Home / Markets / Stock Markets /  Policy and regulatory focus on transition to support sustainable bond issuance in Asean in 2023: Moody’s

NEW DELHI : Policy and regulatory focus on green and transition finance will drive recovery in Asia-Pacific sustainable bond volumes in 2023, despite difficult market conditions, said Moody’s Investor Service.

Scaling green and transition finance via sustainable instruments, including bonds and loans from the public sector, will further gain momentum as reporting standards and taxonomies improve, said the ratings agency in a report.

“For India, the debut $1 billion green bond issuance by the sovereign in January 2023 could spur further green bond issuance from other sectors including companies or financial institutions as the country strives to meet its 2060 carbon neutrality goals," the report said.

According to the Moody’s, Asia-Pacific (APAC) sustainable bond issuance dropped 20% to $205 billion in 2022 – broadly in line with global trends – on the back of rising yields, a strengthening dollar and weaker economic activity. 

The decline was particularly pronounced in the second half of 2022, with cross-border issuance decreasing 52% from the year before; onshore volumes fell a more muted 10%. Stabilizing macroeconomic conditions in the region, coupled with policy and regulatory focus on green and transition finance, will bolster ESG-labeled bond volumes in 2023, with annual issuance bouncing back to around $230 billion.

The rating agency said that the just transition will gain more prominence across Asian emerging markets.

“Carbon transition is likely to be more difficult for emerging markets (EMs) given their higher exposure to transition risks, placing increasing importance on financing just transition initiatives. As EMs become more active in sustainable bond markets, mobilizing climate finance through innovative solutions such as blended finance, loss and damage financing, and ramping up investment in adaptation and resilience measures will become important enablers to scaling up transition financing in the region," it added.

Local taxonomy developments and the Asean taxonomy on sustainable finance would also encourage companies to promote carbon transition, as such frameworks provide clarity on what constitutes transition activities by classifying economic activities into green (environmentally sustainable), amber (transition) and red (harmful) categories.

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