Written by: Kenneth Cheong | Managing Director of Corporate Trust, Asia Pacific, BNY Mellon
While green and social bonds remain a small portion of the overall debt markets in the Asia-Pacific region (APAC), they have become an exciting part of the investment conversation. Unlike other regions where Environmental, Social, and Governance (ESG) goals are often realized by direct corporate debt, in APAC, companies historically have more often financed ESG through bank lending. Corporates tend to issue debt in more traditional hard infrastructure scenarios.
However, we’re now seeing a new trend emerge, in which banks seek out green bonds as a part of their own capital strategy. I have seen the trend myself in many recent client conversation and private investment industry events. Within APAC, banks tend to be ahead of the ESG curve; in other words, they use these green bonds as a means to drive their own ESG criteria, and in turn, act as champions for corporate green and social activities within their markets via lending and microfinance.
At BNY Mellon, we embrace this trend warmly, as a way for financial markets to help foster sustainability in the rapidly growing markets of APAC. In addition to helping local and regional banks raise capital for lending, this trend helps connect the right capital pools to the right investor demand. We are proud to work within the region to enable global developments towards sustainable financial markets. It aligns to our commitment to corporate social responsibility.
As a premier global provider of Corporate Trust capabilities, the role BNY Mellon plays lies in our ability to offer the administrative infrastructure, technology, and processing services to help financial institutions, corporations, insurers, governments and not-for-profit organizations navigate the debt capital markets. This global expertise coupled with deep local knowledge of the markets in APAC has helped us support 11 green APAC transactions so far this year, 57% more than all of 2017, and on track to potentially double. China alone has seen over US$4 billion in activity.
More broadly, the APAC growth we are seeing fits well with global estimates by the Climate Bonds Initiative, an international investor-focused not-for-profit. CBI has identified US$87.3 billion in green bond activity as of the end of July 2018, and estimates a 55% increase over 2017’s US$161 billion total1.
The time really is ripe for green bonds in APAC investment conversations. Green bonds address three key needs.
First, they lend support to the UN Sustainable Development Goals, around water, infrastructure, sustainable urban development, and action on climate and biodiversity. Not only do they help drive capital towards projects that realize SDGs, but also they introduce a key lens focused on ESG impact and returns among investors within and into Asia.
Second, they address a capital supply gap in the region. They provide direct capital that potentially broadens the banks’ investor base in the bond markets and allows banks to extend loans in support of green projects and companies. Given banks’ central role within Asia, this role is key. At the same time, it’s gratifying to see a broader issuer base as corporates increasingly make forays into direct green bond issuance to raise green capital.
Third, they create additional assets in an environment where investors seek new opportunity and diverse potentials for yield. This “Race for Assets” is a global phenomenon that spans many asset classes. We’ve looked at it in depth across all asset classes and regions. I’ll expand on that further in the second part of this two-part series.
Media Contact:
Peter Gau
+1 212 815 2754
peter.gau@bnymellon.com
¹ Climate Bonds Initiative, “Green Bonds Market 2018,” https://www.climatebonds.net/