Tax concessions needed for sustainable bond market growth
While sustainable bond guidelines have been issued, the lack of government tax concessions hampers the growth of the sustainability bond market, top officials said.
The lack of government tax incentives for sustainability bond investments and issuance hinders their appeal to investors and issuers, thereby stifling the overall growth of the sustainability bond market. However, growth is driven by increased adoption of sustainable taxonomies, transparency initiatives, issuance from emerging markets, and efforts to accelerate the energy transition, it was pointed out by several panellists at the “Sustainable Finance a Key to Greening the Business Ecosystem” forum organised by the Asian Development Bank (ADB) and the Ministry of Finance recently.
One of the key challenges for scaling up social bond issuances is the lack of a clear and common understanding of social objectives, economic activities that substantially contribute to them, and social risks.
Jason Mortimer, Head of Sustainable Investment – Fixed Income and Senior Portfolio Manager at Nomura Asset Management in Tokyo, pointed out that sustainable finance has to be commercially viable for investors. “They want more transparency, macro economy and policy stability. From a transparency and stability point of a wheel, they want the use of proceeds, framework, disclosures of transitions, plans, etc. Well-designed sustainable development policies can develop and support resilient growth in an economy,” he added. He also said that investors look for frameworks that address material sustainability challenges in a country.
Amongst the key criteria that investors look for, he noted that key vulnerabilities in a country stand topmost. The important criteria for potential investors, he said, would be sustainability and non-financial factors such as energy transition, readiness, human development, investor protection, governance effectiveness, and also digital transformation.
Noting that sustainability awards in the country should pay attention to the regulatory criteria of sustainability practices, Dr. Hareendra Dissabandara, Chairman – Securities and Exchange Commission (SEC), noted that the country needs a metric to evaluate sustainability disclosures by cooperates. The capital market regulator is looking to cooperate with the ADB with regards to this, as well as providing training on the subject for all stakeholders, he has disclosed.
Now listed companies must disclose sustainability information, he said, noting that the full implementation of this will be seen in one year. “We can witness the material impact of this move in two to three years for better results.”
Chinthaka Mendis, Director General SEC, noted that there are a lot of state projects in the government which can be funded through the share market. “One big project funded through the capital market will attract other similar projects.” He also highlighted the power of capital markets in relieving poverty through such projects.
Dilshan Wirasekara, Chairman, Colombo Stock Exchange (CSE), also noted that there can be one or two debt issuances from the government, which is the largest issuer in the country. Noting that most government projects conform to ESG criteria, he said that a few debt issuances can be done on the platforms that the CSE has launched for the government to diversify its funding sources. Noting that now multilateral and bilateral funding sources are opening up, he said the government can set the standard. “If the Sri Lankan government can do one large project, it can set a precedent for other corporates to follow to tap international markets through a local issuance.”
Sampath Jayawardena, Senior Director-Climate Change and Sustainability Services, Ernst and Young, pointed out that it is not only the responsibility of a company’s finance team to issue thematic bonds. “It is the responsibility of the entire company.” Noting that sustainability isn’t an option for the government, he added that the government itself cannot do this process in isolation. “Companies have to come together. It is important to highlight that sustainability is not only about risks and reporting.”
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