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Green bonds grow on Asia’s investors

TOKYO/ HONG KONG — Asian “green bond” issuance is surging as countries in the region roll out stiffer targets to curb climate change — and investors are keen for more.

Some of the region’s most important financial centers, including China and Hong Kong, are spurring the trend with new guidelines on green investing for money managers.

And perhaps because regional green bonds have not commanded the same kind of price premium, or “greenium,” as in other parts of the world, they are helping to widen the pool of investors.

Green bonds are tools used to fund projects with environmental or climate benefits in areas such as energy, transport, waste management, building construction, and water and land use. Interest in funding projects this way is set to accelerate because of the growing focus on decarbonization in Asia, where a string of governments have stiffened their “net zero” emissions targets and where pollution is a huge concern.

Of the world’s cities with the worst air pollution last year, ranked by Swiss air quality technology company IQAir, the top 148 are all in the Asia-Pacific region.

The region requires annual investment of $1.5 trillion to achieve the U.N.’s sustainable development goals by 2030, with clean energy and climate action alone accounting for almost a third of the funding, the United Nations Economic and Social Commission for Asia and the Pacific estimates.

“The key evolution in the last couple of years has been the greater involvement of governments in this arena, most importantly as implementers of policies to support issuance [of green bonds],” said Patrice Conxicoeur, head of Southeast Asia at HSBC Asset Management (Singapore).

This means the “Asian Green bond market should continue to broaden, and that issuer diversification will increase, with higher private-sector participation,” he said.

Global green bond issuance reached a record $269.5 billion last year, according to the Climate Bonds Initiative, an international nonprofit organization. While Western countries — the U.S., Germany and France — were the top three issuers, fourth-ranked China and the rest of Asia are fast catching up.

In the first three months of 2021 Asia Pacific issuers accounted to 24% of global issuance, up from 18% for all of 2020, according to a Moody’s report.

Volumes from China have soared threefold to $26.1 billion this year, making it the largest issuer in the world with a market share of 13.4%, according to data from Refinitiv.

The world’s second largest-economy has set a goal to reach a carbon emissions peak by 2030 and carbon neutrality — that is, a position where no net carbon emissions are being produced — by 2060. China was the biggest carbon emitter in Asia (and the world) last year.

To achieve carbon neutrality by 2060, China needs to invest 2.2 trillion yuan a year ($340 billion) this decade, with the number likely to grow to 3.9 trillion yuan annually in the period from 2031 to 2060, Societe Generale economists led by Michelle Lam in Hong Kong said June 24. Assuming that 30% of the green investment is financed by bonds implies a 7 trillion yuan annual green bond market by 2030, they said.

Japan in October unveiled goals to reach net-zero greenhouse gas emissions by 2050 and to cut emissions by 46% from 2013 levels by 2030.

In Japan, issuance of green bonds and similar “sustainability bonds,” backed by projects with both environmental and social benefits, almost doubled from 2019 to 2020, according to Daiwa Securities, one of the major underwriters.

“Many companies say they would issue” green or sustainability bonds but still have not finalized their plans, said Kazushi Shimizu, head of sustainable development goals finance at Daiwa. Once companies decide on their business plans, green bond issuance “will…

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