Southeast Asian nations are aiming to increase green financing as the region, dotted with flood-prone low-lying areas vulnerable to weather disruptions and rising sea levels, grapples with the threat of climate change.
Some of the 10 members of the Association of Southeast Asian Nations have been issuing green bonds to fund eco-friendly projects, in hopes of realizing plans that can safeguard their environment.
According to a report by the Asian Development Bank in June, the amount of sustainable bonds outstanding from core markets in ASEAN and East Asia reached $478.7 billion at the end of March, posting a year-on-year expansion of 51.3%.
ASEAN and East Asia accounted for 18.1% of outstanding sustainable bonds globally, trailing only Europe as the second-largest market, the report noted. Outstanding green bonds reached $333.6 billion at the end of the first quarter, accounting for 69.7% of the regional sustainability bond stock.
China has the region's largest sustainable bond market, with 66% of the region's green bond stock. At the end of the first quarter, it had a total of $238.8 billion worth of outstanding sustainable bonds. ASEAN's share may be smaller in comparison, but the ADB noted in its report that the bloc's markets "still have more scope for growth" in Asia, particularly amid the global trend toward low-carbon transitions.
Thailand issued sustainability bonds in 2020, primarily to aid its recovery from the pandemic. The private sector had led the charge previously, with TMB Thanachart Bank in 2018 issuing the country's first bonds tied to environmental, social, and governance objectives.
Since then, issuance from private companies such as food producer Thai Union and Skytrain operator BTS has grown from 10.12 billion baht ($286.1 million) in 2018 to 153 billion baht in 2021.
The Thai government's issuance received 60.9 billion baht in submissions -- three times the announced offering, which officials attributed to pent-up international demand for green investments, particularly in Southeast Asia's developing economies.
Thailand is "well-positioned" to maximize the region's appeal to investors because of its mature bond market -- Southeast Asia's second-largest after Malaysia, according to a report by Climate Bonds Initiative and the ADB.
Since 2020, total sustainable bond issuance by the government and state-owned enterprises has reached 127 billion baht, the Thai Public Debt Management Office's annual report last year showed. Proceeds were allocated to two projects, only one of which strictly qualified as a green project.
About 30 billion baht, or 24% of bond proceeds, partly financed the Orange Line, an east-west rail line connecting Bangkok's outer suburbs to the city center. The persistent problems of traffic and air pollution in the Thai capital have worsened amid the COVID-19 pandemic as commuters eschewed crowded public transportation for private vehicles.
The PDMO reported that construction of the eastern portion is nearly complete at 86%, and the line will begin operating next year.
Like Thailand, Singapore is targeting bonds for rail infrastructure meant to encourage more commuters to take trains and reduce their reliance on cars. The city-state's projects in this vein include the Jurong Region rail network in western Singapore, with the government hoping to reduce land transport emissions by 80% around mid-century.
Singapore in February announced that government agencies will issue up to SG$35 billion of green bonds by 2030 to finance eco-friendly public sector infrastructure projects which are expected to provide long-term environmental benefits to current and future generations of residents.
In June, it published a governance framework for sovereign green bond issuances covering areas like the use of proceeds, evaluating and selecting eligible projects, approach to managing the capital raised, as well as post-issuance allocation and reporting of outcomes.
"Our investments into the eligible green projects will facilitate Singapore's transition to a low-carbon economy," said Indranee Rajah, the city-state's second finance minister when the framework was published.
"We hope to deepen market liquidity for green bonds, attract green issuers, capital, and investors, and catalyze sustainable financing in the region," she explained.
Singapore is also exploring the use of bonds for climate change adaptation, including coastal protection. As a tiny island-nation, it is particularly vulnerable to rising sea levels due to global warming.
Credit ratings agency Fitch assessed in June that Singapore's plans for green bond issuances will be supported by its moves to establish a green taxonomy, which seeks to allow financial providers to align their investments and lending on the basis of environmental impact.
A green taxonomy is a classification system that determines the sustainability of different economic activities -- a de facto investor rule book.
Singapore aims to halve its emissions from an expected 2030 peak by 2050 by steering its economy toward sustainable practices, eventually reaching a net-zero state -- a balance where no more greenhouse gas is added than the amount taken away.
"The Singapore sovereign green bond is ASEAN taxonomy aligned, but it will remain a challenge to how the system will interplay with the European Union taxonomy," Jingwei Jia, an associate director at Fitch, told Nikkei Asia.
"It remains to be seen if these investments would actually be able to support the government's climate agenda to achieve its net-zero target," she said. "The current EU taxonomy focuses on activities that are unconditionally green and does not address transition activities toward net zero."
More than Europe, ASEAN countries still heavily depend on fossil fuels in the medium term, Jia explained. Therefore, activities that enable low-carbon transition from these fuels, such as natural gas, are more likely to be included in the region's taxonomy -- making it a challenge in aligning the sustainability agendas of the two blocs.
While EU standards are often seen as the benchmark, ASEAN members are finding their own path to contribute to climate change action. Following the launch of its Sustainable Finance Roadmap in 2021, the Philippines early this year issued its first green bonds in part "to finance the climate change mitigation and adaptation projects."
The Philippines churned out $1 billion, 25-year green bonds in March, and in April it issued 70.1 billion yen ($600 million) multi-tenor green bonds for the Japanese market.
Finance Secretary Carlos Dominguez said in March: "The fact that our debut sustainability bond tranche secured the strongest demand among the three tranches highlights the strong investor confidence in the national government's commitment to achieving sustainable development and mitigating climate change, notably the pledge to reduce our greenhouse gas emissions by 75% by 2030."
Malaysia and Indonesia, which have large Muslim populations, have introduced green Islamic bonds, or sukuk. In 2017, Malaysia issued green sukuk to finance the construction of large-scale solar power plants.
According to its Securities Commission, from 2017 till the end of last year, Malaysia's corporations sold green sukuk amounting to over 8.3 billion ringgit ($1.9 billion), positioning the country as the biggest such issuer.
Indonesia issued $6.3 billion worth of green bonds between 2018 and 2021, according to a March report by the Climate Bond Initiative. These included green sukuk in 2018, which came after the government introduced a framework on Islamic, as well as secular, green bonds the year before.
The country's Finance Minister Sri Mulyani Indrawati said in February that green bonds serve as alternative financing for the state budget, and at the same time are expected to help the government reach its carbon emission reduction targets -- including a net-zero goal by 2060.
Proceeds from the green bonds have been allocated to a wide range of green infrastructure projects -- mostly state-owned -- including renewable energy, low carbon transportation, sustainable water management and sustainable water infrastructure.
"Our green sukuk has become an attractive instrument drawing quite an interest," Indrawati assessed in February.