ESG debt market cools down: Philippine entities shun green bonds amid high interest rates

Ben O. de Vera

Amid a high interest rate environment wrought by elevated global inflation, the Philippine government and homegrown corporations refrained from borrowing through “green” bond issuances during the second quarter of 2023.

The latest Sustainable Debt Monitor of the Washington-based Institute of International Finance (IIF) released on July 31 showed zero environmental, social, and corporate governance (ESG) debt securities issued by the Philippines’ public and private sectors from April to June.

In contrast, the IIF report obtained by showed that in the first quarter of 2023, $2.2 billion worth or 4.5 percent of Philippine debt issuances during that period were “green” bonds and loans.

The Philippines was the fifth biggest ESG debt issuer from January to March, only surpassed by China, Saudi Arabia, the United Arab Emirates (UAE), and Mexico, the IIF reported last May.

In 2022, a total of $4.3 billion in Philippine debt issuances or 2.2 percent of last year’s total were ESG debts.

In 2021, Philippine “green” bond issuances reached $900 million or 0.5 percent of total. In 2020, ESG financing amounting to $1.8 billion accounted for 1.5 percent of borrowings made by the Philippine government and corporates that year.

Globally, new ESG debt issuance fell 15 percent year-on-year to $630 billion in the first half of this year.

“While ESG bond issuance remained robust, ESG loan issuance was softer in the first half as global rates continued to rise” due to high inflation, increased borrowing costs, and market volatility, the IIF said.

“Looking ahead, we expect ESG bond issuance to remain strong and ESG loan issuance to see a modest recovery in the second half of 2023,” the IIF said.

Department of Finance-International Finance Group (DOF-IFG) Assistant Secretary Neil Adrian Cabiles told in a recent interview that “green” bond issuances by the Philippine government and corporations have been mostly market-driven due to a strong appetite and interest for ESG financing.

Cabiles, who is now in Washington, DC as the Philippines’ alternate executive director to the World Bank, said that while the government has not set a mainly “green” borrowing policy, raising money through ESG debt augurs well to financing climate-related projects.

“Investors look for a green lens in public projects,” Cabiles noted.

But Cabiles acknowledged that ESG borrowings usually entail an interest rate premium that’s higher compared to the usual sovereign debt.

The currently volatile debt markets were also a consideration when deciding to borrow “green,” Cabiles said.

This was why the Philippine government had ventured into “hybrid” fund-raising which mixed “green” bonds with non-ESG securities, Cabiles explained.