What is driving the strong demand for financing sustainability in Asia Pacific? How can companies increase supply and start to see the benefits of sustainable finance in the next three years? We interviewed Richard Brandweiner, CEO of Pendal Australia, and Sophia Cheng, CIO of Cathay Financial Holdings and chair of Asia Investor Group on Climate Change, to find out. 

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Financing sustainability: How do investors and issuers in APAC's sustainable finance market view the present market opportunities and constraints?

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Awareness that sustainability means more than reducing carbon emissions is mounting in Asia-Pacific. Evidence to the fact shows in the response of the region’s sustainable finance market to the global pandemic.

In late 2019, the market was bullish. Asia’s sustainability-related assets under management looked set to grow appreciably, and most investors saw those holdings performing better than traditional equivalents.1

Then covid-19 struck.

The crisis might have been expected to stop the market’s growth in its tracks. Volumes have indeed decreased this year, but a shifting of issuances toward sustainability areas in dire need of attention—pandemic relief and recovery—points to a market capable of adapting quickly to unexpected shocks.

To assess covid-19’s impact on sustainable finance in Asia-Pacific, we consulted representatives from key stakeholders —an issuer, an industry association and a large investor. Their consensus for longer term development is positive, but they underscore the need to address two current inhibitors in the market: a continuing shortage of supply from issuers, and insufficient clarity around definitions and reporting.

Moving beyond green

Prior to 2020, green bonds accounted for the lion’s share of sustainable financing issuances in Asia-Pacific. By mid-2020 that picture had changed considerably, mirroring a trend visible in Europe and other markets—a stark decline in green bond issuance combined with accelerated growth in social bonds.2 Matthew Kuchtyak, assistant vice president, ESG & Sustainable Finance at Moody’s Investors Service, attributes the decline in green bonds largely to reduced Chinese issuance. The pandemic-driven growth of social bonds, meanwhile, boosted that category’s share of green, social and sustainability (GSS) bond issues from 7% in the full year of 2019 to 31% in the first half of 2020, according to Moody’s data.3

1 These were among the findings of a report written by The Economist Intelligence Unit, Financing sustainability: Asia Pacific embraces the ESG challenge, published in February 2020.  2 Green bonds are used to finance or refinance projects or assets having environmental objectives, in areas such as clean energy and low-emission transport. Social bonds fund projects having social objectives, related for example to health, education or employment. Sustainability bonds target projects that combine social and environmental objectives. See Financing sustainability, page 8, for descriptions of the different types of sustainable finance instruments. 3 Data provided to The EIU by Moody’s Investors Service on September 18th 2020.