As the world continues to adapt to the growing threat of climate change, many global banks are stepping up efforts to work with corporates, governments and financial institutions to help the transition to a greener energy mix. This is the same in Asia Pacific (Apac).
Paris-based Chalchat is an experienced banker in this field and a keen observer of market trends. After a successful 2023, BNP Paribas has been leading the issuance of environemntal, social and governance (ESG) and sustainability-linked bonds (SLB) globally in the first five months of 2024 (up until May 17), according to data from Dealogic. FinanceAsia asked her views on the latest market trends in green financing and energy transition in Apac.
This article first appeared in FinanceAsia's Volume Two 2024 magazine earlier this year.
FA: How is Asia comparing with Europe and other areas in the transition challenge?
Chalchat: Apac is catching up with Europe in a very smart manner when it comes to sustainability, and has used regulatory drivers to efficiently stimulate demand while promoting reliable supply. It has also adopted a very pragmatic blend of regulations and incentives.
Singapore is extremely advanced with a strong focus on the transition of the planet. Since January 1, 2024, the International Carbon Credit (ICC) Framework allows carbon tax-liable companies to use eligible ICCs to offset up to 5% of their taxable emissions - a way to implement a carbon price and to stimulate demand.
Japan was a latecomer to net zero and their transformation plan is concrete and pragmatic in ensuring the benefits are suited to the population and the Japanese economy. Through the Green Transformation (GX) framework, Japan expects to turn sustainability into economic growth, by channelling households’ savings to green investments, and attracting international investments to drive economic development through emissions mitigation.
While everyone had other priorities in the pandemic, including health and the supply chain, there was time for people who are focused on sustainability, including governments, to step back and consider what are the most impactful solutions and to design plans.
FA: What are some of the challenges and opportunities Apac is facing?
Chalchat: On energy transition, Apac is facing a very unique set of challenges. The first one is the importance of and reliance on coal. The priority is to stop developing new coal facilities. This is absolutely core, and why BNP Paribas stopped our relationship with coal developers. Apac is very fragmented and fast-growing, and we need to develop green energy efficiently.
The big names in real estate are applying strict standards in Apac. The new port of Singapore is being developed, and is applying by design every energy efficiency measure. In Apac there is a great opportunity for infrastructure to integrate efficiency criteria, especially being still in the building mode,
so sustainable features can be implemented by design without the need for retrofitting.
There is also a massive opportunity to deploy artificial intelligence (AI) and to action it. AI can help with energy efficiency, for example, by optimising matching demand and supply. We need to make sure there is as little waste as possible, while anticipating the demand needs.
FA: What is the level of overall bond issuance in Apac compared to globally?
Chalchat: As of May 10, 2024, Apac ESG bond issuance accounted for 22% ($82.72 billion) of global sustainable bond issuance out of $376 billion of bonds issued in 2024 to that date. Worldwide, around 32% of the ESG bonds are corporate, the rest are sovereign, supranational and agency (SSA) and financial institutional group (FIG) issuers. Green bonds continue to dominate around 54% of the ESG bond markets, followed by sustainability (green + social) and social bonds.
While SLB account for 4% of the total ESG bond volume, more than 90% of the sustainability-linked bonds are corporate, the rest are SSA and FIG issuers. There is diversification of sectors and instruments, such as SLB, and in Japan, the green transition bond. There have also been a growing number of labels.
Green bonds have been going up every year until 2022, then there was a hit in the market. Green bonds sustained better than the conventional issuances. Worldwide green and sustainable bonds account for 13% of the conventional bond market.
We are starting to see the market go up this year. I have hope for 2024 and it is very healthy. It could climb to 20% in some regions, which would be great. We are starting to see a more diverse range of issuers.
FA: What kind of bonds is BNP Paribas working on in Apac?
Chalchat: We do a lot of green bonds and sustainability-linked loans (SLL) which are linked to energy efficiency in buildings. We are the go-to-bank to turn these green and efficient developments into value and optimise their financing. We have consistently ranked first in both global ESG bonds and global SLB issuance in the past couple of years.
We have a key role as part of the Green Bond Principles under the International Capital Market Association (ICMA). We were a leading force behind the key performance indicator (KPI) repository, and we helped mobilise banks and asset managers, suggesting the most relevant things by sector and sub-sector. Every issuer is doing impact reporting, and we have fruitful discussions to support issuers in avoiding greenwashing risks.
FA: What are some of the priorities for BNP Paribas?
Chalchat: The first priority is to support our clients in an advisory role to protect them as much as possible and support them in a rigorous framework. It is one of the most critical things we need to do. There have been some bad articles on SLL linked to issuances that were not that rigorous. We want to protect the rigour of the market.
Secondly, we want to improve the performance of sustainable investments and fully utilise the potential of the research and expertise we have available at BNP Paribas – including our analysts to develop thematic solutions to drive a positive impact.
Our next priority is linked to carbon markets. They have been hit by reputational attacks, but we need functioning carbon markets. Without carbon markets, populations may be tempted to sell their land if their land doesn’t generate revenues. Carbon markets can help protect the forests and are critical when there is little to no cash flows. This is why we applaud Singapore for their attempt at strengthening and stimulating solid carbon markets. It is good for countries to issue and oversee carbon offsetting projects to protect biodiversity, and good for corporates to have carbon offsetting on top of decarbonisation.
Last, we need to finance a just transition in emerging markets. Since the pandemic, 11 sovereign issuers went into default, and many are struggling to restructure their debt. We can’t leave the world behind and are working with development banks that help finance projects connected to protecting the environment and societies, which is very important for Apac. At COP28 the World Bank said it wants to finance the early retirement of coal power plants – bond issuances and carbon credits – we need to develop this kind of initiative.
Our last priority is nature and biodiversity. We need to pay close attention to this, and we are engaging clients regularly on this.
The world is facing a paradigm shift. We need to model the future when it comes to ESG. Historical data is not reliable and traditional physical risk models need revisiting. Modelling science and AI can help us better understand where the world is heading, and to better act on it.
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