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The previous article mentioned the basic types of ESG bonds, and I believe you have a basic understanding of these types of bonds. Next, we will introduce specific types of ESG bonds, and briefly introduce you to a few representative countries that are currently promoting sustainable finance policies and ESG bond market development.
Blue bonds are similar to green bonds in that they are both new types of bonds with dedicated funding in response to the ESG concept, except that the funds raised from blue bonds are used for marine environmental protection and marine economy, hence the name “blue bonds”. The world’s first Blue Bond was issued by the Seychelles in October 2018, and is currently the most representative Blue Bond in the world.
Most of the issuers of the bonds are in high carbon emission industries, such as steelmaking, cement and other heavy industries, which are prone to high environmental pollution.
According to CDP research, just 25 high-carbon emitters can account for more than 50 percent of global industrial greenhouse gas emissions — the type of companies that are often shut out of the sustainable finance market because of their high level of pollution on the planet.
In order to protect the environment, reduce greenhouse gas emissions and gradually transform into a sustainable industry, the high carbon emission industry has started to issue “transition bonds” as a source of funding. There is a conceptual consensus on the recognition criteria for convertible bonds internationally, but there are some practical differences between the broad recognition and the strict definition. The broad definition means that ESG bonds in general have been derived from the “sustainability-linked bond” category, and therefore the transformation bonds can be classified as such. Strictly defined means that the criteria for recognition of transition bonds must be clearly defined. For example, the Climate Bond Initiative’s (CBI) Financing Credible Transition White Paper and ICMA’s Climate Transition Finance Handbook, based on the GBP, SBP and SBG, are guidelines to follow for transition bonds. Currently, China and Japan are the majority of countries in Asia that have issued Transition Bonds, with Japan reaching over 250 billion yen in issuance since 2021 due to government promotion and active investor participation.
With the ESG wave gradually sweeping through the bond market, countries are doing quite well in promoting the issuance of ESG bonds, and the issuers are not only governments, but also many types of issuers in the general corporate and financial sectors. TEJ has spared no effort in collecting and building ESG databases, and currently has collected ESG bonds from seven countries — Taiwan, China, Hong Kong, Japan, Korea, Singapore, and Thailand — and has compiled a database for the Greater China region for easy access to search. The following is a brief overview of the countries that are representative in promoting the issuance of ESG bonds.
Taiwan has been promoting Green Finance Action Plan 1.0 since 2017, mainly to encourage financial institutions to invest in green energy industries. The next step, Plan 2.0, will expand the scope to include green and sustainable concepts, guiding financial institutions to support green and sustainable development industries and diversifying the fundraising channels for enterprises. The first ESG bond in Taiwan was the green bond launched by ADVANCED SEMICONDUCTOR ENGINEERING, INC in 2014, and it was also the first green bond issued by a company in Asia. According to the Taipei Exchange, as of the end of August 2022, 94 green bonds were issued with an amount of about $258.6 billion, 20 sustainable development bonds were issued with an amount of about $74.6 billion, and 9 social responsibility bonds were issued with an amount of about $18.1 billion. The Financial Supervisory Commission announced the Green Finance Action Plan 3.0 at the end of September 2022, hoping to further integrate financial resources to support net-zero transformation and promote overall industrial carbon reduction through investment and financing, in order to strengthen climate resilience and the ability to respond to risks. In 2017, Taipei Exchange successfully joined ICMA, becoming the fifth member in Asia as a stock exchange to actively promote the ESG bond market in Taiwan. Currently, Taipei Exchange has established a special section for sustainable development bonds and hopes to continue to grow the number of bonds issued in Taiwan in the future to contribute to global sustainable development.
Bonds issued by foreign companies in Taiwan are also included in the TEJ Bond Database, but all international bonds of the ESG type can be found in the TEJ Database. The following figure shows a part of the database:
In China, the trend of sustainable economic development is gradually sweeping through the financial market, with a variety of financial instruments leading the Chinese investment market to practice ESG economy. In the early years of China’s domestic ESG bond market, due to the social development of China, poverty alleviation bonds and relief bonds were predominant, with the Agricultural Development Bank of China launching “poverty alleviation” bonds since 2016; and after the outbreak of the Covid-19 in 2020, “epidemic prevention and control bonds” were launched to raise funds for epidemic prevention — the first of these bonds was issued by China Development Bank in February 2020, with a coupon rate of 1.65% and a maturity of one year.
“Carbon Neutral Bonds” are also a special type of ESG bonds launched in China in recent years, based on Xi Jinping’s “Double Carbon Goal” of reaching peak carbon emissions by 2030 and achieving carbon neutrality by 2060. In response to this policy, a number of Chinese power companies have started to implement a number of carbon neutral bonds since 2021, with over 300 issued so far, amounting to over RMB 670 billion.
