Asia’s green bond market has grown exponentially in recent years, accounting for an increasingly large share of global public debt issuance. According to a report published in March by the International Capital Markets Association (ICMA), green and sustainable bond issuance in the region has expanded five-fold over the course of the past five years, totalling $80 billion in 2022.
This trend has given rise to high levels of scrutiny among investors, as they aim to ensure investment in genuinely green instruments and to mitigate potential for greenwashing.
During a panel discussion at FinanceAsia’s Sustainable Finance Asia Forum in Hong Kong on Tuesday, April 18, Julian Lee, executive director of the finance division at Hong Kong’s Airport Authority (AA), shared his experience in leading the airport operator’s recent green issuance, as well as how his team has worked to assuage investor concerns.
In January 2022, the AA issued $4 billion in senior notes, with varied tenors ranging from five to forty years. The bonds included a $1 billion, five-year green tranche that initially raised questions around greenwashing.
In a release detailing the issuance, the AA noted that proceeds from the green tranche would be used to finance or refinance eligible green projects under the corporate’s Sustainable Finance Framework. The AA first published the strategy in 2021, which is subject to regular review by second party opinion provider, Sustainalytics. It followed a pledge by Hong Kong International Airport in 2012 revealing its ambition to transform into the world’s greenest travel hub, by improving on areas such as energy efficiency, biodiversity management, and green building design.
But climate change think tank, Reclaim Finance, has argued that the AA’s ongoing third runway expansion project sits directly at odds with the principles of green finance; as its addition will lead to increased carbon emissions overall, with negative consequences for the environment.
Lee acknowledged that certain green investors had expressed similar concerns, but said, “You can’t win everyone in terms of ticking all the checkboxes.”
He emphasised the importance of embarking on a concrete sustainability journey and making marked progress through dialogue with investors. “We did a lot of roadshows, particularly with the green investors.”
Simon Leung, senior director of corporate finance within General Account Investment (GAI) at Canadian insurer, Manulife, praised the AA’s efforts in engaging with investors to inform their approach, and said that this was behind the high level of buy-in.
“The engagement that we have with issuers such as the AA has definitely increased very much,” he noted.
“Not every issuer is going to have the same resources to engage, but [given] our commitment to delivering these sorts of green investments to our stakeholders is firm, we welcome more information from issuers to ensure [the robustness of] those investments,” he said.
Leung noted that even seasoned investors such as Manulife remain in the process of drafting internal methodologies and policies to evaluate the rigour of their investments, suggesting that there is further work to be done.
“It is indeed an evolving space that everyone needs to embrace, study, and refine.”
The AA returned to bond market in January 2023 with a $3 billion Reg S offering that was eight times oversubscribed. The orderbook breached $25 billion, enabling the authority to price the notes below initial price guidance.
The green tranche, which comprised $1 billion in notes, received strong demand from “global green investors”, who accounted for 49.35% of final allocation. Lee explained that this classification was determined by the investment banks involved. Conventional investors included sovereign wealth funds, asset managers, corporates, banks and insurers across Asia, the US and Europe.
Proceeds from the bond have been earmarked for projects that lower the airport’s overall environmental impact, such as tech upgrades and refurbishment to greener infrastructure.
For the 144A issuance, BofA Securities, HSBC, JP Morgan, Standard Chartered and UBS acted as joint global coordinators, joint bookrunners and joint lead managers; while ANZ, Bank of China, Barclays, Citigroup, DBS Bank, Goldman Sachs (Asia) and Morgan Stanley were joint bookrunners and joint lead managers.
The issue coincided – not intentionally, Lee noted – with the easing of travel restrictions between Hong Kong and the mainland, which came into force just two days later.
Concluding the panel with remarks around the potential for more green issuance from travel industry players, Lee said, “The aviation space has attracted a lot of scrutiny due to its carbon footprint. The industry is tackling this, but this requires time.”
“The continuous focus on it is good…. We have to keep faith and continue to deal with the transition and issues at hand.”
What's your view on the outlook for green, social and sustainable debt in 2023? We invite investors and issuers across APAC to have your say in the 6th annual Sustainable Finance Poll by FinanceAsia and ANZ.