The global coronavirus pandemic has given a boost to green and to environmental, social and governance (ESG) funding around the world. Global sustainable bond issuance hit $99.9 billion in the second quarter of the year, a quarterly record and a 65% increase on the previous quarter according to a report from Moody’s published earlier this week.
And according to UBS, the assets of APAC-based ESG funds reached $62.8 billion by June, while assets in ESG exchange-traded funds in the region have risen four and a half times over the past two years to reach $7.01 billion at the end of the first quarter this year.
As Kamran Khan, head of ESG for Asia-Pacific at Deutsche Bank, said in a recent Bloomberg television interview: “ESG used to be about what investors did not want to see happen with their money, or did not want to be associated with in terms of how their investments were used, and it is now very decisively shifted towards what investors want to see happen.”
But although they are still characterised as frontier markets, ESG and green investing themes are making their mark in Central Asia too.
It is perhaps not surprising that multilateral agencies have led the way.
In mid-May, for example, IFC, a member of the World Bank Group, signed two agreements with Mongolia’s Financial Regulatory Commission (FRC) to develop green financing, as well as to improve access to financial products and services for the country’s micro, small and medium enterprises.
“Sustainability is a priority area for Mongolia. This cooperation with IFC will support the government’s initiatives in green growth by developing regulations and policies to create a market for green finance while identifying new opportunities for climate-friendly investments,” said Bayarsaikhan Dembereldash, chairman of the Financial Regulatory Commission.
And last week, 11 August, Kazakhstan’s Damu Entrepreneurship Fund, known as the Damu Fund, in partnership with the United Nations Development Programme, listed the country’s first green bonds on the Astana International Exchange (AIХ).
It wasn’t a benchmark deal by any stretch of the imagination, but it is significant.
A state-run fund that supports entrepreneurs, Damu Fund sold KZT200 million (480,000) three-year paper at 11.75% via BCC Invest.
Proceeds will be placed with second-tier banks and microfinance organisations to finance small-scale renewable energy projects undertaken by small and medium businesses within the Damu Fund’s green financing framework
"The listing of green bonds on the AIX is an important step of Damu Fund in the implementation of the strategy of green financing and support for micro, small and medium-sized businesses,” said Gaukhar Buribayeva, chief executive of the Damu Fund, adding that he is open to further issuance.
The bonds have traded flat and were last seen at par.
PRIVATE SECTOR GETS ON BOARD
Inspired by agencies and encouraged by investors, sustainable financing is being embraced by the private sector. Vladimir Chubar, chief executive of Asia-focused Credit Bank of Moscow (CBM), the country’s eighth-largest bank in terms of assets, says that only five years ago only one investor in 100 would ask about ESG policies, but now “it is every second investor”.
CBM was the first Russian bank to have an ESG rating and has been a champion across the region.
Chubar admits that the inspiration came from the multi-laterals. He has been a partner for many years with the EBRD and IFC and, as a result, the bank has been committed to sustainable investment since 2012. “Both of these multinationals made substantial input into our environmental and social policies as well as corporate governance practices,” he said on a Zoom call.
“It was a move to develop our sustainability business model and to signal to the market that our bank targets not just solid financial results for our shareholders, but also treats society and the environment responsibly,” he added.
But impact investing is making itself felt with private equity too. “There's a responsibility on allocators of capital to be able to match social rewards with economic rewards,” Kiyan Zandiyeh, chief executive of Sturgeon Capital which has been investing in Central Asia for the past 15 years, told FinanceAsia.
Alexander Branton, investment director at the privately owned investment boutique that is focused on Uzbekistan, is aware of the pitfalls of greenwashing. “It's also really important for anyone that says [they are sustainable investors] that they embed it in the investment processes. There is a lot of window dressing,” he said.
His argument is that it makes business sense to invest along ESG lines. “[Central Asian] economies are dominated by commodities and low-value industries with very little innovation. One of the key sustainable development goals is to improve that innovative infrastructure which is exactly what we are doing,” he said.
“These inefficiencies can be helped with technology-enabled companies to improve the quality of life which is a developmental issue as well as it is an investment opportunity. That is core to understanding what we mean by impact,” Branton added.