ASEAN’s role in green finance

The Association of Southeast Asian Nations (ASEAN) includes ten countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. Cumulatively, ASEAN has issued US$13.4b of green bonds and loans. Singapore has the highest issuance amount, specialising in green loans. Indonesia has the second-highest issuance amount.

Internationally, the amount of green issuance saw a steep increase of 51% during 2018 to US$259b, however, ASEAN almost doubled their US$4.1b 2018 performance to US$8.1b. This represented 3% of the global total and 12% of the Asia-Pacific region.

ASEAN’s issuer performance

As of December 2019, ASEAN has 39 green issuers: the largest is ICBC (Industrial and Commercial Bank of China) in Singapore. This regional bank issued a multi-tranche triple-currency US$2.2b green bond. The second largest issuer is the Republic of Indonesia, which issued US$2b of green sukuk over 2018 and 2019. The Republic of Indonesia also is the sole green sovereign ASEAN issuer.

Hard currencies and green market plan

ASEAN issuers continue to favour USD as their issuance currency. However, 41% of issuance has been conducted through local ASEAN currencies, which makes regional markets more appealing to domestic investors and foreign funds pursuing local currencies. One highlight is the issuance by the Bank of the Philippines Islands in CHF—Swiss Franc. In 2019, they raised CHF $100m in the Swiss markets, with a yield of -0.02%, being the region’s first-ever-seen negative yielding green bond.

Regional collaboration to grow the green bond market

Initiatives have been pioneered by the Asian Bond Markets Initiative (ABMI) in cooperation with the ASEAN+3 (ASEAN + China, Japan and Republic of Korea) and ABMI Medium-Term Road Map, which was endorsed by the ASEAN+3 Finance Ministers and Central Bank Governors during May of 2019. One of the initiatives detailed in the Road Map was that of developing the green bond market to better support investment towards much needed infrastructure. This, of course, considers exposure to varying climate conditions or any extreme events facing certain regions.

Collaborating with ASEAN+3 nations, the Asian Development Bank (ADB) initiated the technical-assistance programme to create an ecosystem where local currency bonds can flourish, with the primary focus being corporate issuance. Furthermore, the programme will investigate strengthening service providers’ capacities, including rating agencies and guarantee companies. Among a range of other initiatives, ASEAN+3 and ADB are collaborating with AsianBondsOnline to implement a regional green bond informational platform.

Although further actions must be taken in the Southeast Asian area, current ASEAN progress makes it clear those actions create a land of opportunity for its nations’ economies.

1. Although there is no set definition for green finance, many follow the ‘Climate Bonds Taxonomy,’ which was created by the Climate Bonds Initiative (CBI). Their taxonomy focuses on eight main sectors: energy, architecture, transportation, water, waste, utilisation of land, industry and ICT, or information and communications technology.
2. In 2019, ASEAN saw tremendous growth: ASEAN doubled their US$4.1b 2018 issuance to US$8.1b in 2019.
3. During 2019, Singapore became a leader in ASEAN issuance; most of its deals comprised loan issuance in the real estate industry.
4. As of December 2019, ASEAN has 39 green bond and loan issuers—the largest issuer is the ICBC branch in Singapore (Industrial and Commercial Bank of China) which issued a multi-tranche triple-currency US$2.2b green bond.
5. In Thailand, the first Asian green bond to become CBI certified under the Low Carbon and Transport Criteria was issued by BTS Group.
6. For sukuk (Islamic) transactions, Malaysia continues to be an active market including the first mini-hydro sukuk issued in the region. The area is preparing to become a regional and global hub for green and sustainable sukuks. With a low-yield environment and increasing hopes for cooperative policies, the region is expected to continue performing well.
7. The largest mix of issuer types is comprised and dominated by financial and non-financial corporates, which is significant as they represent 29% of ASEAN’s issuance.
   
8. 67% of ASEAN proceeds are invested primarily into the buildings and energy sectors, 34% into buildings and 33% into energy. These are the largest sectors globally.
9. The first and only perpetual ASEAN green bond as of December 2019 was issued by AC Energy for US$400m. This bond is callable after its third year, meaning it can be paid off later than the maturity date. This issuance demonstrates how a repeat issuer can move from a 5-year to 10-year green bonds and finally to perpetual bonds.
10. Over the past three years, on average, ASEAN’s green bonds have amounted between $200 million and $250 million USD. The average transaction size within ASEAN is smaller compared to more-developed markets, for both green bonds and vanilla bonds. The largest issuance were the Republic of Indonesia’s US$1.25b green sukuk during 2018, and ICBC Singapore’s US$1.5b issuance during April of 2019.