Asia-Pacific's sustainable bond market is poised to rebound. S&P Global Ratings anticipates record-high issuance of US$260 billion in 2025 through catalysts that include:

• Lower interest rates;
• Refinancing and dynamic local-currency debt capital markets;
• Regulatory reassurance on instruments' claims; and,
• Increasing participation of sovereign and government-linked entities.

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

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Trends In 2024

• Asia-Pacific sustainable bond issuance totaled US$246 billion, similar to 2023.
• Japan, South Korea, and China remained the largest markets, accounting for three-quarters of regional issuance.
• Issuers prefer local-currency bonds, which accounted for over 90% of issuance; this will likely persist as foreign currency issuance remains about 150 basis points (bps) more expensive.
• Green bonds will continue dominating issuance, despite growth in transition bonds.
• A 2025 rebound in total issuance could be underpinned by lower interest rates, refinancing needs, and governments' economic and sustainability agendas.

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Public Sector Issuers To Remain Most Active

• Sovereign issuance grew 71% to a record US$40 billion in 2024.
• Sovereign transaction numbers rose 23%; the average issuance amount rose 39%.
• Sovereign issuers represent 17% of total issuance volume, led by Japan's transition bond agenda.
• Other sovereigns continue to prioritize green bonds.
• Financial institution issuance dropped 21% and may not rebound due to economic uncertainty and market volatility, especially in China.

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Japan

• Japan became Asia-Pacific's largest labelled bond market, with US$63 billion in issuance (26% of regional figure).
• The government issued ¥2.6 trillion (US$17 billion) in transition bonds to accelerate decarbonization financing and spur ¥150 trillion of investment in the next decade.
• Government issuance of a further ¥950 billion is scheduled this year.
• Aligning with the country's Green Transformation Promotion Strategy, transition financing will focus on energy and fuel conversion, and renewables.
• Nonfinancial corporates issued close to US$3 billion in transition bonds.

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South Korea

• Sustainable bond issuance reached US$60 billion, despite an 18% drop.
• Social bonds will remain the main driver.
• The 20% fall in social bonds issuance reflected a sluggish property market amid high borrowing costs and challenging corporate conditions.
• Korea Housing Finance Corp. (KHFC) will remain an active issuer of social bonds, given its critical public policy role and government plans to supply 236,000 affordable housing units by 2029.

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China

• Decline in issuance has slowed; volume dropped 3% to US$55 billion in 2024, following a 29% fall in 2023.
• Issuance from nonfinancials increased fivefold to US$21 billion, driven by sectors focusing on renewable capacity and decarbonization technologies.
• With less lending to corporates, financial institution issuance dropped 44% to US$29 billion.
• Local currency remains dominant, given the cost advantage.
• With local investors driving demand for green bonds, adherence to rules on green finance has increased.

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Australia

• Sustainable bond issuance increased almost 72% to US$19 billion, accounting for 8% of regional volumes.
• The federal government entered the market, with US$5 billion in green bonds (26% of volume), driving growth and providing a pricing benchmark for labelled instruments.
• Proceeds will fund infrastructure needs, driven by changing demographics.
• Easing of interest rates by the reserve bank could spur momentum.
• The 2025 election could test government and regulatory support for sustainable policies.

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India

• The positive trend continues, with issuance up 30% to US$7 billion.
• The government could raise INR320 billion (US$3.8 billion) through sovereign green bonds by March 2025.
• Social bonds gained traction with financial, and housing and auto finance sectors, as financial inclusion increases.
• Investment in renewables and corporate sustainability goals support green and sustainability-linked instruments.
• A lack of incentives and a more distant net zero target of 2070 could slow growth in sustainable bond issuance.

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Southeast Asia

• Volume grew by 36% to US$11 billion, but issuance remains comparatively small.
• The Philippines and Thailand are the most active markets (78% of the total), driven by a surge in sovereign issuances.
• Indonesia and Malaysia saw declines, despite strong positions in sustainable sukuk markets. Both have seen limited issuance of social and sustainability bonds.
• Governments are essential market participants, accounting for 79% of volume in Indonesia. Financial institutions are also active issuers.

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What To Watch In 2025

The adoption of International Sustainability Standards Board (ISSB) standards will significantly change reporting practices.

Australia:  Companies with annual revenue above A$500 million must report mandatory climate disclosures starting January 2025 (above A$200 million from July 2026).

Sri Lanka:  Largest 100 listed companies must report under ISSB standards starting January 2025.

Malaysia:  ISSB standards for listed companies (capitalization of MYR2 billion) to be phased in between 2025 and 2027.

Singapore:  Mandatory standards for listed companies to be phased in between fiscal 2025 and 2027, and for large unlisted companies (annual revenue above S$1 billion and total assets above S$500 million) from fiscal 2027 to 2029.

Hong Kong:  ISSB standards effective from August 2025; issuers on the Hang Seng Composite Large Cap must disclose climate-related risks from January 2026.

South Korea:  Sustainability disclosure standards drafted in 2024; Climate disclosures to be mandated by 2026.

Philippines:  Publicly listed companies and commercial banks to begin collecting data for sustainability-related disclosures in 2025; large corporations (revenue above PHP10 billion-15 billion) and other banks to start mandatory reporting in 2027.

Corporate Sustainability Reporting Directive (CSRD) becomes effective in 2025, likely influencing reporting standards for Asia-Pacific companies with European links.

Asia-Pacific remains active in launching and updating taxonomies to guide fund providers.

• 2024 saw the launch of ASEAN Taxonomy V3, the Indonesia Taxonomy for Sustainable Finance (TKBI), and Hong Kong's taxonomy for sustainable finance, enhancing alignment, expanding sector coverage, and improving transparency.
• 2025 will see the release of Australia's sustainable finance taxonomy and the expansion of Thailand's Taxonomy Phase 2.

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Sustainable Bonds Defined

Sustainable bonds fall into two main categories:

Sustainability-linked bonds (SLBs):   Any instrument for which the financial or structural characteristics can vary depending on whether the issuer achieves predefined sustainability objectives.

Use-of-proceeds bonds:   Any instrument where net proceeds (or equivalent amount) are exclusively used to finance or refinance, in part or in full, new and/or existing eligible green and/or social projects. The three main subcategories are:

• Green bonds: Instruments that raise funds for projects with environmental benefits including renewable energy, green buildings, and sustainable agriculture. This includes blue bonds, which raise funds to support the sustainable use of maritime resources and promote related sustainable economic activities.
• Social bonds: Instruments that raise funds for projects addressing or mitigating a specific social issue and/or seeking to achieve positive social outcomes, such as improving food security and access to education, health care, and financing, especially but not exclusively for target populations.
• Sustainability bonds: Instruments that raise funds for projects with both environmental and social benefits.

Transition bonds can be either sustainability-linked or use-of-proceeds bonds issued specifically to support climate transition goals, geared toward issuers in hard-to-abate sectors. Projects these bonds support may not always be "green" but still aim to support climate transition.

Saily Balasubramanian, senior research analyst at GAC in Mumbai, contributed to this report.