As the issue of climate change becomes more worrisome on a global scale, sustainable clean energy finance is more crucial then ever. In efforts to meet the world’s growing demand for energy in a sustainable way, investors are looking towards green bonds as the next generation of renewable financing. The proceeds of these debt financial instruments are used to fund climate friendly projects. As the Asian-Pacific countries demand new, clean power to light up their growing economies, they find themselves a leader of an unexpected financial instrument; the green bond.

The Asian Development Bank (ADB) describes that the APAC region “continues its high rate of growth, Asia’s share of world energy consumption could rise from around a third in 2010 to more than half by 2035. Raw energy consumption in the region will more than double.” Companies in the APAC region, who wish to build renewable energy and other climate projects, are increasingly turning to the bond markets to build the power plants needed to feed the intense energy appetite of these developing countries.

The Climate Bonds Initiative, a non-profit which promotes and tracks the use of green bonds, reports there are $694 billion which compose 3,590 bonds from 780 issuers across our climate themes; Transport, Energy, Buildings & Industry, Water, Waste & Pollution Control and Agriculture & Forestry. It includes $118bn of labeled green bonds. Excluding China, the region’s $48 billion in green bonds is dominated by India and South Korea. South Korea has almost equal issuance in energy and transport themes with two dominant issuers: Korea Railroad and Korea Hydro & Nuclear. Even Indian participation in green bond markets is expected to grow rapidly after recent policies have changed.

China is another all-star of the green bond universe as well. It is currently the largest country of issuance in the climate bond universe where one issuance by China Railway Corporation is valued at $194 billion.

Unfortunately, there are still roadblocks ahead. While  banks traditionally played a significant role in finance renewable energy projects, new Basel III regulations could make banks more reluctant to lend long-term and long-term financing; both of which are important keys to securing capital for the construction of new renewable power plants.

This financial problem creates a new opportunity for the green bond markets to play an important role in financing renewable energy projects. Companies in the APAC region will increasingly be able to tap bonds as a financial vehicle. However, to support this growth, governments also need to ensure there is a stable, long-term regulatory framework for renewable energy projects have a long payback period. Greater investment in renewable energy will lead to cost decreases as investors gain a greater familiarity diminishing the need for guarantees or special funding.

Overall, APAC countries are shaping up to be world leaders in green bonds and it appears the momentum is not slowing down anytime soon.