Southeast Asian countries' rush to green bonds.


The region, particularly vulnerable to climate change, invests in green finance

Southeast Asia is turning to green finance to boost its economy in these difficult times. Already, ten ASEAN countries have issued green bonds to finance green projects, hoping to make plans to safeguard the planet increasingly concrete. Green bonds are regular bonds whose issuance is linked to projects that have a positive impact on the environment, such as energy efficiency, energy production from clean sources or sustainable land use. These issues are very dear to the region, which is particularly prone to extreme weather events and vulnerable to rising sea levels. 

The ASEAN sustainable debt market reached an annual record of $24 billion worth of green, social, and sustainable bond and loan issuance in 2021, to which an additional $27.5 billion is added when considering sustainability-linked bonds and loans.

Indeed, many countries have already made very ambitious commitments to reduce, or even offset, carbon emissions. Thailand, Vietnam, and Malaysia for example, have set targets to achieve carbon neutrality by 2050, Indonesia by 2060. These ambitions are also being realized by mobilizing capital through the sustainable finance market. According to a June report by the Asian Development Bank, the amount of sustainable bonds issued by the major markets in ASEAN and East Asia reached $478.7 billion at the end of March, registering a year-on-year expansion of 51.3 percent.

In particular, Thailand is particularly attractive to investors due to its mature bond market, the second largest in Southeast Asia after Malaysia. Since 2020, the government and state-owned enterprises have issued more than 127 billion baht, according to the Thai Public Debt Management Office's annual report. Among the funds raised, a large chunk (about 30 billion baht) partly financed the new Orange Line, a rail line connecting Bangkok's outer suburbs from east to west to the city center. This infrastructure project is expected to alleviate traffic and air pollution problems, persistent in the Thai capital and worsened in the wake of the COVID-19 pandemic, as commuters have resumed using private vehicles to avoid crowded public transportation.

Singapore has announced that government agencies will issue up to $SG 35 billion in green bonds by 2030. Again, the aim is to finance green infrastructure projects, such as public transport, in order to encourage more commuters to take the train and reduce their dependence on cars. Among the projects the city-state government intends to implement is the Jurong region railway network in the western part of the country, which aspires to reduce land transport emissions by 80 percent around mid-century. Singapore is also exploring the use of bonds for climate change adaptation, for example for coastal protection. The Philippines has also issued its first green bonds to finance climate change mitigation and adaptation projects.

Malaysia and Indonesia, on the other hand, which have large Muslim populations, have introduced Islamic green bonds, also known as sukuk. The objective of these instruments is in line with the Islamic principle of environmental protection, allowing issuers to tap into the thriving Islamic finance market. Examples of this trend include Malaysia's issuance of green sukuk to finance the construction of large-scale solar power plants.

Finally, Vietnam is taking advantage of the green bond market, particularly for financing transportation and energy projects, such as the Dau Tieng solar park.

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