Summary
Introduction
In October 2018, the Intergovernmental Panel on Climate Change (IPCC) urged the world to intensify its efforts to combat climate change by meeting the goal of the 2016 Paris Agreement to limit global temperature increases to 1.5 degrees Celsius.1 Over the past 35 years, upper middle-income nations have contributed more than 70 percent of the global growth in carbon dioxide emissions.2 However, emerging markets are more vulnerable to the impacts of climate change due to inadequate capacity and adaptation mechanisms to effectively deal with extreme weather changes, such as rises in the sea level, floods, droughts, tropical storms, hurricanes, and heatwaves.
Emerging markets are not only the most exposed economies to climate change risks, but also face an unprecedented challenge to decarbonize their economies, while maintaining a sustainable economic development trajectory. One of the biggest challenges faced by emerging markets is balancing increased infrastructure financing with environmental and social safeguards to ensure that new infrastructure needs meet climate-smart requirements in the quest to build sustainable infrastructure. There is $147 trillion3 of private institutional investor capital in the world. Much of this amount is located in developed markets.
Organization for Economic Cooperation and Development (OECD) countries alone account for $84 trillion.4 Institutional investors commonly have little exposure to emerging markets and long-term infrastructure financing projects, possibly due to the scarcity of appropriate investment opportunities. Thus, leveraging this capital remains a challenge. However, addressing
this issue has sparked a recent growth in new and innovative financial solutions.
One such solution is green bonds, and its potential continues to increase. In developed and emerging markets, the green bond solution receives significant mobilization from policy makers, issuers, and investors. For example, China issued its Green Bond Guidelines, published by the People’s Bank of China in 2015 in a Green Bond Endorsed Project Catalogue for financial institutions. Recently, the European Union (EU) took significant steps through a proposal from its Technical Expert Group for an EU Green Bond Standard5 . However, the mobilization in emerging markets is underemphasized, and investors are not very aware of relevant investment opportunities.
Based on our extensive experience in emerging markets and green bonds, Amundi and IFC found that there is a lack of available public information on green bonds in emerging markets. Improving the availability of quality data and analysis will help to stimulate the interest of issuers and investors in this asset class. In that context, this report is timely and relevant.
Amundi and IFC are addressing the current gaps in the green bond market in specific ways. Firstly, the discourse on green bonds has previously focused more on global and developed markets. This report challenges this discourse by focusing more on emerging markets. Secondly, this report provides growth projections of green bonds in emerging markets. Many experts see the great potential for growth of green bonds in emerging markets based on early examples of success recorded to date. Thirdly, it offers a market outlook focusing on the potential presented by financial institutions.
The report also highlights outstanding climate-related investment opportunities in emerging markets, along with the relevant mobilization efforts of policy makers, and discusses case studies of green bond issuers.
To find out more, download the full report
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1. Available here: https://www.ipcc.ch/sr15/
2. World Bank: Policy Research Working Paper 8477 “Are Driving Forces of CO2 Emissions Different across Countries?”.
3. Institutional asset owners include pension funds ($45 trillion), insurance companies ($26.8 trillion), sovereign wealth funds ($8.1 trillion), foundations ($1.5 trillion), and high-net worth individuals ($66 trillion). Source: “The Landscape for Institutional Investing in 2018,” World Bank Group, 2018.
4. Including OECD asset owners (pension funds, insurance companies, and sovereign wealth funds) as well as asset managers and investment funds. Source: “Update on Approaches on Mobilising Institutional Investment for Sustainable Infrastructure: Background paper to the G20 Sustainable Finance Study Group”, OECD, 2018.
5. The TEG proposal is available here: https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/190306-sustainable finance-teg-interim-report-green-bond-standard_en_0.pdf
Authors
