REPORTEmerging
MarketGreen Bonds
IFC-Amundi Joint Report

JULY 2023

EMERGING MARKET GREEN BONDS

Page ii

About IFC

About Amundi

IFC — a member of the World Bank Group — is the largest

Amundi, the leading European asset manager, ranking

global development institution focused on the private

among the top 10 global players, offers its 100 million

sector in emerging markets. We work in more than 100

clients—retail, institutional and corporate—a complete range

countries, using our capital, expertise, and influence toof savings and investment solutions in active and passive

create markets and opportunities in developing countries.

management, in traditional or real assets. This offering is

In fiscal year 2022, IFC committed a record $32.8 billion toenhanced with IT tools and services to cover the entire

private companies and financial institutions in developing

savings value chain. A subsidiary of the Crédit Agricole groupcountries, leveraging the power of the private sector to end

and listed on the stock exchange, Amundi currently manages

extreme poverty and boost shared prosperity as economies

more than €1.9 trillion of assets. With its six internationalgrapple with the impacts of global compounding crises. For

investment hubs, financial and extra-financial researchmore information, visit www.ifc.org.

capabilities and long-standing commitment to responsible
investment, Amundi is a key player in the asset management
landscape. Amundi clients benefit from the expertise andadvice of 5,400 employees in 35 countries.

EmergingMarketGreen Bonds
IFC-Amundi Joint ReportEMERGING MARKET GREEN BONDS

Acknowledgments

This report was prepared under the guidance of IFC’s Susan Lund, Vice Presidentof Economics and Private Sector Development, and Jean Pierre Lacombe, Director,
Global Macro and Market Research. José Abad, also at IFC, was the lead author.
Working team members from Amundi included Quentin Albert, Angge Roncal
Bazan, Eric Dussoubs, Joan Elbaz, Victor Hintzy, Timothée Jaulin, Esther Law, Victor
Monteix, and Mohamed Ben Slimane. Working team members from IFC included
Natalia Cristina Bailey, Samed Hysa, Selin Gonca Ozyurt, and Jessica Stallings.
The update of the GSSS database was led by Jessica Stallings and completed
thanks to Phil Fu and Karlo Hainski, all from IFC, while the green bond issuanceforecasts were run by Victor Hintzy from Amundi.
We thank peer reviewers Jean Pesme and Sebastien Boitreaud from theWorld Bank, Berit Lindholdt Lauridsen at IFC, Antonio Garcia Pascual fromthe International Monetary Fund, and Paolo Cei at Amundi for their insightful
suggestions. We are also grateful for useful comments received from Anup
Jagwani (IFC) and Haruko Koide (IFC), as well as from colleagues from IFC’s
Treasury department, including Tom Ceusters, Director of Treasury Market
Operations, Rabih Kanaan, and Ayelet Perlstein.
Christopher Vellacott at IFC edited the report with help from Brian Beary, andIrina Sarchenko was responsible for graphics and design.

Page 2

Page 3﻿

Table of Contents

Foreword�������������������������������������������������������������������������������������������������������������������������������������������������������������������� 4
Key Messages������������������������������������������������������������������������������������������������������������������������������������������������������������ 6
Executive Summary������������������������������������������������������������������������������������������������������������������������������������������������ 8
Chapter 1: Introduction����������������������������������������������������������������������������������������������������������������������������������������10
Chapter 2: Market Analysis and Outlook������������������������������������������������������������������������������������������������������� 16
Chapter 3: Recent Global Initiatives and Implications for Emerging Markets��������������������������������� 44
Chapter 4: Central Banks, Financial Technology, and the Public Sector�������������������������������������������� 52
Chapter 5: Case Studies on Specific Emerging Market Countries������������������������������������������������������� 66
Annex�������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 71
Bibliography�������������������������������������������������������������������������������������������������������������������������������������������������������������� 73

EMERGING MARKET GREEN BONDS

Page 4ForewordT

his fifth edition of the ‘Emerging Market

Amundi remains committed to the development of theGreen Bonds Report’ reviews key green, social,market for green bonds and other instruments of sustainable

sustainability, and sustainability-linked

finance. Its collaboration with IFC on both the Amundi(GSSS) bond market trends in 2022 and outlines ourPlanet Emerging Green One and the Build-Back-Better

expectations for 2023 and beyond. It also discusses theEmerging Markets Sustainable Transaction funds (launched

implications for the asset class of recent developments

in 2018 and 2021, respectively) is designed to stimulate bothin policy, regulation, and technology. As in the previous

demand and supply for green bonds in emerging markets.

four editions, this year’s report is also the result of joint
work by Amundi, a leading European asset manager,
and the International Finance Corporation (IFC), a
member of the World Bank Group.

However, this is not an easy time for the asset class amid
economic, financial, and geopolitical instability around theworld. Last year was one of just five in the last century inwhich both U.S. Treasuries and the S&P 500 declined. This

Collaboration with financial institutions, the private sector,

was the result of a sharp monetary tightening from major

and governments is integral to IFC’s focus on mobilizing

central banks in response to growing inflationary pressures.

private capital for sustainable development and climate-

Higher rates on a global scale alongside more restrictive

focused goals. IFC was an early adopter of green bonds andfunding conditions depressed bond valuations and led to

has issued over $10 billion of them across 178 securities in

sharp currency swings across emerging markets. This,

20 currencies.

together with mounting geopolitical risk on the back of

In addition, IFC provides technical assistance to issuers
and investors in developed and emerging markets andpromotes integrity in the green bond market through its role

Russia’s invasion of Ukraine, translated into meaningfully
lower fixed-income issuance, as well as the first-ever annual
decline in GSSS issuance.

chairing the executive committee of the Green, Social, andThis was mostly driven by lower GSSS supply from

Sustainability-Linked Bond Principles.

supranational issuers as well as borrowers in emerging
markets outside China. On the positive side, Chinese GSSSPage 5

Foreword

SUSAN M.

YERLANLUNDSYZDYKOV

Vice President,

Global Head

Economics andof Emerging

Private Sector

Markets,

Development,

AmundiIFC

issuance, mostly comprising green bonds, was exceptionallyOver the medium term, we do expect green bond issuance instrong, overtaking the United States and Germany to make it

emerging markets to continue to grow. Driving this growth

the world’s largest green bond issuer for the first time.

will be: (1) an acceleration in the energy transition; (2) aNevertheless, geopolitical and financial pressures alongside
the corrosive influence of greenwashing risks, continue
to threaten growth in the GSSS asset class. Any reversal
in this market would be a major setback for global efforts

pricing advantage for issuers relative to developed markets;and (3) favorable macroeconomic conditions—notably higher
nominal yields in a context of lower growth which is often
supportive of fixed income relative to equities.

to meet the climate goals set out in the Paris Agreements

Robust investor appetite and supportive policy environmentsof 2015. Sustainable finance markets are pivotal in making

will remain critical for green and sustainable finance toup for shortfalls in capital available for funding economic

continue building on the momentum generated in recent

and energy transitions in emerging markets because theyyears. This report discusses potential actions aimed atchannel private sector investment to areas where it isincreasing GSSS bond penetration in emerging markets.

needed most. Therefore, considerable effort needs to be
dedicated to keeping growth in the GSSS market on track,
improving regulation, harmonizing best-practice guidelines,
mobilizing policy, and promoting awareness.

EMERGING MARKET GREEN BONDS

Page 6

Key Messages•

Demand for funding to finance energy transitions as

income market, was the first-ever annual decline fordeveloping-country governments and corporates pursue

the asset class, highlighting the fragility of private

environmental goals set by the Paris Agreement will

investment flows.

drive growth in issuance of green, social, sustainability,
and sustainability-linked (GSSS) bonds. Green bond•A crucial step in enhancing the credibility of theissuance will bounce back in 2023 to 14 percent growth

GSSS asset class and luring more private fundingin emerging markets outside China, easing to aroundto sustainable projects in emerging markets will be

11 percent in 2024, according to our central forecast.

to address the problem of ‘greenwashing’ whereby

However, new green bond deals will be markedly slower

issuers misstate the extent to which an activity meetsin China, largely on account of weaker-than-expectedsustainability criteria. There are encouraging signs of

economic recovery from the pandemic. Given the

progress in addressing greenwashing across the green

country’s economic weight, this will bring overall growthfinance market. For example, mandatory disclosurein emerging market green bond issuance topractices related to sustainability are becoming more

-1 percent in 2023, followed by a recovery to aroundcommon in different regions, while entities are using

11 percent the following year.

voluntary guidelines more. There have also been
advances in developing global guidelines on common•

Bolstering the GSSS bond market in developing countries

definitions and methods.

should be a priority for governments, monetary policy
makers, and multilateral institutions. The asset class•

Fragmentation of emerging financial markets is a

is crucial for channeling private investment towardhurdle for international investors because of a lack ofgreen transitions and the need for this type of funding

comparability between different countries or regions,is especially acute in emerging markets where fiscal

each with their own regulations and market conditions.

resources are scarcer than in developed economies.

Fragmentation brings higher screening costs andFailure to underpin these markets will leave them

reduces overall investment as a result. Standardization

struggling to meet climate targets. As such, a 13 percent

of sustainable finance taxonomies globally would

reversal in global GSSS issuance in 2022, while more

make comparability easier, increase transparency,

modest than the 26 percent fall in the broader fixed-

provide regulatory consistency, and ultimately reducePage 7

Key Messages

transaction costs for investors. A number of jurisdictions

Distributed ledger technologies, or blockchains, arehave already moved toward strengthening GSSS bondalready being used in financial transactions as theytaxonomies and are seeking to make them compatible

enable more efficient monitoring and accreditation.

with international peers.

Blockchain can provide a tamper proof, encrypted, andtransparent system that will appeal to private investors.

•

Central banks may be pivotal in making emerging
market financial markets supportive of green transitions.

Synthetic securitizations, backed by public sector
guarantees, are also a promising solution to thechallenge to price stability from ‘greenflation,’ or thechallenge of attracting more private capital into riskier

rising prices associated with overhauling economies andassets such as emerging market debt. The experiences of

implementing green transitions. In any case, they will

Italy and Greece, which used this approach to repackageneed to incorporate climate risks into regulatory andnon-performing loans on bank balance sheets and sellsupervisory frameworks. These, in turn, could shape thethem on as securities to investors, thereby successfully

data disclosure and risk management practices required

unlocking lending into the real economy, could be usedby regulators of the financial institutions that they

as models for emerging markets. Development financesupervise. In addition, they could also actively support

institutions could play an active role by backstopping

the greening of economies by adapting their lending

riskier portions of the debt, thereby improving theoperations, collateral frameworks, and asset purchaserisk-reward profile of more senior tranches of the

programs to favor green assets, thereby underpinningsecuritization and making them viable for investors.

