ESG investing in Asia—an invisible evolution

Investor enthusiasm for Asia can sometimes give way to some form of generic cynicism when the discussion moves from growth to sustainability.

The paper outlines ongoing sustainability initiatives that have been undertaken by the region’s policymakers and highlights factors that investors should consider before deciding to allocate to Asia’s growing sustainable investments market.

In some ways, that’s understandable—after all, the region’s widely known as the world’s largest emitter of greenhouse gases. A more nuanced explanation would be that Asia’s ongoing sustainability efforts are often overshadowed by its seemingly insatiable appetite for resources, which is an inevitable function of economic expansion.

However, we believe investors should pay more attention to the region’s efforts to address environmental, social, and governance (ESG) issues. In our view, an important, if quiet, sustainability evolution is taking place in Asia—one that can lead to compelling opportunities, particularly in fixed income.

With the benefit of being able to observe these developments firsthand, thanks to our firm’s extensive presence in Asia, we get the sense that the movement toward sustainability—largely driven by the region’s policymakers—is not only genuine, but also urgent. In fact, when it comes to addressing sustainability issues, we’re of the view that Asia has moved beyond the inflection point, and we expect the positive momentum to continue. 

“In our view, an important, if quiet, sustainability evolution is taking place in Asia—one that can lead to compelling opportunities, particularly in fixed income.”

The growth in Asia’s sustainable debt market, which includes green, social, and sustainability bonds, has been nothing less than remarkable. China and South Korea were among the first in Asia to tap into the green bond market, but in the last year, Southeast Asia has also hopped on the bandwagon—green bond issuance by ASEAN nations nearly doubled to US$7.8 billion in 2019.¹ Crucially, the surge in investor interest in this asset class in the months following the COVID-19 outbreak suggests ESG bond issuance should continue to rise as investor focus on sustainability has sharpened in light of the pandemic.

Global sustainable debt issuance according to region (US$ billion)

Component bar chart showing global sustainable debt issuance from 2012 to June 30, 2020, broken down into regions. The chart shows that sustainable debt issued by the Asia Pacific region has been growing susbtantially since 2016.
Source: Bloomberg New Energy Finance, Sustainable Finance Market Outlook data set, as of June 30, 2020.

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. However, we believe that the region’s commitment to resolving these issues will create opportunities for fixed-income investors to participate in efforts to deliver lasting solutions. 

 

 

1  Asean's green bond issuances nearly doubles to US$7.8bil,” New Straits Times, June 23, 2020.

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Murray Collis

Murray Collis, 

Deputy Chief Investment Officer, Fixed Income, Asia

Manulife Investment Management

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Eric Nietsch, CFA

Eric Nietsch, CFA, 

Head of ESG, Asia

Manulife Investment Management

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