Maria Tan Pedersen
Singapore +65 6730 6963
Southeast Asia is at the front line of the climate change crisis, with the region’s significant low-lying populations particularly vulnerable to rising sea levels and increasingly regular extreme weather events. Stakeholders across the region are grappling with the complex challenge of managing the transition to renewable energy sources mandated by climate targets and investor pressures, against a backdrop of energy insecurity created by recent geopolitical and economic shocks. Significant investment is required to accelerate the transition, whilst ensuring that current energy demands are met and energy security is preserved.
Given the volatility of the current economic climate, Southeast Asian issuers looking to raise funds should take note of the development of the Association of Southeast Asian Nations (“ASEAN”) green, social and sustainable debt frameworks in recent years and consider taking advantage of the available pools of capital that are specifically targeted at transition-related investment. As reported by the Climate Bonds Initiative in its June 2022 report “ASEAN Sustainable Finance – State of the Market 2021” , the ASEAN green, social and sustainable debt market grew rapidly in 2021, with an annual issuance record of US$24 billion. Other key trends identified by the Climate Bonds Initiative through 2021 in its State of the Market report include:
Sovereign and quasi-sovereign issuances in ASEAN in 2022
Thus far, 2022 has seen a number of debut green and sustainability bond issuances by ASEAN sovereigns and quasi-sovereigns, as well as existing issuers of sustainable bonds returning to the market. In particular:
The trends outlined above demonstrate that sustainable finance has become an increasingly popular method of raising funds in the ASEAN, with many such issuances oversubscribed, indicating strong investor appetite for investments in sustainable or green projects or broader sustainable objectives. However, the development of sustainable finance across the ASEAN is inconsistent. While certain jurisdictions, such as Cambodia, are at the very nascent stages of developing their sustainable finance markets, others, such as Indonesia, with over US$7.7 billion in green, social and sustainability bonds issued to date, have established themselves as strong regional frontrunners. Standards and regulations widely differ across the region and harmonization and enforcement of the relevant standards, and development of streamlined issuance processes, must remain a regulatory priority if the full potential of sustainable finance is to be realized.
While green bonds remain one of the more popular instruments to deploy capital to green or climate change-related projects, there has been increasing diversification in the variety of instruments utilized, with sustainability and sustainability-linked bonds becoming more popular in 2021 across the ASEAN compared with the period from 2018 to 2019. Given the scale of investment required to meet transition challenges, no single funding source will solve the shortfall, and issuers should consider all potential funding options available to them.
While the future of bond issuance appears to fall firmly within the context of green, social and sustainability bonds, market participants and investors have started looking more carefully at “greenwashing” issues. As investors become more insistent on uses of proceeds that are more specific and more sustainable than “general corporate purposes”, they will also likely similarly insist on more robust tracking and reporting, which issuers should start preparing for as soon as possible.