Environmental, social and governance factors are becoming ever more important in investment decisions. Whether fund managers worry about climate change or simply want to protect the long-term value of their portfolio, sustainability is now high on the agenda.
The rapid growth of the Green bond market is the most visible sign that this mindset shift is transforming the capital markets, as both investors and issuers see value in labelling their securities. Global issuance is on track to hit US$80bn in 2016, almost double last year’s US$42bn total, according to the Climate Bonds Initiative.
As interest builds, especially from European pension funds and insurance companies, there are now signs that Green bonds are trading tighter in secondary markets, even if investors remain wary of paying a premium at the point of issuance.
Asia has been relatively slow to embrace the ESG concept – outside of Japan, where social themes have long enjoyed a strong response among retail investors. That, however, is changing fast as policymakers drive more investment into clean energy and local bond markets open up.
China, in particular, has the potential to be a game-changer for the global Green bond market, with every sign that the government and major issuers are determined to set a high standard for Green issuance.
IFR brought together a panel of capital markets and climate specialists on November 2 in Singapore to discuss the challenges and opportunities for ESG financing in Asia.
Panellists offered their thoughts on the relationship between ESG and conventional credit ratings, as well as the role of Green bonds as a catalyst for change within major corporations.
The tone of the debate was notably bullish – so much so that many questions focused on the risk of a bubble developing as more investors chase socially responsible assets. Innovation was another key theme, with the arrival of Green covered bonds and issues from new industry sectors high on the agenda.
The panel took place days before Donald Trump’s victory in the US presidential election, which has raised questions about the US’s commitment to reducing emissions. Whatever the future, it is clear that climate change is an issue Asia cannot afford to ignore.
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