GSSS demand.
••

In terms of monetary policy, they could also face a

Financial technology can enhance the developmentof GSSS issuance in emerging markets by improving
transparency, enhancing data collection, and enablingcomparability across markets. This would increase
these markets’ appeal to international money managers
as they assess potential allocations for their funds.

EMERGING MARKET GREEN BONDS

Page 8

Executive SummaryGreen bonds and other debt instruments used

modest 11 percent increase in 2024. However, including

to raise money for sustainable causes are key

China in the outlook presents a markedly different picture

to ensuring enough capital is channeled fromon account of its economic weight. We expect green bondinternational investors toward funding the energy

issuance growth for the broader emerging markets categorytransition in emerging markets. This burgeoning

including China to see a 1 percent fall in 2023, followed by asegment of the international capital market has

recovery of around 11 percent growth in 2024, bringing theachieved remarkable progress since the first green

cumulative increase to around 10 percent over the next

bonds were issued more than a decade ago.

two years.

Even so, 2022 was a troubled year for international capital

Even so, setbacks to GSSS markets in developing countries

markets amid growing geopolitical tensions in the wake

during the past year are an ominous development, given thatof Russia’s invasion of Ukraine and tightening monetary

they represent a reversal of private investment flows toward

policy in major economies as they wrestled with inflationary

sustainable projects in economies that face difficulties

pressures. All this rattled investors and global fixed-income

funding their own energy transitions.

issuance fell by 26 percent from a year earlier. Encouragingly,
issuance of green, social, sustainability, and sustainabilitylinked (GSSS) bonds proved more resilient, falling a moremodest 13 percent. But this was still the sector’s first-everannual fall in issuance and a significant setback in thecontext of the 68 percent growth seen the previous year.

This highlights an urgent need to boost the viability of
the GSSS asset class in emerging markets where local
investment is scarcer, governments’ fiscal resources areless ample, and the proportion of GSSS bonds rated byinternationally recognized rating agencies is also smaller
than in advanced economies. However, it also highlights the

We do not anticipate this loss of momentum for GSSS

equally urgent need to boost local fixed-income markets in

issuance will last, however. We expect growth in the asset

general. Failure to underpin these needs will leave emerging

class to resume, driven by an acceleration in the energy

market countries struggling to meet climate targets.

transition reflecting a greater sense of urgency around
meeting climate targets. We also foresee growing demandfor GSSS assets given macroeconomic dynamics—notably
higher nominal yields in a context of weaker growth—
supportive of the broader emerging market fixed-income
asset class.

In order to address these challenges and minimize therisk of greenwashing, the report recommends imposingtighter disclosure requirements and pursuing greater
homogenization of green taxonomies to reduce thefragmentation of the asset class. It also discusses ways toincrease relative demand for GSSS bonds and boost their

In our central scenario, we forecast green bond issuancepenetration in local markets. In addition, the report examines

will bounce back in 2023, growing 14 percent year-on-year

the role central banks can play by “tilting” their monetaryin emerging markets outside China, before easing to a morepolicy operations toward GSSS assets, before assessing

Page 9how blockchain-based and other technologies can help

Executive Summary•

As a result of this, China not only remained the largest

reduce transaction costs while increasing transparency andgreen bond issuer in emerging markets—73 percent

improving record keeping. The report also examines financialof the total—but it also became, for the first time, theinstruments such as synthetic securitizations that can help

largest green bond issuer globally after overtaking

reduce the cost of capital for emerging market projects andGermany and the United States.

increase their appeal to developed market investors.
Finally, the report also looks at actions taken by select•at 69 percent of total GSSS issuance in emerging

emerging market governments. First of all, we discuss howmarkets, with sustainability bonds coming in second

Brazil’s newly elected government is pursuing an ambitious

with 21 percent. In emerging markets excluding China,

environmental overhaul of the economy which includes

however, sustainability bonds became the largest sub-plans for an inaugural green bond in 2023. A successful

segment at 41 percent, ahead of green bonds withsovereign issue along these lines is likely to boost the

38 percent.

broader Brazilian GSSS market. Meanwhile, Uruguay recently
carried out an issuance of sustainability-linked bonds with

Green bonds remained the largest GSSS sub-segment•

Unlike in the previous two years, when non-financial

a coupon structure tied to performance on pre-determined

corporates led emerging market green bond issuance,

environmental goals. The structure incorporates a step down

financial institutions took over in 2022, accounting forin interest payments if those targets are met, but a step up

52 percent of the total.

otherwise. The offering was oversubscribed, attracting newinvestors to Uruguay for the first time and encouraging•

The emerging market greenium —the lower spread on aother corporate issuers in the region to consider using

green bond yield compared with that on a conventionala similar structure for issues of their own. Other recent

bond from the same issuer—widened during the year,

innovations include a climate budget tagging strategy

from 4.2 basis points on average in 2021 to 7.2 basis

adopted by Indonesia enabling the evaluation of climate-points by the end of 2022.

related expenditure by the government. This has proved
effective at preventing greenwashing and making Indonesian
GSSS assets more attractive to international fund managers.

•

The low proportion of emerging market green bonds
carrying internationally recognized credit ratings
remained a key barrier for investing in the asset classin 2022. Only 14 percent of green bonds issued in China

Highlights of GSSS Issuance in 2022:•

Global GSSS bond issuance fell 13 percent in 2022,
the first annual fall in issuance, though the sector
outperformed the broader fixed-income market whichfell 26 percent. This drove global GSSS bond penetration
up to 13.6 percent, an all-time high.

•Within the GSSS segment, the setback was particularly
acute among supranational issuers, which fell 38 percent
year-on-year as well as across emerging markets
outside China where issuance declined 30 percent.
On the positive side, China’s green bond issuance was
exceptionally strong, rising 61 percent.

carried investment-grade ratings (by internationallyrecognized rating agencies) in 2022, down from
16 percent in 2021. In other emerging markets, theproportion was up to 33 percent, from 30 percent theprevious year.

1
IntroductionT

he year 2022 proved a challenging one for13 percent from a year earlier, the first ever decline forinternational capital markets. For only the fifth

this still nascent asset class and a sharp reversal from thetime in the last 100 years, U.S. Treasuries and the68 percent growth recorded in 2021.

S&P 500 both ended the year lower than where they
started.

This represents an outperformance by GSSS bond issuanceversus the broader fixed-income asset class. But it is,

Much of the turmoil can be attributed to the sharp monetary

nevertheless, an ominous development for sustainabletightening pursued by the U.S. Federal Reserve and otherfinance, particularly in emerging markets where the capital

central banks as they grappled with the inflationary

needed to fund the green transitions is most scarce. Suchpressures that took hold in the wake of the COVID-19

resources are crucial to put economies on track to meet

pandemic. But Russia’s invasion of Ukraine in late Februaryinternational climate goals.

and the resulting geopolitical frictions also dampened themood, sending bond spreads wider as investors took frightat the heightened sense of risk, making it more costly toborrow in financial markets. As a result, country authorities
in emerging markets currently face difficult choices between
sustaining financial stability and supporting growth in anenvironment of tighter global liquidity, increased geopolitical
frictions, and slower global growth.

Among the challenges faced by GSSS bonds we also
acknowledge the ongoing political debate surrounding
investment decisions based on environmental, social, andgovernance (ESG) factors more broadly. Specifically, wehighlight legislation passed in Florida (May 2023), along withother U.S. states like Kansas (July 2023) and Indiana (April
2023), which prohibit the consideration of ESG factors instate investments and procurement processes. This reflects

Unsurprisingly, total fixed-income issuance fell by 16 percent

the polarized opinions on the topic. In this context, it isfrom the previous year. The upheavals and primary market

worth noting the concerns raised by the Glasgow Financial

shutdowns did not spare the market for green, social,

Alliance for Net Zero (GFANZ), a grouping of insurance

sustainability, and sustainability-linked (GSSS) bonds,

companies and pension funds convened by the United

as defined in Box 1.1. Bond issuance in this category fell

Nations. GFANZ warns that political attacks against ESG

Page 11

Introduction

could have negative impacts on investors, policyholders, and11 percent. However, green bond issuance in China will beeconomies.

slower, due to the combination of a weaker-than-expected

However, these setbacks mask a series of encouraging
developments. We estimate the so-called greenium inemerging markets widened to 6.4 basis points in 2022, from
4.2 basis points in 2021. This suggests a growing imbalance
between supply and demand which continues to make thegreen bond market attractive for investors, relative to theconventional bond market, in emerging markets.
Meanwhile, a significant development was that overall global
funding via green bonds and loans to sustainable projects
surpassed that of the fossil fuel sector for the first time in
2022, a sign that the market for green financing is maturing.

post-COVID-19 recovery and lower attractiveness of locallyissued bonds (on account of relatively low yields versus theUnited States and Europe). Given China’s economic weight,
this will bring overall growth in green bond issuance for
emerging markets down to around 10 percent in 2023–2024,
amounting to a 1 percent decline in 2023, followed by arecovery back to about 11 percent growth the following year.1
In the medium term, we expect green bond issuance to be a
key beneficiary from an acceleration in the energy transition
driven by a greater sense of urgency around tackling climatechange. Most recent analyses2 point to an increase in global
temperatures of about 2.7 to 2.8 degrees Celsius above
pre-industrial levels under current policies, well above the

GSSS issuance will continue to growas energy transitions accelerate, andinvestor demand rises.
Looking ahead, we expect GSSS issuance will continue togrow over time, driven by an acceleration in the energy
transition, a wider greenium in emerging markets relative
to advanced economies, and macroeconomic dynamics(high nominal rates in a context of weak economic growth)

1.5 degrees Celsius targeted in the Paris Agreement, addingpressure on policy makers to act.
According to Bloomberg NEF, global investment in the energy
transition reached $1.1 trillion in 2022, an all-time high and a
31 percent increase from 2021 (See Exhibit 1-a).3 While this isencouraging—as it matches global fossil fuel investments forthe first time—it also falls short of the $4.55 trillion that needs
to be invested annually for the remainder of this decade to
get on track under BNEF’s Net Zero Scenario.

supportive of the fixed-income asset class in developing

Three drivers are contributing to most of this acceleration.

economies.

