Asset class gains in popularity, encouraged by favorable government policies
June will see the launch in Singapore of a government-sponsored green bond grant scheme that will help boost green bonds as a new asset class. The grants will apply to bonds issued in Singapore with a minimum value of S$200 mn ($142 mn) in any currency and a tenure of at least three years. Issuers will be able to offset up to S$100,000 of the cost of getting an independent review of their bond based on international green bond standards.
The grant is likely to increase green bond supply in the city state by leveling the playing field with traditional bonds, says Rahul Sheth, executive director of capital markets at Standard Chartered Bank, who is based in Singapore.
‘We think this scheme is a significant development in the green bond market in general and should have a positive supply-side impact in Singapore in particular,’ he says. ‘While green bonds come with reputational benefits and advantages of investor diversification, there are additional issuance costs in terms of obtaining a third-party opinion on the issuer’s sustainability framework and its adherence to global standards.
‘The scheme aims to cover the cost of such certification, which effectively provides a level playing field on costs versus issuing conventional bonds. Hence, issuers that qualify under the scheme will now find it beneficial to issue green bonds.’
Green bonds are those whose proceeds are used for environmental and climate-friendly projects. While western issuers were initially the biggest players in green bonds following their launch in 2007, other countries – particularly China – have been catching up. China was the top issuer of green bonds in 2016, accounting for about 31 percent of all issuance and 65 percent of growth, according to research produced in March by Bank of America Merrill Lynch (BofAML). The US remains the biggest issuer, however, with a total of $34.3 bn of the outstanding market compared with about $30 bn for China.
Globally, the green bond market grew to more than $200 bn in early 2017. BofAML predicts issuance between $90 bn and $120 bn in 2017, based on 30 percent to 50 percent growth in China and 15 percent to 30 percent growth in the rest of the world. Demand for green bonds has been fuelled by millennials, who show a high preference for impact investing, as well as the funding opportunities provided by the Paris Accord to reduce greenhouse gases and the UN’s Sustainable Development goals.
