Sustainable finance in S-E Asia to remain robust in 2025 despite Trump-led climate setback

SUSTAINABLE finance volumes in South-east Asia are expected to remain robust in 2025, despite a global setback in climate action with the re-election of climate sceptic Donald Trump as president of the United States.

This is because regional governments have expressed continued commitment to accelerating decarbonisation initiatives – in the wake of Trump announcing that he will withdraw the US from the Paris Agreement again – and built a track record in climate commitments, policies and disclosures as well as taxonomy development in recent years, bankers told The Business Times.

Corporates in this region are prioritising sustainability to capture long-term business opportunities, they added.

Sustainable finance proceeds raised in South-east Asia increased significantly in 2024 from the previous year, based on statistics from financial markets data provider LSEG.

Proceeds from bonds with an environmental, social and governance (ESG) label recovered in 2024 to hit US$20.1 billion – shy of the US$20.7 billion raised in 2022, but a 46.1 per cent jump from US$13.8 billion in 2023.

ESG loan proceeds rose 27.2 per cent to US$42.9 billion, from US$33.7 billion the previous year.

Limited Trump effect

With governments and companies in South-east Asia continuing to prioritise sustainability, US policy shifts will have a limited impact, said Tan Teck Long, head of global wholesale banking at OCBC.

A strong momentum has developed through various climate initiatives, with South-east Asia in a place to reshape global clean-energy supply chains and strengthen its position as a global leader in green technologies, he added.

Countries with established clean energy manufacturing capabilities, including China, can capitalise on global demand. Indonesia is also expected to strengthen electric vehicle (EV)-related ties with markets such as China, Japan and South Korea, so it can establish itself as an EV production hub.

Shilpa Gulrajani, head of sustainability at DBS’ institutional banking group, said that Asia’s decarbonisation pathway is distinct from that of other regions. Both public and private sector players – including governments, financial institutions and businesses – recognise the need to balance social, environmental and economic priorities.

Rahul Sheth, global head of sustainable bonds at Standard Chartered, expects ESG bond volumes in South-east Asia to remain robust, with issuers increasingly well-versed in ESG themes and labelling.

“We expect issuers to continue to explore thematic formats such as blue bonds, orange bonds, transition bonds, as well as sustainability-linked loan financing bonds,” he added. Blue bonds are marine-related, while orange bonds have gender-based targets.

While market volatility is to be expected, issuers would likely seize pockets of stability to access the bond markets, said Sheth.

ESG bonds

The 46.1 per cent year-on-year growth of South-east Asia’s ESG bond market outpaced both the global and Asia-Pacific ones. The global market increased 8.9 per cent to US$772.9 billion in 2024, while proceeds in Asia-Pacific rose 4.2 per cent to US$167.5 billion.

Green bonds remained the most popular ESG-labelled debt instrument in South-east Asia, with US$9.1 billion raised for the year.

There was a marked increase in funds raised through sustainability-linked bonds (SLBs), where interest rate payments are linked to the achievement of sustainability targets. Proceeds jumped to US$2.7 billion, almost 40 times the US$67.9 million recorded in 2023.

Sheth said SLBs made up 16 per cent of all of StanChart’s ESG transactions.

SLBs make up about 13.2 per cent of all labelled bonds issued in South-east Asia – a much higher proportion than in the global market, where SLBs account for about 3.5 per cent.

This demonstrates continued interest in this format of financing, said Sheth.

“What is interesting is that the SLB issuances in the region take place in a multitude of currencies, which shows the wide degree of acceptability and interest from the investor base in such structures,” he added.

The main drivers of ESG bond volumes in 2024 were issuers from the Philippines and Singapore.

Sheth noted that these two markets saw a marked increase in ESG-labelled issuances, compared to other regional markets where volumes declined or remained constant.

In Singapore, sovereign entities – including the Monetary Authority of Singapore, the Housing and Development Board and national water agency PUB – supported the increase in ESG-labelled bond issuances.

As for the Philippines, growing financing needs for renewable energy projects facilitated a larger volume of ESG bond issuances.

Besides sovereign issuers, financial institutions were also a notable group of issuers, contributing more than US$3 billion to ESG bond proceeds in the country between 2023 and 2024, said Sheth.

In 2024, the top bookrunners for ESG bond deals in South-east Asia were StanChart (US$3.5 billion), HSBC (US$1.7 billion) and Citi (US$1.4 billion).

ESG loans

ESG loan proceeds in South-east Asia tracked the global market, with the latter seeing loan issuances rise 24.5 per cent to US$703.5 billion in 2024.

However, South-east Asia’s 27.2 per cent jump outperformed the wider Asia-Pacific region, where proceeds rose 12.2 per cent to US$120.5 billion.

One important factor is government regulation that requires companies to report sustainability disclosures, thus compelling them to decarbonise, said bankers.

DBS’ Gulrajani said that corporates with a presence in the wider Asia-Pacific region have strengthened their sustainability goals and targets. These companies came from various sectors, including real estate, energy, renewables and infrastructure, as well as financial institutions.

There was a rise in transition financing among high-emitting industries in 2024, beyond the more conventional green financing structures, she noted.

OCBC’s Tan identified another theme: incorporating elements of a just and inclusive transition. He noted growing interest in social loans, as well as integrating social key performance indicators – such as gender equality, education, and support for smallholders – in sustainability-linked loans (SLL).

The quality of SLL structures also improved, as companies set more material and ambitious sustainability performance targets, he added. These included addressing indirect emissions arising from a company’s value chain, known as Scope 3 emissions.

Some companies are also going beyond standard carbon-reduction metrics to integrate broader sustainability goals such as biodiversity conservation and nature-based solutions into their financing frameworks, said Gulrajani.

More small and medium enterprises are also showing more interest in sustainable finance as they face growing pressure from buyers, regulators, investors and stakeholders to transition their businesses, said Tan.

OCBC was the top arranger for ESG loans in South-east Asia in 2024, with US$6.1 billion raised. DBS came second at US$4.9 billion. UOB was third with US$4.8 billion raised.