Can green local currency bonds finance a low-carbon future for ASEAN+3?

With the region looking to transition towards a low-carbon future, more countries are exploring the use of green local currency-denominated bonds to finance their infrastructure development needs. However, the People’s Republic of China (PRC) aside, green bond markets in ASEAN+3 are still very much in their infancy.

The prevalence of underdeveloped green bond markets across ASEAN+3 stems from the shortage of market‑ready projects, not financing, says the Asian Development Bank (ADB) in its recent assessment study of green bond markets in ASEAN+3. As such, countries should focus on increasing the number of viable green projects brought to the market rather than just the supply of green bonds available. Government direction will be vital to increasing investor participation, such as in the case of PRC, whose robust green bond market is the result of clear policy guidelines that it tied to its national policy goals to emphasise the importance of investor participation.

The report recommends that regulators prioritise supply-oriented policies over demand-oriented policies. Due to the strong investor demand for fixed income securities, and their similarity to green bonds in structure, term, and yield, green bonds could be a viable substitute with the right guidelines.

For more of ADB’s insights into how ASEAN+3 countries can accelerate green bond market development to finance their infrastructure needs, please refer to the full report here.

By: Asian Development Bank