Asean launches sustainability-linked bond standards

N line with the growing importance of sustainable finance, the Asian Sustainability-Linked Bond Standards (SLBS) were launched at the recently concluded 37th Asean Capital Markets Forum (ACMF), in which I participated as the head of delegation for the Securities and Exchange Commission (SEC). This follows the launch of the Asean Green Bond Standards, the region’s first sustainable finance initiative, in November 2017, and the Asean Social Bond Standards and Sustainability Bond Standards in October 2018, creating an array of sustainable bond standards for the region.

The ACMF, consists of member states from all 10 Asean jurisdictions, namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, whose primary task is to promote greater integration and connectivity of regional capital markets. Currently, the SEC co-chairs the Working Group on Sustainable Finance with the Securities Commission Malaysia.

The ACMF adopts a pragmatic approach to the implementation of its capital market initiatives, where member countries voluntarily join initiatives in recognition of the varying levels of development and market readiness of member states. The development of the SLBS intends to enhance transparency, consistency and uniformity of Asean sustainabilitylinked bonds and provides an opportunity to fund companies that contribute to sustainability. This initiative further contributes to the development of a new asset class, reduces due diligence costs and helps investors make informed investment decisions.

Sustainability-linked bonds are any type of bond instrument for which the financial and/or structural characteristics can vary, depending on whether the issuer achieves predefined sustainability or environmental, social and governance (ESG) objectives. Sustainability-linked bonds are a forward-looking, performancebased instrument, in the sense that issuers are committing explicitly to future improvements in sustainability outcomes within a predefined timeframe. They are therefore measured through predefined key performance indicators (KPIs) and assessed against predefined sustainability performance targets. Unlike Asean sustainability bonds or use-of-proceeds bonds under the Asean Sustainability Bond Standards, the use of proceeds are not a determinant in the categorization and labelling of Asean SLBS.

Regionalized and adopted from global recommendations, the SLBS are based on the International Capital Market Association’s (ICMA) Sustainability-Linked Bond Principles (SLBPs) as these are internationally accepted and widely used. The SLBPs are a set of voluntary guidelines that provide more broad principles on sustainability-linked bonds, elaborated by key market participants under the coordination of the ICMA. The SLBS aim to provide more specific guidance on how the SLBPs are to be applied across Asean. They have been developed in consultation with the ICMA, capital market regulators and industry players in the region. These have been endorsed by the ACMF and will be implemented for the issuance of Asean Sustainability-Linked Bonds.

What does this mean for our investors? Issuers who wish to issue bonds and have them labeled as Asean Sustainability-Linked Bonds must demonstrate compliance with the SLBS. This practice assures investors that bonds labeled Asean SLBS have met particular uniform standards.

What does this mean for our issuers? The SLBS provides issuers guidance on best market practices and are guided on the key features of the bonds, namely eligible issuers, bond characteristics, continuous accessibility to information, frequency and transparency on reporting and reporting timeline, verification, external review, alignment and selection of KPIs with sustainable development goals.

The SEC is proud to be part of the sustainably initiatives in the Asean region. These standards, despite being high level, have a direct impact in our capital market development goals.

Kelvin Lester K. Lee is a commissioner of the Securities and Exchange Commission. The views and opinions stated herein are his own. You may email your comments and questions to oclee@ sec.gov.ph.