Sending a clear signal on the significance of sustainable financing to the future of banking, Deutsche Bank in December 2020 announced plans to link sustainable business activities covering the environmental, social and governance (ESG) space to management compensation beginning this year.
Aiming to be a leader on sustainability in the financial sector, and contribute to what it described as environmentally sound, socially inclusive and well-governed world, the supervisory board and the management board of the German lender are reinforcing this ambition by planning to tie the compensation of its top-level executives to the sustainability criteria from this year onwards.
But as Deutsche Bank brings its sustainable financing commitment into the next level, some banks, such as HSBC and Barclays, are facing pressure from their shareholders on issues such as climate change. Investors, for instance, want HSBC to toughen its climate change commitment, asking the bank to cut lending linked to fossil fuels. They have filed the resolution to be voted on the bank’s annual general meeting. This comes as HSBC announced in October 2020 an ambitious plan to prioritize financing and investment that supports the transition to a net zero economy by 2050 or sooner and target net zero in operations and supply chain by 2030.
Barclays also faced similar backlash as investors similarly asked the bank to stop lending to fossil fuel companies and set clear targets to phase out services to energy companies that fail to align with the Paris Agreement. In March 2020, the bank announced its ambition to be a net zero bank by 2050 in tackling climate change.
Meanwhile, other financial institutions could still not resist funding coal-related projects such as Japan Bank for International Cooperation (JBIC) and the Export-Import Bank of Korea, which are providing project financing to the Vung Ang II coal project in Vietnam. JBIC notes the project is expected to contribute to the economic development of Vietnam through the stable supply of electricity as a base load power source in the 2020s and beyond. It says JBIC has been working with Vietnam on its energy policy transition towards decarbonization and based on such engagement, it will support this project.
Clearly, though, Deutsche Bank’s initiatives illustrate how several market participants – issuers and borrowers, investors and intermediaries – have fully embraced sustainable financing, which gained further foothold in Asia under the most adverse economic environment that the world has seen based on the large number of deals arranged in 2020. The global health crisis that unraveled in the early part of last year has served as a wake-up call for sustainable finance as more issuers and borrowers embed sustainability in their business models by issuing green and blue bonds, social bonds and sustainability-linked loans and bonds – demonstrating their aspirations on climate action and social responsibility.
This is evident during the evaluation process conducted by the board of editors at The Asset as we sift through several transactions submitted to The Triple A Sustainable Capital Markets Regional Awards 2020. Several issuers have joined the bandwagon and accessed the green bond market for the first time, while blue bond and loan emerged as the new colour in the fixed-income universe in the region. Covid-19 has also fueled the surge in social bond with the issuers allocating the proceeds of their fund raising toward providing direct and/or indirect financial support for SMEs and/or small offices/home offices adversely affected by the pandemic.
In the meantime, banks are granting sustainability-linked loans under which the borrowers are incentivized with tiered interest rates once they meet pre-determined targets or key performance indicators.
Several deals across the region defined the sustainable financing theme that further resonated in 2020. In the sovereign space, one of the deals of the year goes to Kingdom of Thailand, which issued its inaugural sustainability bond amounting to 30 billion baht (US$997 million) in August 2020 to fund the Metropolitan Rapid Transit orange line project and for Covid-19 relief package. It re-opened the deal in November to raise another 20 billion baht worth of green bond, which was certified as climate bond standard by Climate Bonds Initiative.
For the third year in a row, the Republic of Indonesia accessed the green sukuk market to raise US$750 million for five years, which achieved the lowest yield ever for such tenor across both conventional bond and sukuk issuance for the sovereign in the US dollar debt capital markets.
Another Indonesian issuer, Star Energy Geothermal Salak Limited and Star Energy Geothermal Darajat II Limited, printed in October a US$1.11 billion green project bond – the largest US dollar corporate green bond from Southeast Asia and the first investment-grade transaction from a geothermal power producer in the past 15 years.
But it was the issuers out of South Korea that continue to spearhead the deal flow in sustainable finance in 2020 across different sectors. Korea Land & Housing Corporation printed in October its first social bond public offering amounting to US$300 million with the proceeds earmarked for projects related to affordable housing and to promote public housing safety.
Korea Development Bank is at the forefront among the Korean policy banks with a US$500 million Covid-19 response social bond. In a deal priced in October 2020 that also included another US$500 million in senior unsecured tranche, the social bond proceeds were intended to support SMEs and small offices/home offices that were adversely impacted by Covid-19.
Kookmin Bank printed also in October the first Covid-19 response sustainability tier-2 notes out of Asia amounting to US$500 million with the proceeds allocated to finance and/or refinance new and existing projects from a combination of green and social eligible categories that also include SMEs and small offices/home offices affected by the pandemic.
From China, one of the country’s key policy banks, China Development Bank, tapped the local currency market when it raised 10 billion yuan (US$1.54 billion) multi-tranche climate change green financial bond, which was issued in four channels – China interbank bond market, stock exchange, retail counter and Bond Connect.
A number of Chinese high-yield property companies are also embracing the sustainable finance theme with Kaisa Group Holdings pricing in September sustainable senior perpetual non-call three-year notes amounting to US$200 million, followed by a US$250 million 364-day sustainable senior notes in December. The sustainable perpetual offering is the first such issuance among all Chinese issuers with the proceeds used to fund eligible green projects, including green buildings, energy-efficient projects, pollution prevention and control, sustainable water and wastewater management, and eligible social projects such as affordable housing, affordable infrastructure and essential services.
Another high-yield Chinese property company Zhenro Properties Group also accessed the green bond market for the first time in 2020, pricing US$350 million green senior notes due 2025 in September and another US$200 million 363-day senior green notes in November.
Another interesting deal printed in 2020 was the US$12 million women’s livelihood bond for WLB Asset II Pte Limited, the proceeds of which were utilized to extend loans to selected microfinance institutions and impact enterprises benefiting women in Cambodia, India, Indonesia and Sri Lanka.
In the first of its kind out of Asia-Pacific, Bank of China, through its branches in Paris and Macau, priced in September a US$500 million and a CNH3 billion (US$463 million) blue bonds. This is likewise the first blue bond issued by a commercial bank globally and the proceeds are used to support ocean conservation by financing marine and ocean-based projects that have positive environmental, economic and climate benefits.
The Thai-listed Indorama Ventures Public Company Limited secured in November US$300 million blue loans from Asian Development Bank, Leading Asia’s Private Infrastructure Fund, DEG and International Finance Corporation – the first-ever blue loan granted to a global plastic resin manufacturer. It will contribute to the recycling of 50 billion polyethylene terephthalate (PET) bottles globally a year by 2025, diverting plastic waste from landfills and oceans.
Outside of the sustainable finance theme, the board of editors at The Asset also honoured other deals that stood out in 2020, including the US$6 billion multi-tranche bond by China Ministry of Finance, which was its first-ever Reg S/144A transaction. This was also the first sale into the US domestic markets in almost 17 years and was undertaken amid heightened US-China tensions.
For the complete list of Deals of the Year, please click here.
For the complete list of Outstanding Deals, please click here.
The virtual awards ceremony will be held on 18 March, 2021, please reserve your place by contacting email@example.com