Murray Collis is deputy CIO, fixed income Asia ex-Japan, at Manulife Investment Management
When it comes to Asia, it is not unusual for investor enthusiasm to give way to some form of cynicism when the discussion moves from growth to sustainability. There seems to be a dominant perception that the region has chosen to prioritise economic progress over other competing goals, often at the expense of the environment and sustainability-related causes. While there is no shortage of statistics to support that perspective, they do not necessarily paint an accurate picture of what is happening on the ground.
In our view, an important, if quiet, sustainability evolution is taking place in Asia—one that can lead to compelling opportunities in fixed income. The movement is largely driven by the region’s policymakers who, on current evidence, understand the urgency, specifically in regard to issues pertaining to the environment. However, ongoing efforts to address sustainability issues are likely to be dwarfed by the rate at which the continent is growing, which also implies that any positive progress will invariably be subsumed by growing demand for even more resources. That said, it is important for investors to recognise that important foundations have been laid in the past few years.
The region’s central banks, for instance, are extremely supportive of developing green financing and could well be engaging in an unspoken race to the top, each vying to be a key player in green financing. Asia’s stock exchanges are not far behind—several exchanges have made it mandatory for listed firms to provide environmental, social and governance (ESG) information to investors, while others made clear their preference for firms to do so. It is also fair to say that the region’s prominence in the global renewable energy space is not borne out of coincidence: The introduction of appropriate legislation and investment policies has given the continent’s renewable energy industry the support it needed to grow.
Top 10 investors in clean energy capacity during 2019
The growth in Asia’s sustainable debt market, which includes green, social and sustainability bonds, has been remarkable. China and South Korea were among the first in Asia to tap into the green bond market, but in the past year, Southeast Asia has also hopped on the bandwagon – green bond issuance by ASEAN nations nearly doubled to $7.8bn (£5.7bn) in 20191. Understandably, the Covid-19 outbreak has prompted concerns regarding investor appetite; however, the surge in interest in sustainable investing in recent months suggests ESG bond issuance should continue to rise as investor focus on sustainability issues has sharpened in light of the pandemic.
Economic growth often comes at a cost, particularly from a sustainability and environmental perspective. In this aspect, Asia’s experience is no different from its developed peers. It is clear to us that sustainability is a key priority for policymakers in the region, creating opportunities for fixed-income investors to participate in efforts to deliver lasting solutions.
It is clear to us that sustainability is a key priority for policymakers in the region, creating opportunities for fixed-income investors to participate in efforts to deliver lasting solutions.
That said, the geographic specificity of these challenges and the absence of a universal taxonomy continue to hamper progress. As such, an intimate knowledge of Asia and a nuanced understanding of the sustainability issues confronting the region are key to investment success. In our view, the sustainability movement in Asia has moved past the inflection point and could hold promise for those who are able to see the bigger picture.
The full paper from Manulife Investment Management outlines the work that has been undertaken by the region’s policymakers to address sustainability issues and examines how the Covid-19 outbreak may have influenced developments. It also identifies the key challenges that continue to hamper progress and highlights issues that investors should consider before deciding to allocate to Asia’s growing sustainable investments market.
Read the full paper here
1) “Asean’s green bond issuances nearly doubles to US$7.8bil,” New Straits Times, 23 June 2020.
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