Currently, there are more than 3,000 ESG bonds issued in China. The following figure shows a part of the database:
As one of the world’s leading international financial centers, Hong Kong has the world’s largest offshore RMB capital pool, world-class business infrastructure, diversified capital supply, liquidity, investors, financial products and professionals, making Hong Kong a mission to transform Asia’s capital markets. HKEx has been committed to helping promote sustainable development by setting up an inter-institutional steering group on green and sustainable finance to work closely with members of various institutions to accelerate the development of sustainable finance in the market, and by implementing the Sustainable & Green Exchange (STAGE) platform to announce sustainable, green and social responsibility-related investment products. The ESG bonds listed on the platform are quite diverse, with blue bonds, transition bonds, epidemic prevention and control bonds, etc. Therefore, we expect to see more ESG bonds with new concepts listed in Hong Kong in the future.
With rapid climate change, high carbon emitting industries (e.g., steel, chemicals, aviation, shipping, cement, fossil industries, etc.) are at risk of being phased out. Transition bonds provide an emerging financing option for these industries to help them transition to low carbon or net zero.
According to our records, from July 2021, when Nippon Yusen Co., Ltd. issued its first tranche to date, Japan has issued a total of 19 transition bonds, which became active in the first half of 2022. The outside world also expects the transformation of the brownfield industry to connect traditional and sustainable finance, bringing the benefits to companies and investors. The blue bond is expected to be issued by Maruha Nichiro Corporation (one of the largest marine product companies in Japan) in late October 2022, and TEJ will closely monitor the issuance information and conditions and update the database immediately.
Korea has been green conscious since 2008, when the Lee Myung-bak administration launched the “National Strategy and Five-Year Plan for Green Growth” in 2009. In recent years, Korea has continued to be active in the sustainable economy, and this year (2022), the “Basic Law for Carbon Neutrality and Green Growth” was launched, explicitly legalizing the goal of “achieving carbon neutrality by 2050 and reducing carbon emissions by 40% by 2030 compared to 2018.
Most of the participants in the Korean financial market are larger consortia, and most of the ESG investments are led by this type of companies. One of the ESG bond is a three-year 300 billion won green bond launched by the Industrial Bank of Korea. The government has also launched transformation support and innovation development programs for the sustainable development of SMEs, and encouraged companies to actively participate in ESG investment.
So far in 2022, Korea has issued US$33.8 billion of ESG bonds, of which socially responsible bonds make up the bulk, accounting for 66%, an increase of nearly 20% compared to 2021; the issuance volume of green bonds is weaker, but still maintains a stable development with an average monthly issuance frequency of 10 tranches.
According to the 2022 Environmental Performance Index (EPI), Thailand is currently ranked in the middle of the pack at 108th. The Thai government has promoted a number of policies to improve the environment, and is encouraging companies to link their debt issuance to ESG concepts, gradually building an ESG system in the financial markets, and continuing to work toward sustainable development.
For domestic ESG investment, The Government Pension Fund (GPF) has launched a series of investment tools, including the establishment of Thailand’s first ESG fund, THSI (Thailand Sustainability Investment). In the bond market, The Thai Bond Market Association (BMA) has set up an ESG section, which not only provides an intuitive bond search, but also provides academic research articles as reference aids.
Thailand has been issuing ESG bonds since 2018, the first of which is a seven-year green bond issued by the Thai Military Bank (TMBTHANACHART BANK). Since 2020, Thailand has started to develop ESG finance more comprehensively with Social Bond, Sustainability Bond and SLB, of which Green Bond is booming, with the issuance amount reaching about 68 billion baht so far in 2022, accounting for more than half of the total ESG bond issuance. The following chart shows the number of ESG bonds issued by the four major types of ESG bonds in the last two years.
Due to Singapore’s geography, the threat posed by rising temperatures to Singaporeans cannot be underestimated. Therefore, the purpose of Singapore’s ESG bonds is to control carbon emissions and find new alternative energy sources. In early 2021, the Singapore government announced the Singapore Green Plan 2030, which echoes the United Nations’ 2030 Sustainable Development Goals, setting targets to be achieved in five key areas: urban greening, energy reallocation, green economy, ecological resilience, and sustainable living. The proceeds will be used to support the Singapore Green Plan 2030.
As sustainable investment becomes the trend in the modern financial market, the share of ESG bonds in the bond market is expected to continue to grow. The application and extension of the concept will certainly continue to bring a new and different look to the bond market, and at the same time, make corporate operations more long-term and stable.
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TEJ has gone to great lengths to include ESG bonds. All bonds approved and applied for over-the-counter trading, such as green bonds, socially responsible bonds, sustainability bonds, and sustainability-linked bonds, are included in our collection according to the Over-the-Counter (OTC) Sustainable Development Bond Practice Guidelines. The following picture shows a part of the database：
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