18 ASIAN LEGAL BUSINESS – AUGUST 2024 WWW.LEGALBUSINESSONLINE.COM SUSTAINABILITY The buzz surrounding environmental, social and governance (ESG) might have been overshadowed by the hype of AI and emerging technologies, but sustainability investing products have withstood the currents and stayed in the favour of global fixed-income investors. A report from Morgan Stanley has pegged the total value of global green bond issuance at $232 billion in the first four months of this year. That’s equal to the issuance in the same period in 2023. The non-profit Climate Bond Initiative predicted that the issuance of green bonds to hit a total of $1 trillion this year. But globally, the issuance of sustainability-linked bonds, which tied the bond’s yield to the issuer’s performance in satisfying certain environmental standards, has plunged 51 percent in the first four months of this year to $12.5 billion, the Morgan Stanley report found. In Southeast Asia, the issuance of green bonds took off significantly in document, i.e. a label for sustainable debt. Sustainability-linked bonds, on the other hand, are structured in a way that companies will need to fork out higher interest payments to bondholders if they miss environmental targets as agreed. But unlike “use-of-proceeds” green debt where proceeds are restricted to a specific use, the issues of sustainabilitylinked bonds are allowed to deploy the funds raised as they see fit if they have met their climate commitment. “Then a determination will need to be made as to whether the bond will align with relevant guidelines, standards, principles and/or taxonomies and, if so, which ones,” explains Andy Ferris, Singapore-based partner at Hogan Lovells Lee & Lee. The key considerations when structuring and offering green bonds in Southeast Asia, therefore, are ensuring recent years as countries in the region have turbocharged decarbonisation efforts while keeping up with investors’ demands for ESG products. GREEN LABELS In general, green bonds are debt issued by countries or corporations to finance environmental projects, such as development of climate-friendly energy sources, etc. In terms of factors including the legal structure, financial aspect, and the issuers’ credit profile, ESG bonds are largely similar to traditional bond products. “It is the commitment to EGS targets by the issuer that differentiate such bonds from traditional bonds,” points out Giles Kennedy, partner at Milbank in Singapore. The disclosure documentation for an ESG bond is one example. It is akin to a conventional bond, but only with the inclusion of a description of the ESG nature of the bond in the offering GREEN TREASURIES In the ever-evolving landscape of global finance, green bonds have emerged as a resilient force, with issuance of these bonds reaching an impressive $232 billion in the first four months of this year alone. As Southeast Asian countries accelerate their decarbonisation efforts and investors demand more ESG products, the region’s green bond market is experiencing a significant surge, promising a greener future for both the environment and the financial sector. BY SARAH WONG Image: YP_Studio/Shutterstock.com
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