For Asian Sustainable Debt Financing to Become a Success, Its Issuers Have to ‘Go Global’

May 17, 2019

Asia is booming. In a 2013 report, the Asian Development Bank (ADB) estimated that whereas Asia’s share of world energy consumption was one third in 2013, it will be more than half in 2035 [1]. At the same time, Asia requires massive investment in its infrastructure to continue its development path: the ABD estimates $1.7 trillion on an annual basis until 2030 [2]. To further complicate the situation; by signing the Paris Climate Agreement Asian nations have vowed to bring about this development in an environmentally sustainable way. Rendering the region’s appetite for economic growth and infrastructure development compatible with its environmental ambitions will be one of the continent’s greatest challenges moving forward.


This challenge is perhaps most pressing in Asia’s three most populous nations: China, India and Indonesia. Their cases are representative for Asia’s developing countries as they face common issues (climate change and air pollution) whilst at the same time experiencing country-specific difficulties. In this way, they reflect typical Asian needs and the diversity of Asian states’ local peculiarities. China, India, and Indonesia are some of the world’s greatest emitters of CO2 (respectively the largest, the third largest, and the eleventh largest). In addition to the global responsibility they’ve adopted to help combat climate change, all three have pernicious environmental problems of their own: China has since its reform and opening-up struggled with deforestation and air and water pollution whilst at the same time it has the ambition to be perceived as a global leader in the fight against climate change; India too suffers from air pollution with smog levels in recent years exceeding China’s and faces groundwater depletion; and Indonesia struggles with deforestation as a consequence of man-made forest fires and air-pollution. In terms of possibilities to raise investment to finance its infrastructure, the three countries too have their individual characteristics: India needs most investment to develop its infrastructure out of all Asian countries; China still has a closed capital market; and Indonesia is by far ASEAN’s largest state in terms of size, population, and economy.


Fittingly, these three countries have commissioned research into their future sustainability and some have even adopted concrete targets. All have arrived at roughly the same conclusion: greening Asia’s development can only be achieved through a mixture of public and private finance. Green finance expert Ma Jun estimate that China will need between 3 and 4 trillion RMB per year until 2020 to meet its environmental needs – 85 percent of which is to be raised in the private sector [3]. President Widodo of Indonesia has launched a $400 billion infrastructure project to be executed between 2015 and 2019 of which around $150 billion (37 percent) ought to be funded with private funds [4]. India has adopted perhaps the most concrete target, namely the installation of a 165 gigawatts renewable energy capacity by 2022, which requires an investment of $200 billion and is to be achieved through both public and private finance [5]. In short, Asia is in need of innovative ways to complement its public with private funding.


To this end an increasingly diverse range of sustainable debt-financing instruments has been developed over the last twelve years – some focusing on environmental protection (e.g. green bonds, sustainable bonds, sustainability-improvement loans and green loans) whilst others focus on positive social outcomes such as providing affordable basic infrastructure, access to essential services and affordable housing (e.g. sustainability and social bonds). The principal, dominant and most well-regulated practice is issuing green bonds, i.e. bonds of which the proceeds are earmarked for funding climate and environmental-friendly projects. In just over a decade, annual green bond issuance grew over 100 times in terms of total value: from $1.5 billion in 2007 to $161 billion in 2017. Increasingly, debt issuers in Asia are picking up the practice: whereas China had still not issued a single green bond in 2015, in 2016 it accounted for 40.9 percent of global  green bond issuance - and in 2017 for 24.6 percent [6]; India financed part of its 2022 renewable energy targets through the issuance of green bonds both by public institutions and corporates; and whereas ASEAN’s green bond issuance was $2.3 billion in 2017 its green bond issuance cumulatively stood at over $5 billion in 2018 – of which 39 percent was issued in Indonesia.[1]The largest underwriter of green bonds globally, Bank of America Merrill Lynch, expects Asia’s total green bond issuanceto be around $600 billion in the upcoming five years. Hence, though Europe may be the birthplace of green bond issuance, a vastly growing number of public and private organizations in Asia are embracing the sustainable future of selling debt.


But who is buying? To answer to this question, one has to find out where the largest number of funds that are managed with Socially Responsible Investment (SRI) strategies are located, as the investors adopting SRI strategies are those that are likely willing to carry the extra costs green bonds require: the external review process that determines whether a bond is ‘green’. Research of the Global Sustainable Investment Alliance shows that in Asia (excluding Japan) only 0.8 percent of funds were managed with SRI strategies, whereas this number in the United States is already at 21.6 percent - and in Europe almost amounted to an impressive 50 percent in 2016. As a result, over 90.7 percent of global SRI-investment (around $20 trillion) is located in either Europe or in the United States. In addition, this percentage in Asia had only grown by 16 percent each year in the two years leading up to 2016. In comparison, in the same period in the United States the percentage of SRI managed funds grew by one third on a yearly basis, and in Europe, in spite of its already high base, still grew by 12 percent annually. Furthermore, a HSBC 2017 global survey confirmed that a smaller number of Asian investors are willing to increase their efforts to achieve SRI status than European investors, as it found that whereas 97 percent of European investors indicated that they intend to increase their low-carbon related investments, in Asia only 68 percent of investors have the same ambition [7]. For this reason, though the future for Asian green bond issuers to sell their bonds might turn out to lie in Asia, in the present the vast majority of opportunities still lie in Europe. To achieve real success Asian issuers have to ‘go global’.




[1] Asian Development Bank in Thiam Hee Ng & Jacqueline Yujia Tao (2016), Bond financing for renewable energy in Asia


[2] Asian Development Bank (2017), Meeting Asia's Infrastructure Needs.


[3] Ma Jun (2016), Green Finance: China and G20.


[4] Climate Bond Initiative (2018), Green Infrastructure Investment Opportunities Report, Indonesia 


[5] Jonathan Drew (2018), The green bond market in Asia-Pacific, p.2


[6] “中央财经大学绿色金融国际研究院《中国绿色债券发展报告(2018)》“,P.36


[7] HSBC. 2017. Growing Investor Appetite for Green Assets Puts Pressure on Companies to Explain Their Climate Strategies. Press release, HSBC in CBI Indonesia




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