First, the energy transition is likely to be supported by

Our central scenario forecasts green bond issuance to grow,cumulatively, by 27 percent in emerging markets excluding
China over 2023–2024, on the back of an easing of global
inflationary pressures driven by a global slowdown andweaker credit growth. In particular, we see green bondissuance bouncing back in 2023 to grow around 14 percent,slowing to a more normalized increase in 2024 of about

ongoing global progress at the policy level. During thelast COP27 international climate summit, held in Egypt inNovember 2022, governments agreed to establish a fund tocompensate developing countries for the loss and damage
that climate change has wrought. Key details on how thiswill be funded or how to deploy the financial assistance are
yet to be agreed and will be up for discussion at COP28 in
Dubai, which starts in November 2023. Furthermore, the UN

1

Green bond issuance forecasts have been run by Amundi.

2

See for example, Climate Action Tracker, November 2022 or CDP and OliverWyman, 2022, “Missing the Mark Report,”

3

If we add investments in the power grid, overall energy transition investments would reach $1.4 trillion. See Bloomberg NEF, 2023, “Global Low-Carbon Energy Technology Investment
Surges Past $1 Trillion for the First Time,” January 26, 2023

EMERGING MARKET GREEN BONDS

Page 12

Secretary General has also called for a “Climate Ambition

would expect green bond issuance to remain broadly flat,

Summit” in September 2023 for governments to seek

cumulatively, over the next two years, with an 11 percent year-

agreement on new country pledges or nationally determinedon-year decline in 2023, offset by a 12 percent rebound in 2024.

contributions (NDCs).4 The Inflation Reduction Act in the
United States and the REPowerEU package in the EU should
also be viewed as two crucial steps in this direction.
Second, a wider greenium will continue to make green
bonds more attractive to issuers than conventional bonds.
This is particularly the case in emerging markets where

Policy action, new technology, andbetter-aligned guidelines can help
deepen GSSS markets.

the greenium is widening, as we show in Section 2 of the

In 2022, GSSS bond issuance was around 0.4 percent ofreport, relative to developed economies where the spread

China’s gross domestic product (GDP), compared withadvantage appears to be shrinking.5

0.3 percent a year earlier. For the rest of the emerging

Third, high nominal rates in a context of easing inflationarypressures and weaker growth (on a combination of a
weaker-than-expected recovery in China and slacker credit
growth in developed markets reflecting events in the U.S.
and European banking sectors since mid-March 2023) arelikely to be supportive of emerging market fixed income in
2023–2024 in absolute terms. Moreover, emerging market
bonds could also outperform local equities as the cumulative

market category, the proportion was equivalent to
0.2 percent of GDP, falling from 0.4 percent in 2021. In lightof these numbers, bond penetration as a proportion of GDP
seems broadly similar in China compared to the rest of theemerging market space. This class of bonds remains moreestablished in developed markets, with issuance in 2022
equivalent to around 1.2 percent of GDP in 2022, down from
1.4 percent in 2021.

rate hikes implemented so far by emerging market central

Interestingly, bond penetration as a proportion of totalbanks feed through to the real economy, translating into

debt issuance seems much lower in China than in other

weaker growth and downward earnings-per-share revisions.

emerging markets. China stood at 6 percent in 2022, risingThis is, as discussed earlier, our central scenario. However, as
in previous editions of the report, we also run two alternative
scenarios for emerging markets. The first of these is themore optimistic (“catch-up”) scenario, defined by a fasternormalization of inflation rates alongside higher inflows offunds into emerging market debt. Under these conditions,
we would expect green bond issuance to grow by close to
20 percent cumulatively in 2023–2024, with 8–10 percent
growth in both years.
Our more pessimistic (“slowdown”) scenario is defined bya global economic slump driven by much tighter financial
conditions than in our central scenario. In this case, wefrom 3 percent in 2021. In other developing economies, therate was 16 percent in 2022 and 15 percent in 2021. This puts
these emerging markets excluding China ahead of developed
country levels of penetration, which were around 13 percent
in 2022 and 11 percent in 2021. This also highlights theimportance of further developing local fixed-income markets
across emerging markets as a pre-condition for sustained
growth of the GSSS segment going forward.
Importantly, the low proportion of green bonds carrying
internationally recognized credit ratings remained a key
barrier for investing in the asset class in 2022. Only 14 percent
of green bonds issued in China carried investment-grade
ratings (by internationally recognized rating agencies) in

4

UN News, December 19, 2022, “Guterres announces ‘no nonsense’ climate action summit; calls for practical solutions,”

5

Financial Times, 2023, “Green Bonds: the Disappearing Greenium is a Welcome Development,” January 2, 2023.

Page 13

Introduction

2022, down from 16 percent in 2021.
In other emerging markets, theproportion was up to 33 percent, from30 percent the previous year.
Against this backdrop, the report
reviews potential actions to increase

EXHIBIT 1-a

Investment in Energy Transitions Has
Caught Up with Fossil Fuels
Annual investments in energy transitions versus fossil fuels, 2018–2022

GSSS bond penetration acrossEnergy Transition

emerging markets.

930

damage associated with so-calledgreenwashing, whereby an issuer

also a significant concern for investors.
To counter this risk, the report

922

400

896
745

800
$ Million

activity meets sustainability criteria, is

1,110
1,110

1,200

First, the potential for reputational

misstates the extent to which an

Fossil Fuel

482

522

849

626

discusses the benefit of tighter data
disclosure requirements related tosustainability and a potential shift from0
2018

voluntary to more formal guidelines ongreen definitions.
Second, another problem investors face

2019

2020

2021

2022

Source: Bloomberg NEF, "Low-Carbon Energy Technology Investment Surges Past $1 Trillion for the First Time,"
January 26, 2023

is the potential fragmentation of theasset class via a lack of comparability
between different countries or regions,debt to buy green bonds would increase demand for theeach with their own regulations and market conditions.

latter, driving down yields and eventually prompting issuers

Fragmentation carries higher screening costs and reduces

to sell more into a receptive market. This would ultimately

overall investment as a result. In this context, the reportlead to greater penetration of green bonds into local capitalargues for further standardization of taxonomies globally.

markets. We note, however, that we are agnostic about

Furthermore, we also discuss the Assessing Sovereign

whether central banks should indeed follow this path andClimate-related Opportunities and Risks (ASCOR) Project,acknowledge that there is no consensus on the question.

the first coordinated investor framework to assess sovereign
bond issuers on climate change.

Fourth, we look at how new technologies could help mobilizesavings in emerging markets. Both fintech and blockchain-

Third, we discuss how central banks in developing countries

based technologies could help develop local capital markets

can support energy transitions, referencing the European

while tilting incremental investments toward sustainable

Central Bank’s proposal for greening its bond portfolios.6

assets, including GSSS bonds. In particular, we review some

Clearly, any move by a central bank to sell conventionalof the leading initiatives in the field.

6

Schnabel, I. 2023, “Monetary Policy Tightening and the Green Transition,” Speech to the international Symposium on Central Bank Independence,” Sveriges Riksbank, Stockholm, January
10, 2023,

EMERGING MARKET GREEN BONDS

Page 14

BOX 1.1

Labeled Bonds: Definitions and Guidelines
Green bonds: Fixed-income instruments with proceeds

measured through key performance indicators andearmarked exclusively for projects with a positive

assessed against sustainability performance targets.

environmental impact. The Green Bond Principles,

Failure by the issuer to meet those goals may result in

guidelines developed by the International Capital Market

a higher coupon. These bonds can also be structured

Association (ICMA), have four components: use of

to reward better-than-expected performance with aproceeds, process for project evaluation and selection,

lower coupon. Unlike social or green bonds, proceeds

management of proceeds, and reporting. These principles

are not earmarked for specific projects. In June 2020,

were last updated in June 2022. Several countries and

ICMA published the Sustainability-Linked Bond Principles,jurisdictions have developed guidelines for green bondproviding guidelines on structuring features, disclosure,issuance, many of which align with the Green Bondand reporting.

Principles. A related category, blue bonds, focuses on
financing water-related sustainable projects.

Climate transition bonds: This category of debt aims
to finance the transition to a low-carbon economy. The

Social bonds: Proceeds from social bonds are directed"Climate Transition Finance Handbook" published bytoward projects that aim to achieve positive social

ICMA in December 2020 recommends disclosures foroutcomes, especially, but not exclusively, for a target

issuers marking either use-of-proceeds or sustainability-

population. ICMA's Social Bond Principles have four

linked instruments with a climate transition label. There

components analogous to the Green Bond Principles:are four key elements to the recommended disclosures:

use of proceeds, the process for project evaluation andthe issuer's climate transition strategy and governance,

selection, management of proceeds, and reporting. The

the environmental materiality of its business model,

2017 Social Bond Principles were updated in June 2020

the climate transition strategy that must be science-

to reflect changes in the market in light of COVID-19,

based and include targets, and the transparency of

notably by expanding social project categories and target

implementation.

populations.

Other labels: Some issuers have used other marketing

Sustainability bonds: Sustainability bonds are debt

labels for sustainable debt funding, such as adaptation,

instruments that raise money to finance or refinanceor SDG (Sustainable Development Goals) bonds. Most

a combination of green and social projects. Theof these are use-of-proceeds bonds aligned with ICMA

Sustainability Bond Guidelines established by ICMA are

principles, but their branding has been adapted to singlealigned with the core components of both Green andout a specific feature. Some bonds labeled "sustainable

Social Bond Principles.

development bonds" depart from ICMA principles, as they

Sustainability-linked bonds: These instruments are
performance-based bonds whereby their financial or
structural characteristics, such as the coupon rate, areadjusted depending on whether the issuer achieves
predefined sustainability objectives. The objectives areare not "use-of-proceeds" bonds but are general purpose
securities from issuers who wish to flag that their mission
is inherently sustainable. The proliferation of labels
requires vigilance from investors around project eligibility,
allocation, and impact reporting commitments.

Page 15

Fifth, a traditional challenge facing foreign investors withsome exposure to emerging markets is the relatively highcost of capital associated with investing in projects in theregion.7 The report looks at synthetic securitizations withsome government or supranational participation as apotential way to reduce the cost of capital for projects inemerging markets and increase their appeal to developed
market investors.
Finally, the report reviews initiatives to deepen sustainable
capital markets in three developing countries. This segment
examines Brazil’s GSSS bond ambitions under the new
government that assumed office at the start of 2023. It
also outlines key features of Uruguay’s sustainability-linked
bond, which includes an innovative step-up-down coupon
structure, before assessing Colombia’s new green bondframework and Indonesia’s climate budget tagging strategy.

