The spotlight on the role of green, social and sustainability (GSS) instruments in the debt capital markets is sharper than ever amid the political will to set new climate and regulatory agendas.
As one of the hottest and most sought-after parts of the fixed income landscape, demand is surging, with commentators expecting 2022 to be a standout year. Moody’s, for example, has forecast $1.35 trillion, following an already-impressive 2021 when sustainable bond issuance grew 64% year-on-year to nearly $1 trillion. S&P Global Ratings goes further, tipping the issuance of GSS and sustainability-linked bonds to surpass $1.5 trillion this year.
Regardless of the final total, several factors are fuelling this trend. Among them: higher levels of comfort and understanding in terms of the regulatory environment; greater uniformity and familiarity with market standards; and issuers’ desire to meet and diversify investor demand.
This is according to more than 100 investors and borrowers in Asia Pacific who took part in the exclusive 5th annual poll conducted by ANZ and FinanceAsia during April and May 2022.
Eight key takeaways from the survey
- Almost every poll respondent said they consider GSS issues and integrate them into their strategy.
- There is growing awareness and comfort among borrowers and investors about taxonomies and key market standards, though uncertainty remains over the impact of regional regulations.
- Many more investors than last year are developing an ESG investment policy and now use third-party ESG ratings to inform their strategy.
- While the majority of investors work for firms with commitments to the Paris Agreement and a net-zero emissions target, there is a widespread lack of clarity about how these are achieved.
- Of the two-thirds of investors already buying GSS bonds and loans, renewable energy is by far the most popular sector, followed by energy efficiency and then sustainable transport.
- Independent reviews and assurances have become significantly more important when investing in GSS instruments.
- A borrower’s alignment to sustainability objectives is the predominant issuance driver for GSS instruments, followed by investor diversification and improved access to capital.
- Set-up costs, time and a lack of available targets are key barriers to issuing GSS instruments.