In 2019 emerging market green bond issuance rose 21% to $52bn with China the largest issuer, according to a new report by European asset manager Amundi and IFC, a member of the World Bank Group.
Amundi, Europe's largest asset manager, and IFC, a member of the World Bank Group, today published their annual Emerging Market (EM) Green Bond Report.
The report found that globally, the green bond market outperformed in 2019, with a record issuance volume of $240bn (3% of total global bonds issued last year). EM green bond issuance increased by 21% to $52bn, bringing the overall market size to $168bn.
So far, investment flows since the start of the crisis have proven more resilient towards green investments when compared to their traditional counterparts. It is possible that investors view green issuers as more long-term oriented and flexible for weathering short-term volatility."
Issuances have been driven by greater recognition among both issuers and investors of the benefits they provide including stable and predictable returns, and a greater awareness of ESG products and strategies.
EM green bond growth continues to be led by China, with South-East Asia and the Pacific region responsible for 81% of the market. Other emerging markets drove the overall growth in 2019 with $18bn of issues, nearly triple that in 2018.
Outside China, the leading issuers were: India, Chile, Poland, the Philippines, the UAE and Brazil, demonstrating greater geographical diversification.
The size of EM green bond issues ranged from $1.5m to $2.9bn in 2019. Benchmark-sized bonds of at least $300m numbered more than 60 in 2019, marking a YoY increase of 25%.
Governments across the world are implementing unprecedented measures to fight one of the most acute pandemics since the Spanish Flu. Emerging market economies have far less room for fiscal and monetary manoeuvring, and as shown by early indicators, will be disproportionately hit by the covid-19 crisis. Today, both green bond issuers and investors face the challenge of overcoming current market turbulence.
However, responsible investors with long-term allocations to emerging markets can collaborate with issuers through green bonds and ESG funds to unlock long-term capital and help issuers become more resilient.
So far, investment flows since the start of the crisis have proven more resilient towards green investments when compared to their traditional counterparts. It is possible that investors view green issuers as more long-term oriented and flexible for weathering short-term volatility.
Financing countries' climate and sustainable development commitments will require global investment on an unprecedented scale. IFC estimates cumulative climate investment potential of $29.4trn in emerging market cities through 2030. Sustainable finance policies and products, like debt capital instruments, are already helping to plug this gap, by financing projects with environmental and social benefits.
Momentum is rapidly building for the global green bond market, which has now surpassed $700bn in outstanding issues. This market is a crucial source of financing for projects with positive environmental impacts in both developed and emerging countries. Investor appetite for green bonds continues to grow, and emerging market issuers are likely to benefit from increasing demand.
'The importance of making our economy more resilient to global shocks'
Yerlan Syzdykov, global head of emerging markets at Amundi, said: "Amundi is proud to have collaborated with IFC for the second edition of this report. Now, more than ever, as governments and communities collectively tackle covid-19, we recognise the importance of making our economy more resilient to global shocks. Our research shows that debt capital markets can help close financing gaps and mobilize capital for sustainable development in emerging markets."
Syzdykov continued, "it is hard to assess the long-term impacts of the current crisis and there are still many challenges to scaling green bonds, momentum is building with more investors seeking to align their investment strategies with environmental considerations. Our research indicates that the green bond phenomenon, especially in emerging markets, shows potential signs of resilience during these unprecedented times."
Jean Pierre Lacombe, director of global macro and market research at IFC, added: "Over the past decade, green finance has moved from a niche market to one that is increasingly mainstream. The next decade is critical for transitioning to low-carbon economies and mobilizing investment for sustainable development. As economies face many challenges in light of the covid-19 pandemic, green finance provides innovative solutions for building robust economies. This report highlights where green bond markets can be scaled up and what steps will be necessary."
The full report is available here.
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