Singapore and Hong Kong to become Asia’s centres of sustainable finance

Moody’s report also finds Asia economies more vulnerable to carbon transition risk

Finance hubs such as Hong Kong and Singapore are taking steps to become sustainable finance centres in the Asia Pacific region, according to a latest commentary from Moody’s.

Sustainable Finance – Asia-Pacific: Focus on sustainable finance to provide credit benefits for regional hubs found Hong Kong will play a central role in bridging global capital and funding demand for green transition from companies and governments in the mainland China, while Singapore will leverage its leading financial market position in Southeast Asia to support the region’s sustainability ambitions.

“We expect this trend to intensify, supporting the region’s investment community, which will place an increasing focus on ESG and sustainability in risk management and investment allocation decisions in the coming years,” said Moody’s in its report.

Currently, Singapore is the only finance hub in the region to have set up a green taxonomy, green and sustainable finance grant scheme, green bond principles, ESG skills training subsidy, mandatory ESG disclosure requirement and government sustainable debt issuance.

Hong Kong, on the other hand, has all five steps in place, but is still working on a green taxonomy.

Meanwhile, other regional hubs such as Beijing, Shanghai, Seoul and Tokyo, which have deep domestic capital markets, will benefit from their large pool of domestic issuers, government policy support and gradual alignment to international sustainable finance standards.

Earlier this month, ESG Clarity Asia reported that China had been sounding out advisory bodies and rating agencies to formulate a framework for mandatory ESG-related disclosures.

The growth in Apac sustainability investment opportunities has also helped diversify economic activity and create jobs, said Moody’s.

China, Korea and Japan dominate sustainable issuance in Apac, accounting for more than 79% in 2022.

Only two economies (Australia and India) out of 13 in Asia have posted a decrease in the net asset value in sustainable finance market from 2019 to 2022, with Singapore recording a whopping 1260% increase from $400m in 2019 to almost $6bn in 2022.

Looking forward, the rating agency expects Apac sustainable debt issuance will continue to deepen in terms of overall debt market penetration as policy and regulatory support drives further sustainable finance market development in the region.

Transition risk

The report also found Asian economies are more vulnerable to carbon transition risk compared with other regions due to the reliance on fossil fuels.

Nearly 18% of Apac rated corporate issuers have highly or very highly negative exposure to carbon transition risk, the highest of all regions, with almost 45% of the Asian power generators and coal miners having highly or very highly negative exposure to carbon transition risk.

This is compared with only 19% and 12.4% in the Americas and Europe, Middle East and Africa respectively.

“Asian coal producers and power generators are investing heavily in diversification, largely into renewables. The ability to raise capital via the sustainable finance market will support such decarbonisation efforts,” said Moody’s.