Sustainable finance: deals in Asia, Hong Kong to continue growing in 2022 as regulators and investors double down on ESG, financiers say
- UBS’s Asia-Pacific sustainable finance deals ‘could easily double in 2022’, executive says
- In Hong Kong, issuance of ESG-labelled bonds this year grew 282 per cent to US$23 billion as of December 23
The proceeds from green and social bonds are earmarked for projects with specific environmental or social benefits, while sustainability bonds finance a combination of green and social projects. The use of proceeds from sustainability-linked bonds is not restricted, but the bond coupons are linked to the achievement of certain performance targets set by issuers.
The Swiss bank’s Asia-Pacific sustainable finance deals “could easily double in 2022” from this year, judging from its current pipeline of deals, she added.
The expectations of more growth come after a bumper year. In 2021, in Asia excluding Japan, the issuances of green, social, sustainable and sustainability-linked bonds – known together as ESG-labelled bonds – amounted to US$331 billion as of December 23, 32 per cent higher than the whole of last year, according to Refinitiv. In Hong Kong, such issuances grew 282 per cent to US$23 billion over the same period.
The volume of green and sustainable loans offered by banks in the region also soared 124 per cent to US$98 billion in the region, and by 387 per cent to US$23 billion in Hong Kong, in the same period.
Globally, the issuance of ESG-labelled bonds reached US$1 trillion this year, said Sam Morton, head of European investment-grade fixed-income research at Invesco, which manages client assets worth about US$1.5 trillion.
“After growing 76 per cent in the first 10 months of 2021, even a [slower] projected 50 per cent growth rate would bring 2022 issuance to US$1.5 trillion, which would likely cement this segment as a core holding in fixed-income portfolios,” he said in a blog post for Invesco on December 21.
In Hong Kong, banks’ disclosures in line with guidelines of the international Task Force on Climate-related Financial Disclosures (TCFD) are expected to start in mid-2023 and to become mandatory in 2025.
Asset managers with at least HK$8 billion (US$1.03 billion) in clients assets will be required to disclose the greenhouse gas emissions data of their investment portfolios and investees from November 2022.
Listed firms have been required by bourse operator Hong Kong Exchanges and Clearing since July 2020 to incorporate certain key elements of the TCFD disclosure recommendations.
In November, the International Financial Reporting Standards Foundation said various guideline setters will be merged into a new entity called the International Sustainability Standards Board (ISSB) by June next year. It also published prototype climate and sustainability disclosure requirements.
“The essence of the ISSB proposal is a convergence and enhancement of existing standards, and the [effective merger] of standard setters, because we struggled with what we see as a rising tide of greenwashing,” Alder said.
Elsa Pau, founder and CEO of BlueOnion, which runs a financial portal that tracks sustainability data for about 8,000 companies and 147,000 funds, is helping medium-sized asset managers meet disclosure requirements by giving them paid access to its data analytics platform.
“There is serious greenwashing going on right now,” she said. “The regulators probably have some kind of measurements back in the kitchen, but they won’t tell you what kind of indicators they are reading. They have mentioned a circular that all the mature frameworks are considered compliant.”
Even the self-regulating private-equity companies are taking ESG seriously. A third of the about 20 Asia-Pacific private-equity investors that responded to Coller Capital’s latest industry survey published on December 13 had declined to invest in a fund due to ESG concerns. In Europe, the proportion rose to 56 per cent this year from a third five years ago.
“A lot of private-equity firms are seeing a positive impact from their ESG activities, not for the sake of just pleasing investors, but for managing risks and improving the businesses they own,” said William Yea, Coller Capital’s Hong Kong-based investment principal.