Barclays banks on renewable power in S-E Asia: sustainable finance head

SOLAR energy is expected to be the biggest growth driver of renewable energy capacity in South-east Asia in the next few years, followed by a Vietnam-dominated wind sector, said Daniel Hanna, Barclays’ global head of sustainable finance. There is also potential for further development of geothermal capacity in Indonesia, he added.

Barclays is one of the world’s most active bookrunners for environmental, social and governance (ESG) bond deals. In the Asia-Pacific and in South-east Asia, however, the UK-based banking group is a minor player. Data from Refinitiv showed that Barclays was a top 10 bookrunner for ESG bonds globally in the first half of 2023; in either South-east Asia or the Asia-Pacific, Barclays was not among the top 25.

Hanna said that Barclays has been selective in its approach in this region. Instead of competing across the board, the bank is focused on financing the energy transition of the region’s power sector. Hanna was confident that if only deals in the renewable power sector could be isolated from the data – which could not be done with the Refinitiv numbers – Barclays would be among the top handful.

Underlying that focus is a view of energy transition being the key need in this region.

“I think the big challenge for Asia, in particular, is the growth of renewables and decarbonising the power sector... And so, that focus around power, whether it’s from a mergers and acquisitions perspective, or raising green finance and bonds so that companies can reinvest that into growing their renewable capacity, is really important,” Hanna said.

He also added that supportive regulatory policies, increased investment in grids, local and regional financial market standards for green and transition finance, as well as greater innovation in blended finance can help accelerate the renewable rollout across the region. 

Hanna said that he is not able to comment on whether Barclays would be looking to participate in the early retirement of coal power plants, which have been the major topic in the sustainable finance space in South-east Asia in recent months.

Nonetheless, he recognised the importance of mobilising more finance for helping hard-to-abate sectors to transition towards “greener” activities, or what the industry terms as transition finance.

“So we need to both drive more capital into things like solar and wind. But we also need to really tackle what’s called the hard-to-abate sectors, and help those decarbonise. And so this is a big area of focus for us in transition. And I think some estimates suggest that two-thirds of the transition finance that needs to happen over the next 10 years or so will happen in Asia,” he said.

He also said that the industry needs to see more agreements around a transition finance framework. Currently, the International Capital Market Association only has published principles for green, social, sustainability and sustainability-linked bonds. There is only a guidebook on transition finance, which was upgraded in June 2023, a move deemed inadequate by some market participants that have been calling for a dedicated set of transition bond principles.

Hanna said that Barclays aims to mobilise US$1 trillion of sustainable and transition finance globally by 2030, although he did not specify what the regional breakdown of that target is. He also did not mention how much of that US$1 trillion target would be split between sustainable and transition finance.

But he added that the bank has a big focus on growing its share of transition finance in all regions and in Asia.

Hanna has observed that social impact and a “just transition” – the concept that the decarbonisation process should address and account for social impact – are increasingly important themes among investors and issuers.

There is widespread agreement among investors and issuers that a just transition is important, but all those conversations have not translated into transaction-level guidance, he said.

Market participants are looking for guidance on how to incorporate just-transition criteria into these deals, and Barclays is looking to work with universities and standard-setting bodies to develop that guidance.

The momentum of ESG bond issuance in Asia will also continue, with companies having more comprehensive transition plans when they issue such bonds. Investors are also having higher expectations on companies’ transition plans.

Targets set by issuers of sustainability-linked bonds are also converging on science-based emissions reduction pathways, compared with a broader range of key performance indicators relevant to their industry in earlier sustainability-linked structures, Hanna said.