominated Asia bond issuance totalling $42bn, of which 26% ($10.9bn) were GSSS-labelled bonds (that is, green, social, sustainable, and sustainability-linked).
There were 12 issuers from a host of countries including Korea, Hong Kong, China and Philippines. Asia also issued its second blue bond; in this case, the issuer was Korea’s Export-Import Bank. A blue bond is a sub-category of green bonds where the use of proceeds is focused on marine and ocean-based projects.
When it comes to the energy transition, energy security along with cost and supply chain issues remain pertinent. However, the key focus for the region is transition and this is reflected in many of the ESG regulatory frameworks.
Yet concern about greenwashing has also accelerated, and China has announced that it will be tightening its green bond principle towards ICMA alignment, as well as the labelling of its ESG funds. The solution seems to be a better taxonomy for labelling various economic activities.
On this front, the G20 Transition Finance framework could be a catalyst to provide a useful guide to aid regulations and financing under the label. This is key to capturing a significant part of the economic activities in the region.
The region has already started to respond to these frameworks. Singapore’s Energy Market Authority announced in January 2023 that it is planning to issue a $2bn multi-currency medium note programme composed of green, sustainable and transition bonds. Transitional bonds are targeted at carbon-intensive companies and sovereigns to decarbonise.
The Japanese government has also announced its intention to issue sovereign green transition bonds in the first half of this year as part of a 10-year programme to aid Japan to decarbonise.
Indonesia also announced in November 2022, along with members of the International Partner group, a Just Transition Partnership (JETP) agreement on the back of the G20 transition financing framework, which considers many of the just transition considerations.
The intended goal of the JETP is to allow for a credible policy plan that will support implementation and mobilise financing toward decarbonisation. Indonesian policymakers will need to balance the various stakeholders in the supply chain, from local workers and local governments to energy suppliers and power producers, in addition to ensuring the framework would attract private sector funding. Vietnam and the Philippines are also piloting similar frameworks.