7

See data from International Energy Agency, 2023, “Cost of Capital Observatory Report,”January 2023

Introduction

2Market Analysis
and OutlookT

his section starts with a review of GSSS
developments observed in 2022, considering
regional patterns and evolving trends in market

State of the Market in 2022
Global fixed-income issuance fell by 16 percent globally in

structure while detailing the performance of sub-2022, due to monetary tightening by core central banks,

components to identify outliers. The second part covers

widening spreads, financial market volatility, and primary

the performance of green bonds, the direction in whichmarket shutdowns in the wake of Russia’s invasion ofyields are moving, and the implications for future

Ukraine in late February. Unsurprisingly against thisissuance. The final part sets out our expectations forbackdrop, issuance of GSSS bonds also declined, by someshort-to-medium-term issuance around three

13 percent to $877 billion, the first-ever sequential fall andalternative views, one optimistic and the other morein sharp contrast to the record 68 percent growth seen

pessimistic, around the most likely central scenario.

the previous year. This was well under the forecast of a

While this report covers the entire market for GSSS

20 percent increase in 2022 detailed in last year’s report.8

bonds, much of the analysis of issuance trends in thisEven so, global GSSS bond issuance in 2022 remained

section focuses on green bonds. This reflects the fact that46 percent higher than 2020 levels. Furthermore, market

green bonds remain the best-established, largest, andpenetration—its share of overall fixed-income issuance—

most liquid component of the GSSS market. While theirincreased from less than 12 percent to almost 14 percent indominance has been somewhat eroded, particularly in the2022, an all-time high (See Exhibit 2-a).

wake of COVID-19 when pandemic recovery spending bygovernments led to a rise in social bond issuance, green
bonds still account for around two-thirds of the overall
GSSS market.

8

Amundi and IFC, 2022, “Emerging Market Green Bonds - Report 2021,” June 2022,

Focusing on emerging markets, only China posted
accelerating GSSS issuance, with an advance of 53 percent
over the year to $69 billion, driven mainly by green bonds(See Exhibit 2-c).

Page 17

Market Analysis and Outlook

EXHIBIT 2-a

Issuance of GSSS Bonds Saw Its First-Ever Annual Fall in 2022
Annual Global GSSS Issuance 2012–2022
1,200

Developed Markets$ Billion

1,000$1,013$877

Emerging Markets (excluding China)

800

China

600

Supranational

$603
$326

400
200
0

$4

$12

$37

$49

2012

2013

2014

2015

$85
2016

$172

$195

2017

2018

2019

2020

2021

2022

1.6%

1.06%

Percentage of GDP

1.2%

0.72%

0.8%

0.4%

0.0%

0.01%

0.02%

0.05%

0.07%

0.11%

2012

2013

2014

2015

2016

World, 0.88%

0.38%

0.21%

0.23%

2017

2018

2019

2020

6.8%
2020

2021

2022

11.6%

13.6%

2021

2022

Percentage of Overall Fixed Income Issuance

90%

60%

30%

0%

0.1%

0.2%

0.6%

0.8%

1.3%

2.5%

3.0%

4.5%

2012

2013

2014

2015

2016

2017

2018

2019

Source: Bloomberg, CBI, Environmental Finance, IFC

EMERGING MARKET GREEN BONDS

Page 18

Declining issuance in other emerging markets highlights theor Ukraine, higher funding costs, and lower demand, as these

impact of idiosyncratic pressures that added to the global

institutions tend to issue in local currency.

headwinds outlined above. While failing to dampen the
country’s green issuance, spillovers from China’s repeated
COVID-19 lockdowns contributed to a 33 percent drop in
green bond issuance from neighboring South and East Asian
countries, to $6 billion.

In terms of sectors, the fall in GSSS issuance was mostly
driven by lower supply from public sector entities, which
declined by 24 percent. Sovereign issuance, meanwhile,fell even further, by 46 percent, only partially offset by a
180 percent jump attributed to government agencies, albeit

Elevated global core yields and currency volatility in somefrom a low base. This may be partly explained by emerging

Latin American countries was a primary reason behindmarket governments seeking to contain fiscal deficits or

a 49 percent decline for that region. At the same time,

high-yielding countries finding it prohibitively expensive to

Russia’s invasion of Ukraine, while unleashing global market

issue.

headwinds, was felt most across Eastern European and

The year saw a 6 percent rise in issuance from the private

Central Asian countries where issuance halved.

sector in emerging markets, dominated by financial

Crucially for emerging market sustainable finance,

institutions that almost doubled their bond issuance.

supranational issuers reduced GSSS issuance meaningfully in

Financial firms surpassed non-financial corporations’ GSSS

the year. GSSS issuance by multilateral institutions declined

issuance accounting for 42 percent of the total versus

38 percent, with a 46 percent rise in green bond issuance

31 percent for the latter.

only partially offsetting declines across other sub-segments,
particularly social bonds, which saw a 74 percent drop.
This was mostly driven by some de-risking on the part ofsupranational entities with meaningful exposures to Russia

Most of the emerging market growth experienced byfinancial institutions in the GSSS segment was driven by a
155 percent jump in green bond issuance. In addition, green

EXHIBIT 2-b

Global Issuance of GSSS Bonds Remains Dominated by Developed Markets
Global GSSS issuance 2012–2022 (cumulative)$ Billion

Developed Markets

Percentage of Overall Fixed Income Issuance

Percentage of GDP

4.1%

4.6%

$2,392Supranational

$530

0.5%

Emerging Markets (excluding China)

$250

0.9%

3.6%

China

$202

1.1%

2.1%

$0

Source: Bloomberg, CBI, Environmental Finance, IFC$3,000

0%

50.2%

6%

0%

60%

Page 19

Market Analysis and Outlook

EXHIBIT 2-c

China Was the Only Emerging Market to Increase Green Bond Issuance in 2022
Annual green bond issuance in emerging markets 2012–2022
100
80

$93.1

China

Sub-Saharan Africa

Middle East and North Africa

Latin America and the Caribbean

Europe and Central Asia

Asia and the Paciﬁc (excluding China)$77.1$ Billion

60

$40.0

40

$20.1

20

$1.1

$0.0

$0.3

2012

2013

2014

0

$25.1

$28.2

$33.9

$3.7
2015

2016

2017

2018

2019

2020

2021

2022

0.18%

Total, 0.2%

2021

2022

0.8%

Percentage of GDP

0.6%

0.4%

0.2%

0.01%

0.06%

0.07%

0.07%

2016

2017

2018

0.1%

0.09%

2019

2020

0.0%
2012

2013

2014

2015

Percentage Overall Fixed Income Issuance

16%

12%

8%

Total, 6%
4%

4%

1%

2%

2%

2%

2016

2017

2018

2019

2%

2020

0%
2012

2013

Source: Bloomberg, CBI, Environmental Finance, IFC

2014

2015

2021

2022

EMERGING MARKET GREEN BONDS

Page 20EXHIBIT 2-d

China Dominated Emerging Market Green Bond Issuance Over the Last DecadeGreen bond issuance in emerging markets 2012–2022 (cumulative)$ Billion

Percentage of GDP

Sub-Saharan Africa$4Middle East and North Africa

$12

1.3%

Europe and Central Asia

$35

0.6%

Asia and the Paciﬁc (Excluding China)

$38

0.3%

Latin America and the Caribbean

$38

0.7%

China

Percentage of Overall Fixed Income Issuance

2.2%

18.0%

$195
$0

1.7%
2.8%
2.1%
1.3%
2.0%

1.1%
$400

0%

20%

0%

3%

Source: Bloomberg, CBI, Environmental Finance, IFC

bond issuance by government agencies grew 152 percent,Indonesia grew 2.4 times to $2.6 billion. Beyond the top

albeit from a relatively low level. This was, however, only

six, other key emerging markets saw green bond issuancepartially offset by meaningfully lower issuance by both non-decline, with Chile, Czech Republic, India, and Poland all

financial corporates, down 31 percent year-on-year, anddown between 60–90 percent (See Exhibit 2-e).

sovereigns which were 57 percent lower (See Exhibit 2-hlater in this section).

Cumulatively through the end of 2022, emerging market
issuers had sold green bonds worth $323 billion. China, theAround 90 percent of all 2022 emerging market green bondlargest, accounts for $195 billion, or 60 percent of the total.

issuance could be attributed to just six countries. China

Other large developing economy issuers include India at

remained the largest issuer over the year, with 73 percent of$20 billion, Chile at $15 billion, and Brazil, which had issued

the total, up from 54 percent the previous year. Among the$13 billion (See Exhibit 2-f).

other top five, Hungary almost doubled its tally to $3.3 billion,
followed by Brazil, which saw a 65 percent increase from2021, also reaching $3.3 billion. The United Arab Emirates(UAE) saw issuance multiply 4.3 times to $3.2 billion. Saudi
Arabia achieved $3.1 billion from no issuance in 2021, while

Among other GSSS categories, social bond issuancecontracted the most in emerging markets outside China—
by 88 percent year-on-year—while sustainability bonds
proved the most resilient segment with a 14 percent rise.
This implies some substitution between the two, with

Page 21Market Analysis and Outlook

EXHIBIT 2-e

Emerging Market Green Bond Issuance is Highly Concentrated in Six Countries
Top 10 emerging market green bond issuers in 2022
$ Billion

China

Percentage of GDP

Percentage of Overall Fixed Income Issuance

6.0%

0.4%

$67.5

Brazil$3.3

Hungary

$3.3

0.1%

4.0%

UAE

$3.2

0.2%

6.0%

Saudi Arabia

$3.1

0.2%

Indonesia

$2.6

0.1%

8.0%

India

$2.2

0.2%

10.0%

Chile

$1.4

Thailand$0.8

Poland

$0.6
$0

12.0%

0.4%

14.0%

42.0%

1.8%
19.0%

0.6%

13.0%

0.3%
$70

0%

2%

0%

50%

Source: Bloomberg, CBI, Environmental Finance, IFC

issuers swapping social for sustainability bonds because theof China’s overall GSSS issuance last year, with overall GSSS

challenging market and economic outlooks made the latter

issuance growing by 61 percent. For all emerging markets,

more attractive to borrowers, which offer greater flexibility

including China, green bonds remained the largest GSSS sub-in how proceeds can be used.

segment, rising to 69 percent of total GSSS issuance in 2022

A key feature of sustainability bonds is that they offer more
flexibility than green bonds in that the proceeds can be usedon either green or social projects without the issuer havingfrom 55 percent in 2021. Sustainability bonds were second,claiming 21 percent of total GSSS issuance in 2022 from18 percent a year earlier.

