IFR Asia and LSEG LPC: ESG Bond and Loan Financing Roundtables 2025
While the US sees a political backlash against sustainability, Asia’s ESG-labelled credit market is forging its own path and demonstrating its resilience.
ESG bond issuance in all currencies in Asia Pacific ex-Japan remains robust, reaching US$122.6bn in the first half of this year, on track to surpass 2024’s total of US$170bn, according to LSEG data. The region accounted for around 25% of the total US$486.4bn of global volume.
While the worldwide total was up 8% year on year in the first half, ESG bonds made up 7.6% of all DCM issuance, down from 8.0% a year earlier, reflecting a slowdown in the second quarter as US resistance to sustainability efforts started to show an impact.
At the other extreme, China has maintained its position as the biggest source of ESG-related bonds. Chinese banks were issuers of the five biggest sustainable corporate bond deals in the world in the first half, and China’s Ministry of Finance printed its debut green bond issue in April. South Korean issuers, too, remain steady suppliers of ESG paper, while momentum is growing in places like India, Indonesia and Australia.
Green bonds continue to be the most popular format in Asia, while sustainability-linked bonds (SLBs) have lost some of their lustre and are now under scrutiny after many of the first wave of issuers set targets that were too easy to meet.
Sustainability-linked loans (SLLs) remain popular in the region since they allow more bespoke structures and targets. Yet bankers caution that impact measurement must be credible and economically meaningful, especially amid margin pressures and rising compliance costs.
Although broader loan markets are subdued, there are pockets of activity such as a boom in social loans from non-bank financial institutions in India.
Data centres, too, are seeking ESG financings, creating opportunities for SLL structuring innovation, particularly around water and power usage efficiency metrics.
Regulators around the region have been proactive in laying out taxonomies and frameworks, fostering confidence and execution certainty that is driving local currency issuance. There is a growing acknowledgement of the need for localised decarbonisation pathways, as issuers try to fund their transitions to net zero – with transition bonds and loans the missing piece in Asian capital markets.
Investors and banks are also increasingly looking at a borrower’s full decarbonisation strategy and assessing its credibility, even if an issue is not explicitly labelled as a transition finance deal.
So while ESG financing volumes may not be surging as quickly as in recent years, that’s because many deals have a transition angle but carry no label. That reflects just how deeply ESG finance has been absorbed into the mainstream.