Consultancy firm Carbon Care Asia (CCA) and German index provider Solactive have launched an index to track the performance of sustainability bonds in Asia.
The rules-based Solactive CarbonCare Asia Sustainability Bond Index is open to all bond issues which claim to contribute to environmental sustainability or address social challenges. The eligible bonds, however, go through a dual-layered screening process by CCA.
The first test examines the transparency of the issue when judged against international standards. The second screen ensures the proceeds from the issue are designated for projects that have significant positive outcomes as judged by CCA's proprietary green and social taxonomy.
The screening process cuts down the more than 600 bonds eligible to the 87 bonds currently on the index. At the start of December, the index had a weighted average maturity of four years and a yield of 2%.
The top ten holdings of the index are dominated by six Australian issues, including from the New South Wales and Queensland state treasuries and the lenders ANZ and National Australia Bank.
Three of the remaining top ten holdings are from either China or Hong Kong. Indonesian government-owned Islamic bonds issuer, Perusahaan Penerbit Surat Berharga Syariah Negara Indonesia, is the final bond in the top ten.
"This index is a long-awaited initiative to address the trust gap and to enable investors to track the performance of Asia-Pacific bonds that can demonstrate high integrity and transparency in environmental and social contributions," said CCA chief executive Albert Lai.
"As a mission-driven consultancy, the launch of this index is another step in pursuit of CCA's mission to promote sustainability practices and to accelerate the transition to a net-zero carbon economy," he added.
CCA has developed the US dollar-denominated index – the first of its kind in the region, CCA said – amid strong growth in the Asian sustainability bond market.
In 2018, global issuance of green bonds reached $170 billion – a sixteen-fold increase over five years, according to CCA. In Asia, however, the first nine months of 2019 saw green bonds issuance stand at $35 billion.
"We are excited to participate in the growth story of the green, social, and sustainability bonds in the Asia-Pacific region," said Solactive chief executive Steffen Scheuble. "We hope that this index will be a valuable tool for asset owners in managing their ESG mandates and that it will serve as a reference for the wider investment community."
In October, Solactive released its first environmental, social and governance (ESG) screened green bond index. Solactive launched the index in partnership with Société Générale-owned Lyxor Asset Management, with Lyxor using the new index for its Lyxor Green Bonds ESG Screened UCITS ETF.
Frankfurt-based Solactive launched its first green bonds index in 2004, when only 14 bonds were eligible for inclusion. By October 2019, this had risen to 319 bonds.
In July, Solactive released a range of ESG-focused equity indexes.