to pre-commit to a specific green-social split. As a result,

A significant development in the market is that overallsustainability bonds became the largest GSSS sub-segment

global funding via green bonds and loans to sustainableacross emerging markets outside China, representing

projects surpassed that of the fossil fuel sector for the first41 percent of the total versus 25 percent in 2021. This puts ittime in 2022 (See Exhibit 2-g). On the one hand, funding

ahead of green bonds, which rose one percentage point infor green projects fell by 6 percent in 2022 after almost

2022 to 38 percent of the total.

doubling in 2021. On the other hand, the global fossil fuelHowever, when China is included, the issuer compositionchanges considerably. Green bonds accounted for 98 percent

sector posted a 19 percent decline in 2022, taking the drop
since 2018 to 31 percent. This highlights the speed at which

EMERGING MARKET GREEN BONDS

Page 22

EXHIBIT 2-f

China Accounts for 60 Percent of Emerging Market Green Bonds Since 2012
Top 10 emerging market green bond issuers in 2012–2022 (cumulative)
Percentage of GDP$ Billion

China

1.1%

2.0%

0.6%

3.6%

$195

India

$20

Chile

$15

9.3%

4.8%

Brazil$13

0.7%

Poland$8

1.1%

Indonesia

$8

0.6%

Czech Republic$8

Hungary

$7

UAE

$6

Saudi Arabia$4$0Percentage of Overall Fixed Income Issuance

3.3%
11.2%
3.5%
17.4%

2.7%

15.6%

3.6%
2.3%

1.1%

2.2%

0.4%
$250

0%

5%

0%

20%

Source: Bloomberg, CBI, Environmental Finance, IFC

green funding—including green bonds—is fast becoming a

Surprisingly, issuance of sustainability-linked bonds

central component of international capital markets as green

in emerging markets outside China were materially

agendas take center stage and funding for conventional

lower—declining 35 percent from a year earlier—despite

energy sources diminishes. Indeed, when the Parishigh expectations for this sub-segment. This is likely toAgreement was signed in 2015, green funding was less thanreflect a combination of factors, including a lack of pricing

one-tenth of the size of the market for fossil fuel-related

advantage for issuers as well as investor skepticism about

funding.

the effectiveness of the penalties imposed on issuers for not

Increasing investment in clean energy and the declining
relative importance of fossil fuels, suggest the energy sector
is likely to remain a major driver of GSSS issuance growth inyears to come.9

meeting sustainability targets. At the time of writing, justone issuer—Poland’s PKN Orlen, in November 2022—has paida so-called step-up penalty, the additional interest charged
to the borrower for failing to meet sustainability goals.10
Box 2.1 provides an update on the sustainability-linked bond9

According to the IEA’s 2023 World Energy Investment report, global energy investment in clean energy is expected to reach $1.7 trillion in 2023.

10

Bloomberg, 2022, “ESG Downgrade Sparks New Penalty in $200 Billion Bond Market,” November 29, 2022

Page 23

Market Analysis and Outlook

EXHIBIT 2-g

Funding for Sustainable Projects from Green Debt
Overtook the Oil and Gas Sector in 2022
Bonds and loans for green projects versus oil and gas industry

Green Projects
1,000
900

862
769

732

800
700
$ Million

Source: Bloomberg's Green Lending
Tops Fossil as Big Oil Gets Cash
Elsewhere, by Tim Quinson, January
4th, 2023.

Oil & Gas Industry

583

600

665

737

688

620

500
400
300
200
100

658

48

68

2014

2015

116

158

298

323

2019

2020

581
531

199

0
2016

2017

2018

2021

2022

Methodology: "Green Projects" data
comes from Bloomberg's "Green
League" tables and include bonds
and loans where 100 percent of theproceeds or an amount equal to thenet proceeds are being used for eligible
green projects. "Oil & Gas Industry" data
include bonds and loans for any issuer
in the "Coal Operations," "Exploration &Production," "Integrated Oils," "Oil & Gas
Services & Equipment," "Pipeline," and"Refining & Marketing" sectors while
excluding any green bonds they may
have issued (there are only 32 green
loans issued out of these sectors, and 48
green bonds).

market, including a discussion about the opportunities anda true alternative to use-of-proceeds bonds, they need tochallenges it currently faces.

effectively address some of the challenges highlighted in

An important topic to consider is the future of use-ofproceeds bonds in light of rising interest in sustainabilitylinked bonds and other structures. Use-of-proceeds
securities still account for the bulk of GSSS issuance but
concerns are mounting around areas such as how to define
what constitutes an “authorized” use of proceeds and how
this is monitored. This can introduce a degree of rigidity to
the market by pairing specific expenditures with specificsources of funding, resulting in entities issuing a wider
variety of financial instruments, thereby weakening theirliquidity. On paper, sustainability-linked bonds seem to avoid
these issues. However, for these instruments to becomeBox 2.1.

EMERGING MARKET GREEN BONDS

Page 24

A Regional View
China remains the biggest green bond market amongdeveloping countries, accounting for more than 60 percent
of total issuance in 2022 and 73 percent since 2012.
Meanwhile, the Middle East and North Africa has become
the most significant regional contributor to green bondissuance from emerging markets outside China.

Asia and the Pacific
The dominance of China’s green bond market follows several
government initiatives in the country aimed at widening
the investor base and encouraging bank lending to energy
transition projects. Significant developments underpinninggreen bond issues included publishing a second version of

BOX 2.1

Sustainability-Linked Bonds
in Emerging Markets
Governments and corporations are under increasingpressure to meet climate goals. This leaves themfacing the mounting challenge of balancing thesepriorities with their economic or business interests.
Sustainability-linked bonds, a relatively new
category of debt that first emerged in 2019, canhelp organizations achieve that balance, raising
fresh capital from investors while making credible
commitments on environmental or social goals.

the Common Ground Taxonomy by the People’s Bank of

Sustainability-linked bonds are distinct from other

China and the European Commission in June 2022. Another

GSSS categories, such as green or social bonds,

boost came from China’s continued monetary easing, which

because their terms do not specify how proceeds

boosted the performance of onshore green bonds and put

from debt issuance should be deployed. Instead,the country at odds with the monetary tightening seen inissuers commit to achieving predeterminedother large economies. Furthermore, the country’s central

sustainability goals by a deadline within the bond'sbank has started assessing local lenders according to theirterm. Failure to meet that commitment can result inholdings of green bonds, an initiative known as the Greena higher coupon, or in cheaper borrowing costs if the

Finance Evaluation Plan, while offering cheap funding totarget is achieved.

subsidize green loans from November 2021.

The flexibility around how the borrower deploys the

Dynamics in the rest of Asia were radically different,money they raise makes this type of debt appealing

however, with green bond issuance falling 33 percent toto issuers that may not have an extensive pipeline of$6 billion in 2022, around 8 percent below the level seen

green projects that would qualify for the proceeds ofin 2019, before the market disruptions that came with thegreen or social bonds. For example, investments in

COVID-19 pandemic.

sectors such as housing, education, and infrastructureThis was explained mainly by lackluster issuance from
India—down 63 percent—amid poor performance of thelocal fixed-income market related to monetary tightening,
the government’s announcement of enhanced borrowing
plans for 2022–2023, and significant currency volatility.
Even so, India took the significant step of publishing its
sovereign green bond framework in early November 2022,
which was followed by the country’s first-ever sovereign

may not always meet the specific requirements
set out in the terms of green bonds. Meanwhile,
governments can use the instrument as a sourceof funds for general public spending or to mitigatebalance sheet risks by reducing maturity or currency
mismatches.

A weak but resilient year for
issuance amid global headwinds
The significant underperformance of sustainability-

Page 25

Market Analysis and Outlook

linked bonds (-22 percent) relative to the broader GSSS

On a regional basis, Latin America represented 71 percent

asset class (-13 percent) in 2022 was driven by twoof the 2022 total. Asia accounted for $1.4 billion, or

factors: the instrument’s relative illiquidity—leading to11 percent of the total, mainly from Thailand and India,

higher volatility—and increasing concerns about the asset

which issued $850 million and $400 million, respectively.

class’s prospects.

The spotlight shifted from corporate

On the positive side, however, the market remained open,
and issuers continued to issue sustainability-linked bonds

to sovereign borrowers.

throughout the 2022 turmoil, with emerging markets

While sustainability-linked bonds have become popular

representing 16 percent of total issuance ($11.5 billion)

among corporations, they are far less established among

over the year. Non-financial corporates accounted

sovereign borrowers. However, the success of Chile'sfor 69 percent of the market, with sovereigns, led byoffering in 2022, which was more than four times

Chile and Uruguay, making up 30 percent. There was aoversubscribed, means more sovereign issuers are likely

substantial reduction in sustainability-linked bond deals

to follow.

from financial institutions, down to just $130 million, from$1.85 billion in 2021.

20

Emerging Market Sustainability-Linked Bond Issuance
China

1.7
0.3

18

100

16

Emerging
Markets(excluding
China)

90

17.72

80

Sub-SaharanAfrica14

Global Sustainability-Linked Bond Issuance

1.74

70

11.50
1.1
14.3

10
8

7.9

6
4
2
0

Middle East andNorth Africa
Latin America andthe Caribbean
Europe andCentral Asia

0.6
2.5
0.5
2020

1.0
2.2
2021

2.2
1.3
2022

Asia and Paciﬁc(excluding China)

60$ Billion$ Billion

12

1.06

China

50
40

72.38
30

59.16

20
10
0

4.24

3.62
6.67

2019

2020

2021

2022

Developed
Markets

EMERGING MARKET GREEN BONDS

Indeed, Uruguay issued a sustainability-linked bond worth

Page 26•

The penalty in terms of stepped-up coupon$1.5 billion in October 2022. The debt, which matures inpayments for failure to achieve the performance

2025, has performance targets that affect the coupon andtargets is often too modest relative to the issuer's

is linked to the country's contributions to battling climate

overall cost of debt, thus limiting the effectiveness ofchange under the Paris Agreement. Notably, the Uruguay

this mechanism to achieve sustainability objectives.

structure includes an innovative two-way pricing feature.
While failure to meet the performance targets by the•standardization on structural issues such as thedeadline incurs a 'step-up' penalty, rewarding investors

timing of observation dates and the size of financial

with higher interest payments, exceeding the targets

incentives to help investors more easily assess eachresults in a 'step-down' in the coupon, benefiting

bond and minimize worries around greenwashing.

the issuer.
Debates will inevitably arise around whether investors•

prior to a bond's initial issue. This opacity and lackexceeds targets. Issuers would argue that it is only fairof communication have impacted credibility andfor a product to incentivize both parties. Thus, investors

lowered investor confidence.

would encourage a more significant commitment tostep-down coupon.
The Chile and Uruguay deals marked significant progress
toward demonstrating how sovereigns and quasisovereigns can attract funding via sustainability-linked

Many issuers cease engaging with investors
beyond the roadshows undertaken immediately

should be willing to accept a lower coupon if a borrower

achieving broader sustainability goals by accepting a

The market needs a broader consensus and•

The greenwashing risk is even higher aroundsovereign issuers than corporates because
sustainability performance targets may be
abandoned with a change in government that bringsa shift in policy.

bonds aligned to NDC targets. There is now a greater

Scrutiny of investors is intensifying, with a greater focus

likelihood that more non-sovereign issuers from thoseon whether they refuse to buy bonds that do not meetmarkets will follow.

their minimum criteria and to what extent they engage

Sovereign and corporate sustainabilitylinked bond issuers face several challenges•

Given that proceeds can be used for general
expenditures, performance indicators' clarity,robustness, ambition, and verifiability are crucial for
ensuring credibility. In some cases, key performancetargets may be effectively achieved, for example,
by selecting backdated indicators. The availability
and timely disclosure of relevant data are critical forinvestors to assess the issuer's progress in achieving
the goals.

with issuers to help improve broader standards.

