Sustainability bonds are gaining popularity among issuers and investors in the Asia Pacific region, especially in Southeast Asia where Green, Social, Sustainability (GSS) issuance reached a record high of US$12.1bn in 2020, a 5.2 percent year-on-year increase from US$11.5bn issued in 2019.

That said, the Southeast Asia social and sustainability bond markets are still at an early stage compared to other regions, accounting for 5 percent of Asia Pacific and 1 percent of the global markets.

“The green bond market, through its industry sector composition, is a lot more defensive than broad investment-grade corporate credit,” said UBS Global Wealth Management head of credit Thomas Wacker. “[It] has held up better during the sell-off. The main reason is that conservative tilt, slightly better credit quality and more defensive names.”

Among green bonds, there is very low weight in cyclical industries, such as oil and gas or consumer-driven sectors, helping them hold up “very nicely”, Wacker said.

At the same time, sustainable investors tend to be more long-term oriented, helping green bonds fare better than traditional corporate bonds in an environment where bid-ask spreads widened massively and there were huge discounts as people tried to sell, Wacker said. Also, green bonds have shown lower volatility over time, he added.

Source: East & Partners