2024 Market Outlook – Navigating transitions. Seizing opportunities.
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The regulatory landscape is also increasingly supportive for a just transition in Asia with regulators emphasising the need to develop sustainable taxonomies with a transition element. This can result in potential tailwinds for transitioning companies and assets. Investors and asset owners who help companies decarbonise in a practical and sensible manner can minimise negative social and environmental impact. The ASEAN + 3 3 sustainable bond markets will play a key role in financing these transition assets. As of June 2023, this region maintained its 19.1% share of the global total outstanding sustainable bonds. Green bonds comprised 64% 4 of the outstanding bonds and financing was done mostly in local currency. Although the flows to ESG-labelled funds were flat 2023 to date, it compares favourably against non-ESG labelled funds which experienced outflows. There is further potential to provide more long-term financing in local currency as the demand for ESG bonds from ESG-labelled funds remains strong.
The move to greater ESG data clarity will also address some of the challenges facing the green bond market such as the lack of a common definition as to what constitutes a green project and the validation of the environmental and social outcomes of the projects. A comprehensive and inclusive approach is one that considers the interplay between the environmental, social, and economic objectives. This requires collaboration between various stakeholders such as issuers, investors, and regulators. REFORMS AND REGULATIONS ACT AS TAILWINDS --------------- Regulations on ESG-labelled funds have toughened up considerably in 2023 as investors continue to regard ESG- focused investments as a way to mitigate ESG risks. The burden of proof is on funds to justify their ESG classifications and comply with reporting and disclosure requirements.
ASEAN + 3 sustainable bond issuance is on the rebound
USD billion
80
70
60
50
40
30
20
10
0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2019 2020 2021 2022 2023
Social Bonds
Sustainability Bonds
Sustainability-Linked Bonds
Transition Bonds
Green Bonds
Q1 = first quarter; Q2 = second quarter; Q3 = third quarter; Q4 = fourth quarter.Data includes both local currency and foreign currency issues. Source: AsianBondsOnline calculations based on Bloomberg LP data.
3 ASEAN+3 is defined to include member states of the Association of Southeast Asian Nations (ASEAN) plus the People’s Republic of China; Hong Kong, China; Japan; and the Republic of Korea. 4 Asian Bond Monitor – Recent Developments in ASEAN + 3 Sustainable Bond Markets.
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