APAC sustainable bond issuance to grow 20% in 2023

China, South Korea, and Japan will dominate the issuance of sustainable bonds.

In 2023, the Asia-Pacific region is projected to achieve a 20% increase in global green, social, sustainable, and sustainability-linked bond (GSSSB) issuance, reaching a total value of around $240 billion due to the low base of issuance but growing awareness of sustainability imperatives, particularly decarbonization.

According to S&P Global Ratings, North Asian nations, including China, South Korea, and Japan, will remain the dominant GSSSB issuers in the Asia-Pacific region due to the size of their economies and established issuer and investor bases. These countries have accounted for 70% to 80% of the region's issuance for the past five years.

China's quest for carbon neutrality is expected to fuel its GSSSB issuance, with the country projected to remain the largest green bond issuer in the region.

Meanwhile, South Korea could consolidate its position as the second-largest GSSSB-issuing country in the region, with social bonds accounting for more than half of its issuance. Japan's GSSSB issuances are well-diversified across sectors and instruments, with nonfinancial corporations issuing 55% of the total.

Other markets, including Australia, India, Indonesia, and Malaysia, are slowly catching up with North Asia's GSSSB issuance volumes. India's government plans to add 450 gigawatts in capacity for renewable electricity generation by 2030, which is expected to drive GSSSB issuance in the country.

Australia's current government has made a stronger commitment to reducing carbon emissions, and funding needs for clean energy projects are growing, which could lead to more green bond issuances.

Green bonds will continue to dominate GSSSB issuance in Asia-Pacific, accounting for nearly half of the overall volume, with climate mitigation investments, such as renewable energy, green buildings, and energy efficiency, accounting for two-thirds of volumes.

Sustainability-linked bonds (SLBs) could be a source of growth in the region. However, they will face challenges in 2023, as investors increasingly question issues surrounding the ambitiousness of targets to effectively address sustainability issues.

S&P Global Ratings said the region is expected to remain on two tracks, with North Asian countries leading issuance volumes across all instruments, while other countries endeavour to catch up.

The focus on reducing the carbon intensity of power generation in Asia will further support the supply of green bonds, while the flexibility of sustainability-linked instruments could boost their growth. The coming year will see regulators focusing on climate-related disclosures and taxonomies, which should contribute to expansion in GSSSB issuance.