Green bond issuance in emerging market is expected to hit $100 billion over the next three years, according to Amundi — leading European asset manager — and the International Finance Corporation (IFC) — a member of the World Bank Group.
This came within the third edition of their joint report on emerging markets green bonds 2020 released on Monday.
Amundi and the IFC have partnered since 2018 to report on growth drivers in emerging market green bond investments. The report provides an overview of emerging market green bond developments over the past year and discusses policy and regulatory changes driving issuance.
As countries start to come off from the ongoing unprecedented global crisis, recovery avenues in emerging markets are expected to be widely divergent and will require substantial fiscal policy support, according to the report.
It added that emerging economies will need to incorporate green objectives into their recovery, with efforts to alleviate climate risks and environmental challenges, as well as raising resilience to future shocks.
Yerlan Syzdykov, the global head of emerging markets at Amundi, said that financial markets are set to play a key role in supporting sustainable projects, adding that the outlook for emerging market green bond issuance remains robust.
According to the IFC, the post-pandemic recovery is set to provide significant opportunities for green and sustainability-based projects, including renewable energy, green urban infrastructure, and climate-smart agriculture, as investment opportunities in emerging markets could generate over $10 trillion by 2030 and create over 200 million jobs in green sectors.
“Despite last year's economic challenges, the global green bond market proved resilient, achieving a key milestone of $1 trillion in cumulative issuance since 2007, with issuance of $280 billion in 2020. During the period, emerging market green bond issuance was robust with 174 green bonds amounting to $40 billion in issuance from 101 issuers. Seven emerging markets issued green bonds for the first time”, the report explained.
East Asia and the Pacific acquired the largest share of green bond issuance in emerging markets, at 76 percent, according to the report.
In emerging markets, excluding China, green bond issuance rose by 21 percent in 2020 to post $22 billion, representing faster growth than the 17 percent increase in global green bond issuance, according to the report.
The largest emerging issuers include Chile, Brazil, and Indonesia, with seven début issues including Egypt, Kazakhstan, and Saudi Arabia, according to the report.
It added that 2020 saw continued interest from a diverse pool of issuers, with $300 million in issuance from non-financial corporates.
“Financial institutions make up 50 percent of cumulative green bond issuance by volume in emerging markets, which contrasts with 19 percent in developed markets. Nearly half of non-financial corporate green bond issuance in emerging markets are in the power and utilities sector, while issuance in the construction and real estate sectors has also steadily increased”, said the report.
Jean Pierre Lacombe, director of Global Macro & Market Research at IFC, noted that robust investor appetite and increasingly supportive policy environments will continue to support the growth of green bond markets in emerging markets.
“This is now critically important, with investment for sustainable development urgently needed to lessen the pandemic's profoundly negative social and economic consequences. This is especially true in regards to the damage done to efforts to reduce global poverty, where several additional years will now be needed to regain ground lost due to COVID-19”, Lacombe clarified.
The report emphasised that sustainable financial policies and appropriate regulatory frameworks are imperative to attract capital flows to green projects and sectors.
It added that a number of global initiatives could further mobilise emerging market green bond market development and address the challenges of data reliability and comparability for institutional investors.