• The sovereign climate transition bond issued by Japan was arguably the highlight of the Green, Social, Sustainability and Sustainability-Linked (GSS/S) market in Asia, in Q1 2024. The ¥1.6tn issuance has been broken up into two tranches, offering five and ten-year tenor to investors. 
• Sustainable lending represents almost a quarter of the Asian lending market. Singapore is driving the Asian sustainable loan market, and accounts for 39% of Green and Sustainability-Linked Loans (SLL) executed in the region. Notably, Trafigura Group closed a $5.4bn sustainability-linked Revolving Credit Facility (RCF). The facility is linked to five sustainable performance targets (Greenhouse gas (GHG) emissions, responsible sourcing, renewable power, human rights, and safety).
• The Australian Securities and Investments Commission won its case against Vanguard on greenwashing. This case demonstrates the importance of analysing ESG data at a granular level. Entity name and Ticker are data points that might receive a lot of attention from the investing community.
• Climate reporting will become mandatory for non-listed companies in Singapore starting FY2027. Investors will still have to wait until FY2029 to see private companies generating more than S$1bn in revenue to disclose their scope 3 emissions. 
• The International Monetary Fund (IMF) is urging regulators and investors to shift the focus from ESG scores to better capture climate impact. The lack of correlation between ESG scores and climate policies as well GHG emission made them unable to support decarbonisation efforts in the region.

GSS/S issuance from Asian Financial Institutions and corporates totalled c.$29bn in 2024 Q1 (a decline of 21% vs 2023 Q1) in part due to a slowdown in overall primary market due to persistent high interest rates. GSS/S as a percentage of total issuance stood at 8% vs 10% in 2023 Q1. In a shift for currency preference, USD (28%) overtook CNY (25%), followed by an almost equal split among JPY, KRW, and EUR.

China, Japan, and South Korea led the APAC GSS/S market with $22.2bn issuance, corresponding to 76% of total APAC GSS/S supply in 2021 Q1, followed by India (9%) and Australia (5%). Though the majority of issuers preferred green label (63%) for GSS/S issuance, social format saw a notable increase (21%, +7ppt vs 2023 Q1) largely at the expense of sustainability (11%, -4ppt vs 2023 Q1) followed by sustainability-linked bonds (SLBs) (c.5%) and transition (<1%).

Financials continued its longstanding dominance to remain at the top with 39% share in 2024 Q1, while transportation (12%) and utilities & energy (10%) led the supply in corporate segment.

APAC GSS/S bonds issuance volume ($bn)

2024 Q1 APAC GSS/S bonds issuance Volume by country ($bn)

2024 Q1 APAC GSS/S bonds issuance volume by sector and currency

Asian SSA GSS/S issuance totalled $27.8bn eq. in the first three months of 2024, skewed by two transition bonds ($10.6bn eq.) from Japan; almost in line with $28.8bn eq. issuance in 2023 Q1. Japan debuted with its two climate transition bonds, also called green transformation or ‘GX’ bonds, of ¥800bn each in five-year and 10-year tenor, with four more issuance of ¥350bn each (across 5Yr and 10Yr tenors) being planned in the next FY2024-25. Japan aims to issue ¥20tn ($133bn) over the next decade to support transition technologies. Green (20%) coupled with climate transition (38%) label dominated the market followed by social (30%) and sustainability (12%) format.

APAC SSA GSS/S bonds issuance volume ($bn)

Although the volume of APAC sustainable loans fell by 31% in 2024 Q1 vs 2023 Q1 – in line with the slowdown in overall APAC loans (-49%) and the global sustainable loans market (-26%) – the share of APAC sustainable loans as a percentage of APAC total loans grew strongly to 22%, vs 16% in the same period last year. And, despite Asian sustainable loan market activity being subdued, the share of sustainable loans in Asian markets as a percentage of the global sustainable lending market was 23% in 2024 Q1 vs 25% in 2023 Q1.

APAC sustainable loans volume ($bn)

2024 Q1 APAC sustainable loans by country and sector

Vanguard lost a greenwashing civil penalty action against the Australian Securities and Investments Commission (ASIC). The asset manager admitted false or misleading representation regarding ESG exclusion applied by their ‘Ethically Conscious Global Aggregate Bond Index Fund’.

Capital Group launched three article 8 sustainable funds registered in Singapore. The fund is targeting investment in companies aligned with UN Sustainable Development Goals.

Nippon Life published its ESG Investment report 2023, which includes Taskforce on Nature-related Financial Disclosures (TNFD) aligned disclosures.

Non-ESG funds received massive inflows in 2024 Q1 while ESG / socially responsible investing (SRI) related funds witnessed a mix of both smaller inflows and outflows. ESG-related funds saw investors add $6.1m in the first three months of 2024 vs. $2.2m during the same period last year. See further detail below.

Weekly and cumulative SRI / ESG

Fund flows – cumulative

• ASEAN Taxonomy Board (ATB) released the third version of the ASEAN Taxonomy for Sustainable Finance, which now includes technical screening criteria for two additional sectors: transportation & storage as well as construction & real estate.
• The Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange Regulation (SGX RegCo) have provided details of mandatory climate reporting for listed issuers and large non-listed companies. From FY2025, all listed issuers will be required to report annual Climate Reporting Disclosure aligned with ISSB standards, and in FY2027 for Large non-listed corporates.
• Bangko Sentral NG Pilipinas (BSP) approved the adoption of the Philippine Sustainable Finance Taxonomy Guidelines (SFTG) for banks. The Taxonomy uses the traffic light system and focuses on two environmental objectives (climate change mitigation and adaptation) at this stage.
• Indonesia Financial Services Authority (OJK) updated its green and transition taxonomy. Coal-fired power plants will be considered as transitional activity, if operators commit to reducing GHG emissions by at least 35% in the next 10 years.

• The International Monetary Fund (IMF) published a policy paper calling for the development of climate impact scores in Asia Pacific as ESG rating agencies tend not to reward emerging markets and developing countries.
• Fitch and the Climate Bond Initiative (CBI) have applied the Climate Change Investment Framework designed by AIIB and Amundi to measure the degree of strategic integration of the Paris Agreement at country, sector, and company level.

If you would like to discuss any of the above further, please reach out to our authors:

• Caroline Haas, Head of Climate and ESG Capital Markets
  
• Tom Cascales, Vice President, Climate and ESG Capital Markets
• Pulkit Khurana, Associate, Climate and ESG Capital Markets

*For further analysis and information on the Primary Market, take a look at the full quarterly newsletter on Market Insights. If you do not have access to Market Insights, please contact us.

Also, for any unfamiliar terms used within this article please refer to our insights glossary.