Recent years have witnessed significant growth in capital appetite to support sustainable development. The global trend is manifested most acutely in Asia Pacific (APAC), with the region leading in energy transition efforts and electric vehicle (EV) sales.
At our ESG Corporate Access event in Singapore, BNP Paribas sustainability experts briefed ESG issuers and investors on the global trends and opportunities arising from APAC’s pursuit of a sustainable future, as countries and corporates progressively embrace net zero emission goals.
“The mega trends are very clear in terms of action towards supporting the energy transition, the EV roll out in our transportation system, as well as consideration of biodiversity. This will translate into capital market activities, because all these mega trends require trillion dollars of funding,” said Chaoni Huang, Head of Sustainable Capital Markets Asia Pacific, BNP Paribas, speaking at the event.
The mega trends are very clear in terms of action towards supporting the energy transition, the EV roll out in our transportation system, as well as consideration of biodiversity. This will translate into capital market activities, because all these mega trends require trillion dollars of funding.Chaoni Huang, Head of sustainable capital markets APAC,
Trevor Allen, Head of Sustainability Research at Markets 360, BNP Paribas, noted that Asia is poised to be the second-largest issuer of green bonds this year after Europe, with China leading the APAC league table.
“We’re forecasting US$600 billion of green bond issuance this year, of which roughly half will be from Europe, with China in second place. We’re expecting US$115 billion to US$125 billion of green bond issuance from China, a lot of which will be in the domestic currency,” he said.
We’re forecasting US$600 billion of green bond issuance this year, of which roughly half will be from Europe, with China in second place. We’re expecting US$115 billion to US$125 billion of green bond issuance from China, a lot of which will be in the domestic currency.Trevor Allen, Head of sustainability research at Markets 360,
China leads the renewable energy transition
While Europe has traditionally been a leader in renewable energy adoption, China has the highest solar and wind energy installed capacity and it produces, as well as sells, more EVs than any other country, according to global databases.
In 2022, China accounted for 46% of the 192 gigawatts (GW) of solar capacity and 49% of 78 GW of wind capacity installed globally in 2022, data from International Renewable Energy Agency and Global Wind Energy Council shows. Allen noted that President Xi has set an ambition for China to install 600 gigawatts each of solar and onshore wind generation capacity by 2030, and is likely to achieve the targets by 2027 and 2028, respectively.
Cheap natural gas gives the US more options for electricity security, but Europe and APAC do not enjoy that advantage and are accelerating energy transition. “Europe needs to transition because of high gas prices. However, China is transitioning because of the sheer demand they have internally, and the high emissions that they have from coal,” Allen said.
EV growth: all roads lead to China
Global sales of battery electric vehicles (BEV) have outpaced plug-in hybrid electric vehicles (PHEV), with the sales curve steepening significantly since 2020 as sales in China doubled in each of the past three years, Allen noted.
In 2022, total EV sales rose 55% to 10.5 million units, of which BEVs accounted for 73%, according to the EV-Volumes database. EV sales in China now dwarf those of the EU and US, and the country is now the largest EV market accounting for 59% of global sales in 2022, and the largest EV producer with 64% of production volume, according to the database.
“China leading in this trajectory is incredibly important, because we basically have seen a doubling from 2020 to 2021, and a doubling again from 2021 to 2022,” Allen said.
Despite the recent withdrawal in state subsidies, according to the China Association of Automobile Manufacturers (CAAM), China’s EV sales remain robust and are up 35% year-on-year since the subsidies were dropped, notes Allen. He adds that China also processes over 80% of components for EV batteries, while consuming just over 50%. This market dominance echoes China’s current share of the solar panel market, which the International Energy Agency estimates at 80%.
Harnessing biodiversity in Southeast Asia
Southeast Asian countries — especially Indonesia and Malaysia — earn a lot of their GDP from biodiversity, be it through farming, tourism, or other natural resources.
Preserving biodiversity is crucial for about US$2.2 trillion of Southeast Asian GDP that is reliant on biodiversity. BNP Paribas estimates that US$46 billion in biodiversity financial investments will be needed by 2030 to monetise biodiversity offsets to continue accessing this opportunity (source: Deutz et al.(2020), Academy of Sciences Malaysia, BNP Paribas)
Issuance trend and outlook
Green bond issuance is already off to a good start this year. With a steady US$60 billion monthly volume so far, according to Bloomberg data, overall global green bond issuance is on track to deliver BNP Paribas’ US$600 billion forecast for 2023.
“In Asia, it’s a rosy picture in the long run even though we are in a very high-rate volatile environment. We’re seeing very positive signs in terms of development,” said Huang.
She notes that China is leading APAC issuance, with 40% of the supply so far this year, followed by South Korea at 23% and Japan with 19%. ESG labelled issuance accounted for 21% of total APAC issuance, or double the global average of 10%. More corporate issuers are coming to the market and matching financial institutions that previously dominated issuance, she said.