A growing number of borrowers in Asia Pacific are getting loans whose interest rates are linked to meeting sustainability goals, in one of the few bright spots for a corporate lending market depressed by the pandemic. The market for so-called sustainability-linked loans in Asia Pacific excluding Japan took off in 2017, and borrowers have steadily increased since then: 18 firms signed a total of US$7.4 billion of such debt so far in 2020, compared with 16 companies raising US$7.5 billion last year, according to data compiled by Bloomberg. Margins on the debt rise when a borrower misses green or social targets. Loans overall in the region have plunged 30% this year as the pandemic made banks more reluctant to lend. Rising interest in sustainability-linked loans comes as demand jumps for similar bonds that reward borrowers that achieve targets such as greenhouse gas emissions and employee training: global sales of such notes have surged almost 80% this year. But some investors have questioned whether putting money in those vehicles is all that ethical considering that debtholders are in effect rewarded when the borrower misses sustainability targets.

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The Edge Markets