Analysts and fund managers predict that next year, investing in companies and industrial sectors to create a kind of economic base for their transition to a low-carbon future will become the dominant trend in China and the Asia-Pacific region, as demand for sustainable financial products continues to remain high here, despite the current interest rate rates that exceed the average figures of previous years.
A study published in April by the international relations think tank Asia Society Policy Institute, based in New York, states that to achieve the goal of zero emissions by the middle of this century, the mentioned geographical area needs investments for $71 trillion. Analysts of this organization separately note that the Asia-Pacific region is particularly susceptible to the effects of processes caused by climate change. Experts described the environmental circumstances that are factors in forming the overall situation, primarily in the economic aspect, in the specified geographical area as expensive events. In this case, it implies a significant scale of the impact of climate change on the financial situation.
Brendan Tu, head of ESG advisory in the Asia-Pacific region at UBS, suggests that in the future special investment interest will be focused on such spheres of activity that need to implement an internal transformation strategy, such as the production of building materials, and companies seeking to reduce emissions and increase the cost on integration into their business green technologies. Also, according to the expert, a more favorable interest rate situation next year may be an incentive to increase the issuance of green bonds or bonds related to sustainable development. At the same time, Brendan Tu noted that it is necessary to find various sources of financing for the transition period to support the implementation of decarbonization initiatives. In this case, it means similar projects developed by private companies.
Jakub Malich, head of Environmental, Social, and Management Research (ESG) and Climate Research at MSCI, says sustainable debt is linked to investments that finance the transition to a low-carbon economy. The expert also noted that in the context of current technological realities, which are a kind of reaction of advanced engineering developments to changes in the Earth’s ecological system, monetary injections into new and more efficient ways of generating electricity will be important. Separately, Jakub Malich stated the likelihood of an increase in investment interest in the companies’ goals of decarbonization.
The expert noted that sustainable bonds continued to become more significant in global bond indices this year, drawing attention to the fact that their issuance was at a high level compared to the broader market. Also, bond issuance in 2023 in the Asia-Pacific region showed a higher level compared to the rest of the world.
Green, social, sustainability and sustainability-linked bonds accounted for 5.3% of the total outstanding principal amount of bonds included in the MSCI corporate debt securities indices at the end of September. At the end of last year, this figure was 4.4%.
MSCI data show that in the first nine months of this year, the volume of issuance of sustainable bonds in the Asia-Pacific region increased by 17% year-on-year in the first nine months of this year, amounting to $172 billion. The average global growth rate for this period is 4%.
Olivier Menard, head of Green and Sustainable Finance at Natixis Corporate and Investment Banking, says that the stable aspect of bond issuance is becoming a central theme for investors. The expert expects that the market share related to environmental friendliness, sustainable development, and social responsibility will continue to show dynamic expansion in the future, regardless of what decisions central banks will make regarding interest rates.
Fidelity International Asset Manager also believes that transition financing will become a priority for sustainable investment next year. This was stated by Ellie Tang, Director of Sustainable Investment at the mentioned company. She also noted that the impact of climate risks and extreme weather conditions is becoming an increasingly sensitive influence factor. Separately, Ellie Tang announced the gradual approach of the deadline for achieving net zero targets.
Investment firm Abrdn believes that financing transition initiatives will gain other sources of cash injections that are willing to make efforts to support such corporate plans. This was told by Nicole Lim, ESG Fixed income investment manager at the asset manager. The expert noted that those with financial resources are increasingly demonstrating their willingness to provide greater support and introduce more flexible methods of activity when interacting with companies with reliable transition plans that take into account the specifics of the region and industry. Nicole Lim says that these are positive initiatives for Asia, which focus on raising capital through projects related to climate change issues.
Financial data provider LSEG said that from January 1 to December 11 of this year in the Asia-Pacific region, the issue of bonds related to the categories of environmental friendliness and sustainable development raised $134 billion. For the whole of last year, this figure amounted to $136.7 billion. In 2023, China’s share in the total number of bonds issued is 58.6%. Jennifer Zhang, head of debt origination in China at investment bank Barclays, says that the mentioned indicator can further demonstrate growth, given the improving awareness of issuers and the desire to generate positive benefits of ESG.
Daniel Zhi, head of Strategy and operations in the area of financial services at KPMG China, says that investing in the materialization of the transition period should be a main element in the sustainable financial landscape of this state. The expert noted that the current scale of so-called green money injections in the specified country is not sufficient to achieve the national goal of peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.
Daniel Zhi suggests that, with a high probability, over the next few years, China will record a sharp increase in market demand for transition financing to eliminate the lag behind the pace necessary to achieve the mentioned goals in the sphere of ecology.
Siping Guo, Head of the Greater China ESG and Climate Research Department at MSCI, referring to the 28th United Nations Climate Change Conference held in the UAE, says that a fair and orderly transition to a carbon-intensive industry is consistent not only with Beijing’s strategic focus on energy security and supply chain reliability but also the roadmap for the abandonment of fossil fuels.
As we have reported earlier, China’s Biggest Banks Lower Deposit Rates.
