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Business trends

Green bonds take root in Asia

Issuance forecast to quintuple in five years as businesses address climate change

Green bonds are used to fund environmentally friendly projects like solar farms.   © Reuters

HONG KONG -- Green bonds are growing more popular in Asia as companies and countries seek funding for steps to deal with climate change and investors place more weight on environmental issues.

The 2015 Paris Agreement on climate change has spurred Asian governments and businesses to invest more in such areas as renewable energy. Bank of America Merrill Lynch estimates that the funding needed for climate change countermeasures will swell to $500 billion by 2030 from $275 billion this year. Green bonds, which are issued specifically to fund environmentally friendly projects, can help meet this need for cash.

They are finding a receptive audience. A survey by the United Nations-backed Principles for Responsible Investment found that institutional and other investors named climate change as the greatest long-term challenge driving their decisions, more so than resource depletion and population shifts. Growing interest in environmental, social and governance investing is boosting green bonds as well.

A total of $33 billion in green bonds was floated last year in Asia, accounting for about 20% of the global total, Bank of America data shows. The bank forecasts a rise to $56 billion this year and to $175 billion in 2022.

This growth owes partly to a broadening range of issuers and products. Indonesia floated the first sovereign green sukuk bond, a type of debt that complies with Islamic law, aiming to attract investors from such regions as the Middle East. In Hong Kong, 13 companies -- including developer Swire Properties and Bank of China -- issued $5 billion in green bonds between January and May.

Emerging markets will drive growth in this field, said Rahul Ghosh, who analyzes green bonds for ratings agency Moody's Investors Service. Ghosh took particular note of China and India, which have goals of transitioning to low-carbon economies.

Hong Kong, aiming to become a hub for green finance, plans to issue up to 100 billion Hong Kong dollars ($12.7 billion) in green bonds itself as well as offer grants to cover some fees for corporate issuers.

Ensuring quality is becoming an issue as the market grows. Some issuers fail to provide sufficient information, or even use supposed green bonds to fund environmentally unfriendly projects such as coal-fired power plants -- an example of so-called greenwashing.

Establishing systems for third parties to evaluate and inform investors about the usage and impact of funds raised through green bonds would go some way toward resolving this problem. Trustworthy issuers have done much to support this immature market as well. Ghosh stressed that international organizations such as the Asian Development Bank and the International Finance Corp. will have important roles to play.

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