Page 27

green bond issue in January 2023.11
Only Indonesia increased its green bond issuance, by
2.4 times to $2.6 billion over the year. This was driven mainlyby the two sovereign issues worth $1.9 billion following the
publication of the country’s Green Taxonomy in January
2022.12 Indonesia operates a mechanism that enables
tracking and evaluating public expenditure from climate
migration and adaption.

Europe and Central Asia
Green bond issuance in Europe and Central Asia morethan halved in 2022, retreating 56 percent because ofconcerns around Russia’s invasion of Ukraine that began in
February. Well-established issuers like the Czech Republicand Poland saw issuance of green bonds fall by 86 percent
and 79 percent, respectively. The only notable exception
was Hungary, which saw issuance rise by 1.9 times to$3.3 billion, driven by the sovereign’s successful $2.5 billion
multi-currency issuance strategy. This involved a multitranche Japanese yen-denominated green bond transaction

Market Analysis and Outlook

the year was dominated by significant currency volatility,
lower international copper prices reflecting weaker demand
from China, and concerns around government plans to pushthrough a tax reform bill to fund social programs. The year
was also marked by political uncertainty stemming from agovernment proposal to reform the constitution that was
ultimately rejected in a referendum.
Meanwhile, Chile’s weaker issuance was partially offset
by Brazil, where green bond issuance was up 65 percent
at $3.3 billion. The flow of new bonds was diversified
across several private-sector issuers, mostly non-financial
corporates. These included fertilizer company Yara’s$600 million green bond following the firm’s first Green
Financing Framework publication in July 2022. Among
financial institutions, lender Itaú issued its first green bond in
the country, via a private placement to the IFC, and financial
firm Sicredi’s first-ever green Tier-2 bond sold in a private
placement to IDB Invest.

Middle East and North Africa

in mid-February 2022, a green bond denominated in the

The Middle East and North Africa region became the largest

Chinese currency, and a $1 billion green euro-denominatedsource of new green bonds in emerging markets outside

deal. We expect Russia’s invasion of Ukraine to result in

China in 2022, with $7.2 billion issued, or 9.3 times theincreased issuance of social bonds over green bonds in thisamount sold in 2021. The region was a marginal player in theregion due to the considerable funding needs for Ukraine’s

asset class until 2021, printing around $1.4 billion on averagereconstruction.

per year between 2019 and 2021. The dramatic jump in bondLatin America and the Caribbean
Green bond issuance in Latin America and the Caribbean

issuance was attributed to just two countries, namely the
UAE, which saw a 4.3 times increase to $3.2 billion, and Saudi
Arabia, which issued $3.1 billion. The year before, Saudi Arabia

also halved, falling 49 percent over the year due to increasing

did not issue any green bonds.

socio-economic tensions that prompted radical political

UAE’s issuance came from four financial institutions and one

changes in select countries. In particular, Chile’s green bondissuance fell 76 percent to $1.4 billion, bringing it down in
the rankings of emerging market issuers to eighth fromthird in 2021, when it was exceeded only by China and India.
Following the new government’s appointment in early 2022,

11

Government of India, 2022, “Framework for Sovereign Green Bonds.”

12

Sustainable Finance Indonesia, 2022, “Indonesia Green Taxonomy Edition 1.0.”

corporation. This included an inaugural $500 million green
bond by Abu Dhabi Commercial Bank and strong issuanceby well-established users of the green bond market, such asFirst Abu Dhabi Bank, which sold $1.5 billion. In January 2022,
a $700 million green project bond was sold to finance theEMERGING MARKET GREEN BONDS

Abu Dhabi Sweihan Photovoltaic Independent
Power Project.
Saudi Arabia’s issuance was attributed to the state’s Public
Investment Fund raising $3 billion from its debut green bond,including a $500 million tranche with a 100-year tenor. The
fund, which manages over $600 billion in assets, plays acentral role in government moves to diversify the country’s
economy away from oil. The fund expects to invest more

Page 28

Market Trends in Emerging Market
Bond IssuanceGreen bonds denominated in the Chinese currency increased
1.2 times from the previous year, reaching 61 percent of
total emerging market issuance, from 33 percent in 2021.
This implies some substitution away from U.S. dollardenominated debt that reflects relatively better funding

than $10 billion in eligible green projects by 2026.13

conditions in local currency.

It is indeed encouraging to see this region placing more focus

Meanwhile, bond deals significant enough to qualify

on green finance in response to investor demand.

for inclusion in benchmark indexes, typically over

Sub-Saharan Africa

total from emerging markets outside China, down from

By far the smallest component of the emerging green bondmarket, issuance of the instruments from Sub-Saharan$300–500 million, accounted for around 20 percent of the23 percent in 2021. In China, the proportion was 28 percent,falling from 32 percent in 2021.

Africa increased by 20 percent in 2022, to $600 million.

Credit quality dynamics diverged, meanwhile, with the

Almost all came from South Africa, where Absa Bank printed

proportion of investment-grade bonds increasing from$270 million, and Redefine Properties raised $180 million.

30 percent to 33 percent in emerging markets outside

Outside South Africa, there were just four other issues—

China. In comparison, China fell from 16 percent tothree from Namibia and one in Nigeria.

14 percent. Finally, the share of new bonds with medium-

Supranational Entities
Supranational entities skewed their GSSS issuance towardgreen bonds, leading to a 46 percent increase in issuance of
the instruments. But at the same time, they cut back acrossall other GSSS sub-segments, notably with a 74 percent drop
in social bonds. All in all, supranational entities reduced their
GSSS issuance by 38 percent in 2022, becoming a key driverof lower overall GSSS issuance.
These weak dynamics in 2022 reflect a combination offactors, including de-risking by supranational institutions
with significant assets or liabilities in Russia or Ukraine,credit rating downgrades, and broader tightening of funding
conditions.14 Also, supranational entities are relevant players
in the local currency bond market, which was particularly hit
in 2022.

term maturities of between three and five years was littlechanged at around 54 percent.
Overall green bond issuance in emerging markets was up
21 percent in 2022, driven mainly by financial institutions,which saw a 155 percent year-on-year increase, andgovernment agencies, up 152 percent, albeit from a low level.
This was only partly offset by meaningfully lower issuance by
non-financial corporates, down 31 percent year-on-year, andsovereigns which were 57 percent lower (See Exhibit 2-h).
Within the non-financial corporate segment, utilities andenergy accounted for the bulk of green bond issuancein emerging markets in 2022, at 56 percent in China and76 percent in other developing countries (See Exhibit 2-i). In
advanced economies, however, while these sectors generally
account for a lower share of overall green bond issuance,

13

Reuters, 2023, “Saudi Wealth Fund to Raise $5.5 Billion With Second Green Bond Sale,” Accessed March 1, 2023.

14

Standard & Poor’s, 2022, “Supranationals” report, Special Edition, October 2022.

Page 29

Market Analysis and Outlook

EXHIBIT 2-h

A 21 Percent Rise in Green Bond Issuance Was Mostly
Driven by Financial Institutions in 2022
Green bond issuance by sector
Emerging Markets
100%

Financial Institution

80%

Government Agency

60%

Sovereign

40%

Municipal

20%

Non-ﬁnancial Corporate

0%
2015

2016

2017

2018

2019

2020

2021

2022

2017

2018

2019

Developed Markets
100%
80%
60%
40%
20%
0%
2012

2013

2014

2015

2016

Source: Bloomberg, CBI, Environmental Finance, IFC

they did increase markedly in 2022 from 31 percent in 2021 to
43 percent in 2022, driven mainly by utilities. Among otherdeveloped market sectors, real estate firms cut back theirshare of green bond issuance to 13 percent, from 23 percent
in 2021, likely reflecting tightening funding conditions andconsequently lower home sales. The auto industry saw the
opposite trend in developed markets, rising to 8.6 percent,from 5.7 percent a year earlier, reflecting economic
recoveries as the COVID-19 pandemic receded.

Use of Proceeds
Issuers of green bonds are committed to spending themoney they raise on projects and investments with a positiveenvironmental impact. Cumulatively, the largest share of theproceeds in emerging markets outside China was designatedfor spending on renewable energy, accounting for 44 percent
in 2022. One explanation is that the average issuance size forsuch projects tends to be larger than other deals.
Low-carbon transportation projects also represented an
important destination for money raised in green bond issues,

EMERGING MARKET GREEN BONDS

Page 30

EXHIBIT 2-i

EXHIBIT 2-j

Utilities and Energy Accountfor the Bulk of Emerging
Market Green Bond Issuance

Renewable Energy Claims
the Largest Share ofGreen Bond Proceeds

Emerging markets non-financial
corporates issuance by sector 2022

Emerging market and developing economies
green bond issuance by use of proceeds$ Billion 0

Materials
5%Technology
8%

Renewables

10

20

30

2022
2020-21 annual average
2016-19 annual average

Transport

Consumer Discretionary
11%

Utilities
43%

Buildings
Water

Industrials
18%

Waste

Energy15%

Source: Bloomberg, CBI, Environmental Finance, IFC

at 22 percent of proceeds in 2022. Other categories to

Land
UnallocatedIndustryreceive funds from green bonds included green buildings, at
11 percent, water, at 10 percent, waste, at 7 percent, while afurther 3 percent went toward land use.
In developed markets, while the share of green bondInformation andcommunications
technology

proceeds designated for renewables and low-carbon
transport was smaller, at 30 percent and 16 percent
respectively, the percentage assigned to green buildings
was significantly higher, at 36 percent.

