A new report from Janus Henderson Investors says that decarbonisation efforts in Asia have been hampered by a fragmented market but that recent trends are encouraging.
The report entitled, “The Decarbonisation in Emerging Markets – Perspectives and Insights from Asia”, measures decarbonisation efforts in emerging markets in Asia against three metrics: renewable energy as a percentage of total energy mix, climate bond issuance as a percentage of total bond issuance, and net zero target dates. This new report follows the previous report released in February 2022, which revealed that limited policy ambitions and lack of private sector financing curtailed faster progress on decarbonisation in Latin America.
Key findings in the latest report include:
The issuance of climate related financial instruments in Asia is dominated by China, India and the Republic of Korea, whilst most countries do not leverage climate bond issuance at all.
In 2020, the regional decarbonisation rate sat at 0.9%, well below the global average of 2.5%. This slow progress is due to a number of barriers, including: an energy reliance on fossil fuels, restricted access to green financing solutions, varying degrees of state market control, and poor frameworks and practices that influence emission targets and collect emission data.
While nearly three quarters of emerging markets in Asia have set or declared net zero targets, timeframes range from 2030 (the Maldives) to 2070 (India).
There has been an uptick in government engagement with renewable energy generation across the region. less populated countries consume more renewable energy but when contextualised by population, China and India’s relative renewable consumption significantly increases. Renewable energy consumption regionally is driven by hydropower, largely due to historical investment, but more recently wind and solar power generation have started to take centre stage.
In 2021, Asia-Pacific was the fastest-growing region for green bond sales globally, driven by a small number of countries. Overall, the region sold $124.53 billion of green debt in 2021, a 128% increase.
China is powering the regional drive towards renewable energy supported by government policy that wants to ignite an energy revolution. China already generates a significant portion of the world’s renewable electricity; wind installations peaked at 72.5 GW in China in 2020, a near threefold increase from 2019, and solar power increased by 60%. China’s national policy aims to achieve 80% of its total energy mix from non-fossil fuel sources by 2060, with a combined 1,200 GW of solar and wind capacity by 2030.
China has also developed its own standards for allocating and reporting on the use of green bond proceeds; currently issuers can use up to 50% of the proceeds raised from green bonds for general corporate purposes.
India had limited engagement with green financing until last year, when the country issued $6.8 billion of green bonds, the strongest issuance since its first issue in 2015. This swift increase in bond issuance has partly been spurred by the issuance of sovereign green bonds, which is incorporated within the government’s official borrowing programme.
The Republic of Korea’s energy sector remains reliant on fossil fuels and energy imports but the country’s commitment to achieving net zero emissions by 2050 is fueling the sale of green debt. Similar to China’s Green Bonds Endorsed Project Catalogue, Korea has developed its own Green Bond Framework and K-taxonomy to eliminate green washing and has taken significant steps to align these with the EU taxonomy.