IFR Asia Green Financing Roundtable 2018: Asia’s rising tide
When Green finance first hit the market, there were high hopes that issuers raising funds in such a way would benefit from improved pricing, given the increased transparency and forecast growth in demand from investors.
It is still too early to point to definitive evidence of that, but Green finance has several factors on its side that will drive adoption. Consumers, regulators and investors are demanding that companies show what they are doing to mitigate problems like climate change. A failure to answer the question adequately could mean missing out on investment from global fund managers, or spending by socially conscious millennials.
Even if issuers have no specific ambitions to be labelled Green, they certainly do not want to be flagged as polluters. It makes sense to tell the world what they are doing to reduce waste – which all efficient businesses should be striving to achieve, in any case.
In Asia, there is no doubt that some Green financings have simply been a marketing exercise, but the growth of the asset class has gained real momentum, with markets like China and Singapore making a push to encourage it.
City Developments has been developing energy-efficient buildings for years, and last year became the first corporate issuer of Green bonds in Singapore, while the Monetary Authority of Singapore has introduced incentives to encourage others to follow. On top of that, the Singapore Exchange now requires listed companies to publish an annual sustainability report.
In China, there has been a top-down effort to make Green finance an integral part of the financial system, leading to big debt raisings onshore and offshore from the biggest banks and state-owned enterprises.
Some issuers are also using Green finance to show their own transformations. This year saw the first Asian sovereign Green bond issue, from coal and palm oil exporter Indonesia, and agricultural commodities companies headquartered in Singapore have taken loans that charge a lower rate if certain sustainability benchmarks are met.
Raising funds in a way that emphasises that a business is running on Green principles may not result in a lower cost of financing, but it could attract a broader investor base and help maintain market access during periods of turbulence.
On top of all that, having Green values pleases internal stakeholders too. Employees are more engaged if they know their company stands for positive values.
Other companies may also want reassurances that the parties with which they do business have a Green approach.
Companies could ignore all of this and continue business as usual. That risks others assuming that they have dirty, smoky secrets to hide.
The tide is turning towards Green finance, and those who fail to emphasise their environmentally friendly sides could find that investors and consumers treat them no differently to issuers in polluting industries.