40

Source: Bloomberg, CBI, Environmental Finance, IFC

Page 31

Market Analysis and Outlook

EXHIBIT 2-k

The Chinese Currency Accounted for 61 Percent
of Emerging Green Bond Issuance
Emerging market and developing economy green bond issuance by currency, 2012–2022
100

Chinese yuan

80
60

Local currency

40
20

Foreign currency

0
2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source: Bloomberg, CBI, Environmental Finance, IFC

Currency
Emerging market green bonds denominated in Chinese
yuan increased 1.2 times in 2022, reaching 61 percent of
total developing economy issuance and almost double their
33 percent share of a year earlier. With foreign currencydenominated issues down by 29 percent, to 31 percent of thetotal, from 53 percent in 2021, this implied some substitutionof foreign currency bonds for yuan debt by Chinese issuers,
primarily motivated by relatively better funding conditions
in local currency. Interestingly, local currency-denominatedgreen bonds also fell by 30 percent to reach 8 percent of thetotal. A year earlier, the share was 14 percent.

of all local-currency denominated issues, excluding the
Chinese yuan.

Issue Size
The most liquid bonds, those that are sufficiently large tobe considered as benchmarks by international investors,
provide greater access to external financing as they canbe included in major indexes. Of the green bonds issuedin emerging markets other than China in 2022, there were
29 benchmark-size bonds of more than $300 million,
representing 20 percent of the total, with half exceeding$500 million. A year earlier, there were 45 benchmark bonds,
representing 23 percent. The proportion of benchmark-size

U.S. dollar-denominated green bonds from emerging

bonds was larger in China, 28 percent, versus 32 percent inmarket issuers lost market share, sinking to 25 percent from2021, likely reflecting borrowing for large renewable projects

39 percent. Emerging market euro bonds also retreated toin the country.

6 percent from 17 percent.
The Brazilian real was the next most common currency used

Ratings

by emerging market green bond issuers, losing a percentage

A key barrier to investing in green bonds issued by emerging

point to account for 3 percent of issuance in 2022, followedmarket borrowers is the low proportion of debt securities

by the Indonesian rupiah, which represented 1 percent

carrying internationally recognized credit ratings. In fact, onlyof the market. The Hungarian forint and the Thai baht

14 percent of green bonds sold by Chinese issuers carriedclaimed similar shares. These four accounted for 5 percent

investment-grade ratings in 2022, down from 16 percent inEMERGING MARKET GREEN BONDS

Page 32

EXHIBIT 2-l

COP

IDR

The Brazilian Real Was theMost Common Local Currency
Emerging Green Bond,
Excluding the Chinese Yuan

4%

RUB 4%
MXN 5%

BRL
21%

5%
INR
7%

Emerging market and developing economy
local currency green issuance by currency
excluding the Chinese yuan, 2012–2022

THB

MYR

13%

8%
HUF
9%

Note: BRL is the Brazilian real, THB refers to the Thai baht, ZAR the
South African rand, HUF the Hungarian forint, MYR the Malaysian
ringgit, INR the Indian rupee, MXN the Mexican peso, RUB the Russian
ruble, IDR the Indonesian rupiah and COP the Colombian peso

Others

ZAR
11%

13%

Source: Bloomberg, CBI, Environmental Finance, IFC

2021. The remaining 86 percent wereunrated, as many issuers in China rely
on local credit assessments, which

EXHIBIT 2-minternational investors. However,

The Most Common Issue Size for Emerging
Green Bonds Was Under $50 Million

dynamics are different in other

Emerging market and developing economy green bond issuance size

makes their valuation difficult for

emerging markets, with 33 percent

200of newly issued green bonds rated
investment grade, up from 30 percent
the previous year.

bond market as a whole. Among
emerging markets, there have been
three defaults on bonds within the
category: two in 2021 by a Chinese
solar power firm and a property

at least 500

160

300 to 500

140$ Million

Defaults have been rare in the green

180

200 to 300

120
100

100 to 200

80

50 to 10060

0 to 50

40
20
0
2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

developer, and one in 2020 by an
Indian irrigation firm.

Source: Bloomberg, CBI, Environmental Finance, IFC

Tenor
Through 2019, most emerging market green bonds were
medium-term instruments issued by financial institutions,with the majority maturing in three-to-five years. Over the
past three years, however, the range of tenors widened as

new entrants came to market including a larger number of
non-financial corporates and sovereigns. This illustrates theextent to which the green bond market is deepening as it
matures, attracting a broader range of both issuers
and investors.

Page 33

Market Analysis and Outlook

In 2022, 54 percent of issuance
was medium-term, while another27 percent was in the range of five to
10 years. Meanwhile, 12 percent werelonger dated, at over 10 years, and theremaining 7 percent were for less than
three years.

Market Performance

EXHIBIT 2-n

Green Bonds Underperformed
Fixed Income Globally
Total return of green bonds versus the global aggregates index
105

2

85

0

65

-2

45

-4

In 2022, green bond performance wasdiametrically different in developedand emerging markets. Green bonds
underperformed the broader fixedincome asset class by around 600 basis
points globally (See Exhibit 2-n). At
the same, however, green bonds from25

emerging market issuers outperformed
the broader asset class in developing

5

economies by around 450 basis points(See Exhibit 2-o). This is likely to reflect
a combination of strong demand for
emerging market green bonds on the-6

Green Bond Index Over(under) performance, RHS
Bloomberg MSCI Global Green Bond Index, $-8

Bloomberg Global Aggregate Bond Index, $-15
Jan 2021-10
Jan 2022

Jan 2023

back of much lower penetration andweak supply.

Source: Bloomberg, CBI, Environmental Finance, IFC

Green bonds and other sustainablesecurities have enjoyed rising demand from investors
in recent years, amid an ongoing proliferation of funds
dedicated to environmental, social, and governance goals.
This is reflected in downward pressure on green bondyields, opening up a yield gap, or spread, between green
bonds and equivalent conventional bonds from the same

The average greenium represents 6.4 percent of theaverage spread of bonds in the sample, up from 4.2 percent
previously, as shown in the table below (See Table 2.1).
Meanwhile, the average greenium widened during 2022 from
-4.6 basis points to -7.2 basis points at the end of the year, on
a rolling average basis. Compared to the benchmark average,
greenium widened, according to Amundi’s calculations, toissuer, commonly referred to as a ‘greenium.’ A negative-6.8 basis points in 2022, from -3.4 basis points in 2021.

greenium means that a green bond is trading at a lower

It is worth noting that this reflects secondary market data,

yield compared to a conventional bond with similar
characteristics. This implies a lower cost of raising capital for
issuers of green bonds, but also lower cash flows paid to thedebt investors.

or yields on existing bonds as they are traded, rather thanthe pricing of newly issued debt. However, secondary market
movements act as an indicator of investor sentiment andinfluence the pricing of new bonds in the primary market.
This does not capture, however, other costs faced by issuers,
including administrative expenses (See Box 2.1) or even the

EMERGING MARKET GREEN BONDS

Page 34

capacity-building costs of regulators

EXHIBIT 2-oand supervisors, who may not be

Emerging Market Green Bonds
Outperformed Conventional Peers

A widening greenium (Seefamiliar with these instruments.

Exhibit 2-p) bodes well for issuanceTotal return of emerging market green bonds versus
the emerging markets aggregates index

across international capital markets
as it indicates robust investor demand12105

and incentivizes borrowers, including
those in emerging markets, to consider

10

100

95

Emerging Markets Green Bond Index
Over(under) performance, RHS

90

Bloomberg MSCI Emerging Markets Green
Bond Index, $85

Bloomberg Emerging Markets Aggregate
Bond Index, $

8
6
4
2

80

0

75

-2

Jan 2021

Jan 2022

Jan 2023

green bonds for future debt issues.
Several economic studies haveexamined the extent to which investor
preference for assets that meet
economic, social, and governancecriteria drives yields lower on green
bonds, in both primary and secondary
markets.15 One analysis, comparing
yields on green bonds with thoseof equivalent conventional debt,
finds that demand is higher among
euro-area investors for bonds thatare credibly green because they arecertified, either officially or with a

Source: Bloomberg, CBI, Environmental Finance, IFC

second-party opinion. Euro area green
bonds, where the issuers are certifiablycommitted to environmental

TABLE 2.1

programs or are categorized within

Emerging Market Green Premium Statistics, 2022
MedianAverage

Number of

Average

Averagepremium

premium

observations

spreadpremium(basis points)(basis points)(basis points)

versusenvironmentally sound sectors, trade
at a greater and statistically moresignificant greenium.16

averagespread (%)
-3.4

-6.8

37

106

-6.4
15
See, for example, Zerbib, O., 2019, “The effectof Pro-Environmental Preferences on Bond Prices: Evidence
from Green Bonds,” Journal of Banking & Finance vol. 98,
issue C.

Source: Amundi calculations based on CBI, IFC, Enivronmental Finance, Amundi, MSCI

Pietsch, A., Salakhova, D., 2022, “Pricing of
16
Green Bonds: Drivers and Dynamics of the Greenium,”
European Central Bank Working Paper No. 2728.

Page 35

Market Analysis and Outlook

EXHIBIT 2-p

The Emerging Market Greenium Continues to Widen (i.e.
green bonds becoming richer versus conventional)
A widening greenium indicates rising investor demand and incentivizes borrowers
20

Weekly Average Green Premium

-2
-4
-6
-8

Average Green Premium Smoothed-10

Oct 2022

Apr 2022

Oct 2021

Apr 2021

Oct 2020

Apr 2020

Oct 2019

Apr 2019-12

Source: Amundi calculations based on CBI, IFC, Environmental Finance, Amundi, MSCIIn developing countries, the “longer-holding” behavior of

In general, without standardized guidelines and a global

green bond investors compared to non-green bondholders

quality control system, potential buyers of emerging

may provide an important financial advantage to issuers

market green bonds are forced to carry out additional due

during financial shocks. Similarly, from an investor

diligence to safeguard against exposure to greenwashing,

perspective, green bonds may help to preserve the portfolio

thereby raising the transaction costs of buying green bonds.

value by being resilient to market sentiment shifts.17 Issuers

Establishing unified regulatory standards is key to channelingfrom developing countries may face more challenging

more investor capital into emerging market green bonds.

market terms from investors. This highlights the importance,
discussed later in this report, of implementing credible
global standards for green bonds and considering synthetic
securitizations in the context of public-private partnerships.

