ESG Financing in Asia: Ready for Take Off?

Asia’s Environmental, Social and Governance (ESG) financing scene is gaining traction against the backdrop of supportive government policies such as tax incentives and growing stakeholder pressure for responsible financing. The S$1.2 billion green loan raised by Singapore-based Frasers Property is the latest in a series of green loan deals in the region.

Growing Appetite for ESG Investment

Globally, according to insights research conducted by East & Partners for HSBC on Sustainable Financing and ESG Investing in the first half of 2018, close to two-thirds of investors have already integrated ESG factors into their investment process, but Asia is much further behind on the trend with less than half currently invested in sustainable strategies.

However, changes in investor appetite are imminent. The proportion of sustainably managed assets is set to grow significantly faster in Asia over the coming year, up 22.0 percent year-on-year. This increase in demand is primarily driven by commercial outcomes including attractive financial returns and tax incentives, proving the market is sustainable.

No Hurdle for Further ESG Financing

Nearly nine in ten issuers in Asia do not see any barriers to increasing their ESG financing, compared with the global average of 66.6 percent. This paints an optimistic picture for businesses that are planning to raise more sustainable funds in the near term.

Significant Reputational Benefits for ESG Issuers

When compared with traditional products, issuers rate the reputational performance of ESG financing at 1.98 (on a 1 to 5 scale, where 1 is better and 5 is worse), significantly better than other financing approaches. This reputational benefit is also reflected in a stronger demand for the product and better shareholder engagement.

Importantly, issuers also see the financial returns of ESG products now being at least as attractive as traditional instruments.