Labelled Bonds for the Net-Zero Transition in South-East Asia: The Way Forward
This white paper, published by the World Economic Forum in collaboration with ETH Zurich, aims to address the challenges in implementing labelled bonds in emerging markets and developing economies (EMDEs), particularly in South-East Asia. The paper highlights the critical role of these markets in achieving the global goal of net-zero emissions by mid-century.
Executive Summary:
- Necessity: The world requires over $3 trillion annually in investments until 2025 to achieve net-zero targets, with EMDEs playing a pivotal role.
- Current State: While there's a growing trend in labelled bond issuances globally, EMDEs (excluding China) account for a smaller share compared to developed economies, indicating significant untapped potential.
- Challenges: The expansion of labelled bond markets in EMDEs faces hurdles, including differing local contexts, such as issuer types, industry dynamics, and varying market maturity levels.
Key Findings:
- Market Environment: An enabling market environment is crucial, encompassing robust debt capital markets and a prioritization of the net-zero transition agenda.
- Stakeholder Engagement: Issuers, investors, local policy-makers, and the international community each have roles in supporting and scaling a functioning labelled bond market.
- Benefits and Costs: Issuers need to weigh the benefits against costs when considering labelled bonds, with the total added costs not exceeding the added benefits.
- Proposed Solutions:
- Early Engagement: Close alignment between investors and issuers.
- Market Development: Cultivation of a robust debt capital market and transition plans.
- Regulatory Framework: Clear standards, "greenness" levels, and standardized post-issuance requirements.
- Issuer Preparedness: Enhancing organizational readiness.
- Knowledge Generation: Directed knowledge-sharing, education, and capacity building.
- Investor Demand: Policies to increase demand, such as enhanced returns, reduced risks, and tax incentives.
- Direct Support: Grant schemes and support for issuers.
Conclusion:
The paper emphasizes the importance of collaboration among stakeholders to overcome challenges and accelerate the issuance of labelled bonds in EMDEs. By addressing key issues, the transition to a sustainable, net-zero future in South-East Asia becomes more feasible and achievable.
