15 June 2018

Environmental Finance's Green Bonds Asia conference

Environmental Finance's Green Bonds Asia conference saw the agreement of a deal that could help drive growth in the region, writes Michael Hurley.

The burgeoning green bond market in Southeast Asia was given a boost with the signing of a deal between the Monetary Authority of Singapore (MAS) and the International Finance Corporation (IFC) on the conference sidelines.

The memorandum of understanding will see both parties work together to encourage the use of internationally recognised green bond standards and frameworks, and establish 'capacity-building programmes' to increase the knowledge of green finance among Singapore-based financial institutions.

It builds on a grant scheme for green bond issuers in Singapore, launched by MAS in March 2017, to help issuers pay the additional costs associated with obtaining an external review.

"We believe Singapore, as the rising financial hub of Asia, is well placed to catalyse the funding of low-carbon investment and financing in the region and be at the forefront of this growing asset class," said Vivek Pathak, IFC director for East Asia and the Pacific, at the conference, which was held at the Singapore Exchange (SGX) and with more than 350 registered delegates.

So far, three Singapore-based issuers have come to market – DBS Bank, Sindicatum and City Developments Limited – in deals worth a combined $611 million, according to Environmental Finance's Green Bond Database.

Rahul Sheth, Executive director of debt capital markets, Standard CharteredHowever, issuance in Asia is dominated by China. Since the inception of the green bond market, about $74 billion of bonds have been issued in the country, compared with a sum of $9.1 billion for Japan, the second largest country by total issuance.

Among the ten Asean member nations, Indonesia is the largest country in terms of issuance, with $1.8 billion in green bonds, ahead of Malaysia ($692 million) and Singapore.

Rahul Sheth, executive director of debt capital markets at Standard Chartered, said that although most Asian issuance has come from China, that country's strong regulatory signals are starting to have a trickle-down effect in the rest of the continent.

"Chinese regulators were among the first in the world to come out with guidelines, and the fixed income market likes guidelines, it likes to work on certain hard or established principles.

"In China it's been a regulatory, top-down approach, and recently we've seen that more across Asia. If you look at Hong Kong, Singapore and Indonesia – these countries have seen some sort of 'green' regulatory push, be that in terms of incentives [for issuers] or trying to set the ball rolling with a sovereign issuance, as in the case of Indonesia," Sheth said.

"Looking at the more macro picture, between 65% and 70% of Asian issuance is out of China, so it should not be very different in the green bond area, especially given the kind of push we've seen on the regulatory side," he added.

Yulanda Chung, director and head of sustainability, DBS BankYulanda Chung, DBS Bank director and head of sustainability, urged prospective issuers not to disregard the marketing potential of issuing a green bond.

"Marketing is one aspect, but don't trivialise the benefits of that. Green bonds are marketing with substance," she said.

Although the ASEAN green bond standards were launched in November 2017, some market participants still feel that developing a global taxonomy or standard for green finance would stimulate more issuance.

"[Developing a] taxonomy on what is green is important," added Chung. "Looking at some of the regional guidelines, such as the Asean standards, and I would say the granularity is not quite there yet.

"We really want to see brown issuers, who want to diversify and transition to greener pastures. [To help this happen] there is an argument that we have to be very clear and go down to a very granular level when we define what is green... the frameworks have to be tighter," she argued.

MUFG's Augusto King, a managing director and head of the bank's capital markets group, appeared to support calls for a tighter definition of sustainability, and said: "We hear a lot of comments from investors, asking what we really mean by 'green'. We don't [yet] seem to have a standard that can help them understand what is and what isn't green."

Augusto King, Managing director and head of the bank's capital markets group, MUFGAndrew Kent Jan, head of balance sheet management at the Thai Military Bank (TMB), which in the week of the conference sold a $60 million green bond to the IFC, said the issuance was "not about marketing but about us trying to address the climate impacts we see [in Thailand] on a day-to-day basis".

"When we studied how much of our assets [qualify as] green, it was way more than we expected. It was eye-opening," he added.

Meanwhile, there is an increasing awareness and a growing body of evidence that companies with good scores on environmental, social and governance (ESG) issues represent a "strong business proposition", according to Omar Slim, a senior vice president and fixed income portfolio manager at PineBridge Investments.

However, he bemoaned the fact that "there are still very few funds in Asia that are ESG or green bond focused".

Arsa Indaravijaya, senior director and head of the investment strategy department of the $26.5 billion Government Pension Fund of Thailand, "would rather invest in a green bond fund than in individual securities".

The chief investment officer of IFC's Financial Institutions Group, Jean-Marie Masse, and Amundi's co-head of institutional client coverage, Frédéric Samama, told the conference how the world's largest green bond fund will dramatically increase the flow of capital to green projects in the region.

The Amundi Planet Emerging Green One investment fund, which was created jointly by the IFC and Amundi, launched in March having raised $1.42 billion to buy paper from banks in emerging markets.

Amaury Mulliez, Deputy CEO of French development finance institution (DFI), ProparcoAmaury Mulliez, deputy CEO of French development finance institution (DFI) Proparco, which invested $100 million in the fund, added that the role his type of organisation plays in de-risking such investments is crucial.

"Proparco subscribed to nearly 50% of the subordinated tranche, which is the second loss. The first loss [tranche] is bought by the IFC," said Mulliez.

"Our first interest in doing so was to catalyse some private investment in the senior tranche.

"The role of DFIs is to de-risk in the early years the role of the private investors - that's what we aim to do with this tranche. Proparco is double 'A'-rated so when we provide a guarantee it helps the borrower get a credit enhancement. In future we intend to work on [more] credit enhancement vehicles," Mulliez said.

Environmental Finance wishes to thank event partner IFC, venue sponsor SGX, sponsors Amundi Asset Management, MUFG, Proparco and Standard Chartered Bank, and co-sponsors DBS Bank and ING Bank.

For further information about the conference please click here