People
are paying more and more attention to environmental issues. Businesses’
performance is not only evaluated based on their financial returns but their
social responsibilities as well. These include environmental, social and
governance (ESG) investing, also known as “sustainable investing”.
Therefore,
sustainable finance is introduced to reconcile economic performance with social
and environmental benefits, and it is growing fast now!
According
to FSG report ‘Financing the Future of Asia’, in the U.S., total assets under
management (AUM) under ESG strategies have grown almost four-fold in eight
years, from around $3 trillion in 2010 to $11.6 trillion in 2018. Green bonds
as well, posted strong growth in recent years. More new products are being introduced
to the market. For instance, the BlackRock iShares Global Green Bond ETF, and
the Planet Emerging Green One fund by the International Finance Corporation
(IFC) and Amundi, is expected to deploy some $2 billion in emerging markets.
Asia
has made remarkable economic progress in recent decades. Living standards in
Asia has improved and poverty has been reduced across the continent. However,
this kind of resource-intensive growth will bring negative impact to
sustainability. The United Nations estimates that the GDP of the Asia-Pacific
region could decline by 3.3 percent from current levels by 2050 if countries do
not abandon their business-as-usual approach to growth.
Despite
having great opportunity for sustainable finance to grow, Asia has yet to realize its full potential.
Total
AUM under ESG integration strategies in Asia was far lower than the U.S. and
Europe in 2016. In fact, 83% of Asian ESG AUM was contributed by Japan, showing
a wider gap between other Asian countries and the most advanced ESG markets.
The
figure above shows the top 10 countries by Cumulative Green Bond Issuance,
March 2018 ($ Billion). Among the top 10 countries, only two of them are from
Asia.
China,
the second largest economy in the world is putting a lot of effort to promote
sustainable economy. The Chinese government is taking a number of measures to
attract foreign capital to its green bond market. For example, harmonizing
domestic green bond guidelines with international ones to improve foreign investor
confidence, or issuing green bonds on international exchanges through state-owned
banks.
India’s
green bond market is the second largest in Asia. Both issuers and capital
providers have demonstrated high interest in India’s green bond market.
Oversubscriptions often happen in the bond market: at least 10 green bonds from
a total of 33 have been oversubscribed. Moreover, India is the largest impact
venture investing market in Asia, with approximately $5.4 billion invested up
to 2015. Most of the investors adopted a VC approach with 10-year closed-end
funds. A model borrowed from the U.S. However, due to obstacles such as
challenging environment or low awareness of products, enterprises in India
often need longer time to develop and grow. This, however, may exceed the
timeframe of a closed-end fund model.
In
long term, financial returns cannot outrun social and environmental
consequences. Sustainable finance in Asia is still in the early stages of development.
Although uneven growth is spread across Asian economies, Asia still possesses
great potential for sustainable finance to be developed and to catch up with
the developed markets.
Reference:
Johan
Thuard, Harvey Koh, Anand Agarwal & Riya Garg (2019), Financing the
Future of Asia – Innovations in Sustainable Finance
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