SINGAPORE – Green bond investing is expected to become more mainstream in the coming years as more issuers respond to the growing appetite for sustainable investments.
The growing demand for green bonds is in response to a paradigm shift to global environmental, social, and governance (ESG) investing being pushed by the Paris Agreement under the United Nations Framework Convention on Climate Change (UNFCCC) dealing with greenhouse gas emissions mitigation, adaptation and finance starting in the year 2020.
“The whole ESG landscape has changed tremendously. We could see a drastic change in green bond issuance. I've been receiving calls almost every other week,” says Esther An, chief sustainability officer of City Developments Ltd., during a panel discussion at the 12th Asian Bond Markets Summit (ABMS) held at the Conrad Hotel, Singapore on November 16.
A green bond issuance, however, needs to be aligned with the corporate strategy and vision of an issuer for it to be a successful undertaking.
“The key for us is to look at sustainable development goals as part of our strategy. To have a coherent ESG framework you need to have a coherent ESG strategy,” says Geert Peeters, executive director and chief financial officer of CLP, in the same panel.
Green bonds are also making their ways into Islamic finance with issuances of green sukuk (Islamic bonds). “We're currently doing an Islamic sukuk green bond. Investors want transparency and ESG as a key component of that strategy,” says Seohan Soo, executive vice president, capital markets group of AmInvestment Bank.
According to Ashraf bin Arshad, financial sector specialist of the World Bank, about 66% of investors are now willing to pay a sustainability premium on ESG projects.
“Millennials and women are more likely to pay attention to these ESG investments. India and China are driving green initiatives in Asia,” Arshad says.
“For some, it’s down to what investors want, for others, they see two things in the green format: an effective way to mitigate credit risk as well as a source of long-term alpha,” says James Cameron, co-head of infrastructure and real estate group, Asia-Pacific, HSBC.
Investors must, however, be aware of the risk that comes with investing in green bonds.
“We need more market risk analysis tools for ESG. The ESG strategy should be communicated to the risk management department,” Qi says.
"We must realize the social and environmental risk can translate to legal risk. We need more market risk analysis tools for ESG,” says Qi Lan, senior project manager, Emerging Market Dialogues on Finance.
