Financing focused on the sustainable development of the economy has acquired huge popularity in 2020 and regulators across Asia have joined the endeavors to advance the development of green finance for a more sustainable future. Compared to 2019, fund assistance into ESG investments in Asia and across the world witnessed a noticeable increase in 2020. Sustainable finance bonds touched an all-time annual record of $544.3 billion in 2020 and assets under administration for ESG funds in Asia reached over $60 billion in end-December 2020, quite double of 2019.
As we have already entered into the next year, we can observe the increasing efforts & trends for sustainable investments in Asia that focus on the development of ESG plans across the area.
The deal-making firms for sustainable development in Asia-pacific represented 33% of merger and acquisition (M&A) operations in 2020 by deal value. Depending on the number of deals, China took the leading responsibilities during this time, representing 20 percent of total sustainable deal-making initiatives worldwide, followed by the US (9 percent), India, and Italy (7 percent).
Since the concept of financing for sustainable economic development is gaining popularity, China has emerged as an initiator in green finance. It demonstrates probably one of the largest markets for green bonds and also is home to a wide variety of other significant green finance and ESG-focused products such as green funds, insurance products, exchange-traded funds (ETFs), and asset-backed securities.
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Apart from China's national efforts to achieve carbon neutrality by 2060, regulators are also attempting to speed up the activities for corporate ESG checking and revelations in China, with Chinese controllers starting to detail the compulsory exposure requirements for listed firms on their environmental data. The stock exchanges of China have also issued market directions for ESG data revelation.
Sustainable trade finance taxonomies have a vital role in assisting investors efficiently recognize sustainable business in the midst of worries over green-washing and an absence of standardized ESG regulations and reporting.
In 2015, China published its green taxonomy (the Green Bond Endorsed Project Catalogue), while later in March, it was announced by its central bank that it is cooperating with the European Union to compel for a worthy convergence of taxonomies of green finance and investments across the two markets. The agenda is to apply a joint perceived classification system for the firm's environmental certifications before the finish of 2021. Across the area, other Asian nations are also cooperating with the green taxonomy trend.
More explicit definitions for sustainable finance are essential, and it would be a great idea to coordinate these taxonomies and their underlying information set requirements across the area. While complete harmonization is complex, a smooth & clear mapping of the fundamental information sets that are the foundation for the taxonomy towards compliance is attainable and ought to be focused on.
The scope of green financing arrangements accessible to investors has expanded fundamentally in recent years, with other products such as green ETFs, green private equity, green loans, as well as other listed and unlisted products emerging in the market. Asia would put efficient efforts to carry on, enhance & extend liquidity in local markets for new green financing instruments.
Aside from green bonds, social bonds are also gaining popularity as an alternative funding instrument in Asia, relevant to cope against the pandemic by reducing the social-economic effects of the crisis. This was hugely led by an increase in capital-raising by sovereigns, multi-laterals, and banks to help Covid-19 alleviation and recuperation endeavors. The proceeds enable issues to raise funds for the projects with favorable social results such as basic infrastructure, reasonable housing, micro-finance, food security, and admittance to fundamental services.
Apart from the appreciating growth in sustainable investment, the absence of normalized, straightforward, and complete ESG information and benchmarks to direct investment decisions remains one of the crucial roadblocks among investors. As per the latest report issued by the Future of Sustainable Data Alliance (FoSDA), more than eight in 10 institutional investors worldwide consider data as an obstruction to effective assessment.
To cope with this difficulty, FoSDA reported the foundation of a Data Council in February 2021 to act as an industry and administrative sounding board concentrated on establishing an agreement of essential ESG data problems and requirements for a manageable future.
The Covid-19 crisis has increased the focus on sustainable investing and highlighted an immediate need to resolve ES risks. Sustainable investing has taken an irreversible jump into the standard, and there is more noteworthy mindfulness that strong ESG practices can help organizations in Asia open new opportunities and find new sources of capital in a post-pandemic climate.
With the Asian market assured of recovering ahead of the remaining world, the green finance market of the area will keep growing and speed in the coming years. To support Asia;’s sustainable finance ecosystem to prosper, more prominent lucidity, joint effort, and convergence among regulators, investors, and other industry stakeholders are needed to handle the underlying complexities and maintain this favorable momentum for a longer period.