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Asia-Pacific green bond issuance falls to over 3-year low as social debt surges

The issuance of green bonds in Asia-Pacific in the second quarter fell to the lowest level in more than three years, as new debt has been diverted to social bonds aimed at addressing public health and economic inequalities due to the coronavirus pandemic.

In the three months ended June 30, nine most active green-bond issuing markets in Asia-Pacific raised a total of US$5.22 billion, or 10% of the global issuance, according to Climate Bonds Initiative, a U.K. nonprofit organization that created the green bond standards. It was down from US$5.52 billion in the first quarter and US$16.53 billion a year earlier. It was also the lowest level since US$4.13 billion in the first quarter of 2017.

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Meanwhile, social bonds that raise debt for projects with positive social outcomes increased so far this year. Asia-Pacific issuance of social bonds rose 29% this year through June 15 from a year earlier, according to a June 22 report by S&P Global Ratings. April was the first month ever when the issuance of green bonds was surpassed by social bonds and sustainability bonds, which have features of both green and social objectives.

"The coronavirus outbreak put a drag on environmental projects as investors hesitate to bet on them amid the uncertain outlook for the economy," Yoshihiro Fujii, executive director of the Research Institute of Environmental Finance in Japan, said. "Obviously, green bond issuance for this year will come below the last year levels."

Social bonds leap

Globally, social bonds issued so far this year through May 15 totaled US$42.3 billion, compared with US$13.7 billion for the entire 2019, according to BNP Paribas. The bank does not have a breakdown for Asia-Pacific.

"Growing issuance of social bonds is a topical issue for this year," Mana Nakazora, chief ESG strategist at BNP Paribas in Japan, said.

Green bonds tend to be issued when issuers have leeway to invest money in environmental-friendly projects, Makoto Kikuchi, CEO of Myojo Asset Management. But now, businesses are facing headwinds amid the coronavirus outbreak, shifting themselves away from green bonds to social bonds. "Demand [for social bonds] is there."

Mitsubishi UFJ Financial Group, Inc., which had issued several green bonds over the past years, in June 2020 issued a sustainability bond worth of 500 million to finance both environmental and social projects including coronavirus-related issues. MUFG plans to issue another sustainability bond worth 150 billion in September, a bank spokesman said.

Global issuance of sustainability bonds, used for both environmental and social purposes, amounted to US$27 billion from January through mid-May, compared with US$38 billion in the entire 2019, according to BNP Paribas.

Green debt slows

CBI estimated in January that global issuance of green bonds will reach a record high of US$350 billion this year, exceeding the previous year's US$257.5 billion. For the first half, however, the global issuance stood at US$91.8 billion, which was about 35% of the 2019 amount and a quarter of the 2020 estimate.

CBI did not say whether it will retain the new record estimate, but expected the green bond issuance in the second half of the year to surpass that in the first half.

In the first half of 2020, China's issuance of internationally aligned green bonds slid 63% to US$4.37 billion from a year earlier, despite a recovery in the second quarter as the pandemic eased. It was still the largest green bond issuing market in the region.

Fujii expects China's green bond issuance to grow further in the long-term, citing the country’s vast market for renewable energy sources.

Japan saw its green bond issuance decline to US$1.09 billion in the second quarter, from the first quarter's US$2.76 billion that was the nation's highest quarterly issuance on record. As the virus continued raging the world's third largest economy, CBI earlier estimated that Japan's issuance in 2020 will likely fall to between US$4.5 billion and US$5.0 billion from $7.2 billion last year.

As of Aug. 24, US$1 was equivalent to ¥105.94.