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Asia’s booming green bond market

Published on April 08, 2022

Green bond sales rocketed across Asia–Pacific in 2021. USD 185.22 billion of green debt was sold in one year alone, representing a 117% increase from 2020.[i] This rate of growth is set to continue in 2022. And with governments from around the region announcing net zero targets and transition plans,[ii] we expect the trend to continue in the years and decades ahead.

What are green bonds?

In essence, a green bond is a form of debt that funds projects with positive environmental impacts. The bonds are typically issued by governments or companies that sell these to investors to raise funds. Investors are then paid according to the rate and timeline detailed in the agreement.

Of course, the tricky part is establishing that a bond is truly ‘green’. To understand this, it’s worth looking at a landmark green bond, issued by the World Bank in 2008. It explains:

“The [2008] bond created the blueprint for today’s green bond market. It defined the criteria for projects eligible for green bond support, included CICERO [the Centre for International Climate and Environmental Research] as a second opinion provider, and added impact reporting as an integral part of the process.”[iii]

The definition above gives us three key benchmarks for creating a green bond:

  1. establish the criteria for eligible projects
  2. secure an opinion provider to assess the veracity of the bond and projects, and
  3. monitor the promised positive environmental impacts of the project via disclosure mechanisms.

It is important to note that the steps may differ by region and industry. For instance, the Asian Development Bank (ADB) has established a 12-step labelling process detailing best practice for issuing green bonds and providing examples and further resources.[iv] ADB’s approach also identifies two core workstreams that guide the process: choosing a green taxonomy and ensuring the integrity of internal controls.

Now, readers familiar with this space may have just raised their eyebrows at the mention of taxonomies. That’s probably because of the controversy surrounding the recent EU Green Taxonomy and the decision that projects in gas and nuclear should be eligible for ‘green’ status.[v] And green bonds are one reason this decision was so controversial, as many questioned whether it should be possible to label gas and nuclear as ‘green’ and thereby grant these projects access to green finance.

The ongoing debate about the EU Taxonomy is not the focus of this article, but it provides a kind of case study. It illustrates the far-reaching impact of the parameters we establish for what counts as ‘green’. These guidelines influence who can secure funding and make progress on the Sustainable Development Goals.

That brings us to the question at hand: why is green bond issuance growing so quickly in Asia? Well, the simple answer is that green finance is critical to reducing the environmental impacts of economic progress – and more and more of that progress is centred in Asia. The growing array of climate mitigation and adaptation options provides solutions for industry leaders but will also require substantial funding to be implemented at scale.

When it comes to mitigating companies’ environmental impacts, there’s no time to waste. Bonds are one way of accelerating the flow of finance into the projects that will do the most to reduce the environmental impacts of economic progress, resulting in increased sustainability.

Why Asia and the Pacific?

First, Asia and the Pacific’s burgeoning green bond market is an incredible story in itself. Second, the coming decades will see rapid economic growth across the region, and economic growth typically brings high levels of environmental degradation.

So the key question is: can economic development be financed in a manner that simultaneously mitigates environmental degradation?

The answer requires a brief journey into academia. This problem is at the heart of the so-called Environmental Kuznets Curve:

“In the early stages of economic growth, pollution emissions increase and environmental quality declines, but beyond some level of per capita income (which will vary for different indicators) the trend reverses, so that at high income levels, economic growth leads to environmental improvement.”[vi]

To avoid the immense environmental degradation caused by economic development, we need to either ‘flatten’ or ‘tunnel through’ the Environmental Kuznets Curve. It is therefore critical to identify the projects and activities that can drive low-carbon economic development. Classifying these projects as ‘transition’ or ‘green’ will give their leaders access to the international green finance markets, which are desperately searching for eligible projects.

Climate adaptation projects are also vital to sustainable development efforts here and around the world. The ADB recognises that “Asia and the Pacific depend on healthy and resilient oceans for disaster resilience, food security, and livelihoods”, and has started offering guidance on issuing blue bonds, aiming to enhance the resilience of marine and coastal ecosystems.[vii]

We know that the coming decades will exacerbate the physical impacts of climate change, which are already being felt across Asia and the Pacific. So using green bonds to fund mitigation projects is only one side of the coin, and financing climate adaptation projects is vital to supporting sustainable development around the world.






[vi] Since the Environmental Kuznets Curve was introduced in 1991, it has been subject to ongoing critique and debate, as one would expect in an academic field as dynamic as environmental economics. For more, see Stern, David I. The Environmental Kuznets Curve in Reference Module in Earth Systems and Environmental Sciences. Elsevier, 2018.


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Robert Charnock

Director of the RSK Research Institute on Climate Strategy

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Robert specialises in climate-related finance and disclosures (TCFD, climate scenario analysis) and carbon accounting (including net zero accounting), working across regulators, industry, think tanks and academia to develop practical research insights. He received his PhD in carbon accounting from the London School of Economics and Political Science while working with the United Nations to develop a financial sector toolkit for analysing and managing the risks of climate change.

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