Sustainable bond issuance in Asia-Pacific is projected to increase in 2025 with issuers preferring to access the local currency markets due to cheaper funding costs.

A record high issuance of US$260 billion in Asia-Pacific is expected this year, according to a February 24 S&P Global Ratings report, up from US$246 billion in 2024 on the back of lower interest rates, refinancing requirements, regulatory reassurance on instruments’ claims and increasing participation of sovereign and government-linked entities to meet their sustainability agendas.

However, economic uncertainty, evolving trade policies and geopolitical tensions may still weigh on the issuance as slower global demand hits growth in the region.

The preference for local currency among issuers was evident in 2024 as they accounted for over 90% of the total issuance; and this is likely to persist, the report shares, as foreign currency offerings remain about 150 basis points more expansive. Green bonds will also continue to dominate the deal flows, despite the growth in transition bonds.

Japan, South Korea and China remained the largest markets for sustainable bonds in Asia-Pacific in 2024, accounting for three-quarters of the regional volume. Sovereign issuance surged 71% to a record US$40 billion last year, representing 17% of the total volume led by Japan’s transition bond programme.

Financial institution issuances, on the other hand, declined 21% in 2024 and may not rebound due to economic uncertainty and market volatility, especially in China.

China

Indeed, issuance of sustainable bonds from China continued to decline in 2024, albeit at a slower pace of 3% to US$55 billion, compared with the 29% fall in 2023. Issuance from non-financial sectors rose five-fold to US$21 billion, underpinned by sectors focusing on renewable capacity and decarbonization technologies. And with reduced lending to corporates, financial institution issuance plummeted 44% to US$29 billion.

Given the cost advantage, local currency transactions remained dominant in China; and, with the local investors driving the demand for green bonds, S&P Global says adherence to the rules on green finance has increased.

Japan

Meanwhile, Japan became the largest labelled bond market in Asia-Pacific in 2024 with US$63 billion in issuance, or 26% of the regional volume. The government issued 2.6 trillion yen ( US$17 billion ) in transition bonds to accelerate decarbonization financing and induce 150 trillion yen of investment in the next decade.

Government issuance of a further 950 billion yen, according to S&P Global, is scheduled in 2025. Transition financing, it says, will focus on energy and fuel conversion and renewables aligning with Japan’s green transformation promotion strategy. Non-financial corporates issued close to US$3 billion in transition bonds in 2024.

South Korea

South Korea saw its issuance of sustainable bonds drop 18% in 2024, though the volume remained robust at US$60 billion. Social bonds will remain the main driver in this market, though the volume fell by 20% in 2024, reflecting a sluggish property market amid the high borrowing costs and challenging corporate environment.

Korea Housing Finance Corporation will continue to be at the forefront of social bond issuance given its critical public policy role and the government’s plans to supply 236,000 affordable housing units by 2029.

Other markets

In other markets, the volume of sustainable bonds in Southeast Asia went up 36% to US$11 billion in 2024, with the Philippines and Thailand the most active markets on the back of higher sovereign issuances.

In India, the positive trend continues with the issuance volume up 30% to US$7 billion. Social bonds are gaining traction in this market spurred by the financial, housing and auto finance sectors, and as financial inclusion increases.

However, a lack of incentives and a more distant net-zero target of 2070, S&P Global points out, could slow the growth in sustainable bond issuance.