News & views

Transition Finance Emerges as a Key Theme for Sustainable Investments in 2024

Date Posted: 2 January, 2024

In the ever-evolving landscape of sustainable finance, the year 2024 is poised to witness a significant shift towards investing in firms and industries that are actively transitioning towards a low-carbon future. Despite rising interest rates, the demand for sustainable finance products in China and the Asia-Pacific region remains robust, according to insights from fund managers and analysts.

Aiming to respond to the United Nations’ urgent call for accelerated decarbonisation, the Asia-Pacific region, exposed to the costly impacts of climate change, needs an investment of US$71 trillion to achieve net-zero emissions by mid-century. This figure, highlighted in a study by the Asia Society Policy Institute, underscores the critical need for substantial investments to address climate challenges.

Sectors undergoing transitions, such as building materials, and companies focusing on emissions reduction and increased spending on green technology, are expected to be attractive investment opportunities in the coming years. Sustainable debt, tied to financing the transition to a low-carbon economy, has seen a steady rise, with green, social, sustainability, and sustainability-linked bonds accounting for 5.3% of the total outstanding principal amount of bonds in the MSCI Corporate Bond Indexes as of September-end.

The issuance of sustainable bonds in the Asia-Pacific region during the first nine months of the current year grew by 17%, reaching US$172 billion year-on-year, outpacing the global growth rate of 4%, according to MSCI. The growing prominence of sustainable dimensions in bond issuances is becoming a central focus for investors, leading to an anticipated increase in the market share of green, social, sustainability, and sustainability-linked bonds.

Transition finance is expected to play a crucial role in China’s sustainable finance landscape, especially as the current scope and scale of green finance prove insufficient for the nation’s ambitious targets of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060. Industry experts predict a surge in market demand for transition finance in the coming years, aligning with China’s strategic emphasis on energy security and supply chain security.

In conclusion, 2024 is set to mark a pivotal year for sustainable finance, with transition finance emerging as a key theme. Investors are increasingly showing a willingness to support companies with robust and credible transition plans, reflecting a positive trend in mobilising capital for the climate transition. The focus on sustainable investments in the Asia-Pacific region, particularly in China, underscores the global commitment to addressing climate challenges in a just and orderly manner.