17

See Ramos, E., 2022, “Green Bond Behavior and Greenium During a shock,” December 13, 2022.

BOX 2.2

Green Bond Issuance Costs: The Case of Municipalities in Latin America
The uptake of green and sustainable bonds at a municipal

the government’s debt management capacity and its

level has been limited in emerging markets, with only

ability to reduce the cost of debt. Therefore, despite$4 billion in cumulative issuance since 2014. In Latin

an investment pipeline that could potentially meet theAmerica in particular, the use of green bonds has beenrequirements to be financed with green bonds, theconstrained by shallow capital markets and regulatory

Mexico City government has stayed away from the bondframeworks addressed at controlling subnational debt.

market since 2019.

Mexico City is one of the few subnational governments
to have issued green bonds, selling three between 2016
and 2019. However, despite high demand, the green bondmarket is yet to scale. While local authorities would like totap this market as early as 2023, they find that the costs
outweigh the benefits.

Colombia’s case is similar, as subnational authorities havealso shied away from green bonds. The city of Bogota
issued a social bond in 2021 , but the experience was
mixed. Despite high demand (presenting a bid-to-coverratio of 1.97), the fact that resources were earmarked forspecific uses led to financial management challenges.

The rates on green bonds have not proven significantly

The disbursement of resources didn’t necessarily coincide

lower than those of regular bonds. Meanwhile,with project pace of execution, leading to resources beingtransaction costs related to external verification andparked for prolonged periods of time. Regular bonds

reporting are significantly greater. Data is not available

or debt represent a more efficient option. Particularly,

on the average greenium in the emerging primary bondbecause the national government only allows regional

markets. In the secondary market, however, the averageauthorities to issue debt to cover cashflow imbalances.

greenium among developing country green bond issues

An alternative is to link the issuance with a portfolio

in 2022 was 6.8 basis points (See Table 2.1). Meanwhile,of projects, rather than a single project, following

additional costs associated with structuring andthe national government’s example with its green

registering green bonds can vary considerably, with somebond issuance in 2021. This, however, requires greater

estimates ranging from $10,000 to $500,000.

structuring and execution capacity.

In the case of Mexico City, subnational debt is regulated

Higher transaction costs, the inflexibility in the use ofby the Financial Discipline Law, which forces governments

green bond proceeds, and more attractive local debt

to always choose the least expensive financing

financing terms have led the city of Bogota to rely mostly

alternative. It has been increasingly difficult for green

on loans, although more recently it has increased its

bonds to pass this test, particularly when comparedissuance of regular bonds.

to loans which offer more competitive terms. In thiscontext, municipalities would need to be allowed to pay
a premium, in the short term, to develop the green bondmarket, in order to benefit from any greenium in thelong run. However, given municipalities’ current fiscal
constraints, this seems unlikely.

Although there is appetite for green bonds from investors,
and certain large municipalities seem to have eligible
projects and interest in financing through green bonds,
these are still not competitive in comparison withlocal debt markets. This is particularly the case given
regulatory frameworks that limit municipalities’ financial

Additional challenges for the Mexican municipal bondmanagement capacity. Given subnational governments’market include the fact that investors in municipal bonds

limited fiscal capacity and lack of incentives to pay theprefer short-term issuances (3–5 years), which are not a

price of developing the green bond market, blended

good fit for financing needs, as the government requires

finance could represent a way to unlock the green bondlonger maturities, which is why it has relied on loans sincemarket and allow it to achieve the required scale for it

2019.

to be a competitive source of financing at the municipal

In addition to greater transaction costs and a lengthierprocess, bonds include a no-prepayment clause, limitinglevel in the medium term.

Page 37

Market Analysis and Outlook

Emerging Market Green Bond Holder
Profile and their Relative Volatility
Detailed data on the holders of green bonds is scarce.
Bloomberg does provide information on bond holders,though it only captures around 20 percent of outstanding
emerging market green bonds. Nevertheless, it shows that
institutional investors hold the bulk of emerging market
green bonds. Within that broad category, investment

16 percent, and insurance companies 6 percent. We
believe, however, that governments (including sovereign
wealth funds) and pension funds are also likely to be major
holders of emerging market green bonds, despite notbeing accounted for in the Bloomberg data set. By region,
Bloomberg’s data suggest the bulk of emerging market
green bond holders reside in the United States and Europe(Ireland, Luxemburg, United Kingdom), with China in
fifth place.

managers account for 78 percent, banks represent

EXHIBIT 2-q

Emerging Market Green Bonds Frequently Fare Better Than
Conventional Securities During Risk-off Episodes
Performance of JPM Green bond index vs EMBI and CEMBI
CEMBI D index (HC Corporate)

EMBI GD index (HC Sov)

JP EM Genie index

390

140

380

135

1000

130

950

125
350
120
340

900

850

115
330
110

320

105

310
300

100
2018

2019

2020

2021

2022

2023

Note: CEMBI D refers to the Corporate Emerging Markets Bond Index Diversified while EMBI GD is the Emerging Markets Bond Index Global Diversified
Source: Bloomberg and authors' calculations

800

750

700

EMBI GD index (HC Sov)

360
JP EM Genie index

CEMBI D index (HC Corporate)

370

1050

EMERGING MARKET GREEN BONDS

While emerging market green bonds are still subject tounderlying country and global risks, they also tend to have

Page 38

Market Outlook

longer-term holders, as opposed to speculative investors

Although 2022 witnessed a fall in GSSS bond issuance

who trade more tactically in response to market conditions.

compared to 2021, this was mainly due to ongoing market

This means that emerging market green bonds often display

fallout from Russia’s invasion of Ukraine and rising interest

lower volatility than conventional debt during times ofrates globally. This decline in emerging market debt issuancemarket stress. This was evident during the 2020 pandemic

was also evident in conventional emerging market debt

year when a number of emerging market debt indiceswith a drop in sovereign debt sales from $182.5 billion in

outperformed conventional bond gauges.

2021 to $97 billion the following year, according to J.P.

Another reason emerging market green bonds frequently
fare better than conventional securities during risk-off
episodes is that they are often issued by borrowers locatedin developing countries that have high credit ratings such as
Chile, Hungary, Poland, and South Korea. A case in point was
the relative performance of emerging market green bonds inthe context of the COVID-19 outbreak in 2020 (SeeExhibit 2-q).
One more variable to consider when looking at emerging
market green bond performance is duration. As it takes
time to complete a green project, green bonds tend to have
longer-dated maturities compared to both emerging market
corporates and high-yield sovereigns. Therefore, at timesof duration sell-offs like in 2022, green bond performanceis negatively impacted as core yields increase. With the Fed
approaching the end of its hiking cycle, we expect pressure
from duration should ease, which is supportive for fixedincome in general, but green bonds in particular.
Finally, a very important driver of allocations towardgreen bonds over the last few years has been regulatory
requirements. This has been especially true for European
investors since the implementation of Sustainable Finance
Disclosure Regulation. This means that investors willcontinue to demand high quality and reliable information on
how green bond proceeds are used.

Morgan data. Country authorities in emerging markets
face difficult choices between sustaining financial stability
and supporting growth in an environment of tighter global
liquidity, increased geopolitical frictions, and slower global
growth. Notwithstanding the continuing headwinds
affecting the broader bond market, GSSS bonds will likely
continue to increase their market share amid rising demand
for sustainable investment. China will remain the mostsignificant contributor to green debt issuance in emerging
markets, but at lower volumes.
In our central scenario, we expect an easing of global
inflationary pressures driven by a global slowdown andweaker credit growth. This, despite China’s widely expectedeconomic rebound, may hinder emerging market fixedincome in 2023 in absolute terms, as risk aversion increases.
Still, emerging market bonds could outperform local equities
as the cumulative rate hikes implemented so far feed throughto the real economy, translating into downward earningsper-share revisions. In this central scenario, GSSS bonds
as a proportion of total issuance will continue to increase.
In a context of slow growth, sovereign issuers, including
sub-sovereigns and agencies, will dominate the market.
When it comes to the fundamentals, we expect emerging
markets excluding China to benefit from being moreadvanced in the tightening cycle and the fight against
inflation relative to developed markets (with Brazil beinga good example in this regard). More modest stimulus
programs during the COVID-19 shock and Europe’s recent
energy crisis will also translate into lighter fiscal headwinds
for emerging economies compared with their developed
counterparts. This should translate into growth as highPage 39

Market Analysis and Outlook

EXHIBIT 2-r

Emerging Market Green Bond Issuance Under Three Global Economic Scenarios
Emerging market and developing economies green bond issuance forecasts for 2023
120,000
Catchup Scenario $111,209
Central Scenario $102,284

100,000

Slowdown Scenario $93,359$ Million

80,00060,00040,00020,000

0
2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Source: Amundi calculations based on CBI, IFC, Environmental Finance, Amundi

as 27 percent in green bond issuance cumulatively overto overall green bond issuance in emerging markets from

2023–2024.

73 percent in 2022 to 68 percent in 2023–2024.

At the same time, we expect green bond issuance to fall

Importantly, our expectations for the full year are consistentaround 7 percent in China during 2023, mostly due towith recent trends. While fixed-income issuance had athe relatively unattractive yields of Chinese local bonds

very strong start to the year (driven by higher yields), it

versus the United States and Europe, and the strength

has since stalled due to uncertainty around a number ofof the country’s post-COVID-19 recovery falling short offactors, including the U.S. Federal Reserve’s terminal rate,

expectations last year. In fact, a relatively high U.S. dollar

ongoing financial stability concerns in developed markets,

funding rate is the main driver of the observed decline

and concerns around the strength of China’s post-COVID-19

in dollar-denominated green bonds in China, as onshore

recovery.

companies can finance themselves at much lower rates inlocal currency. Also, weaker-than-expected growth in China
in 2023 will be due to a combination of COVID-19 restrictions
and a potentially severe correction in the domestic realestate sector. As a result, China will reduce its contribution

As in previous editions of the report, however, we also
run two alternative scenarios. The first of these is a more
optimistic outlook, where a faster-than-expected decline
in inflation is accompanied by an earlier completion of thetightening cycle at a lower terminal rate. In parallel, anEMERGING MARKET GREEN BONDS

Page 40EXHIBIT 2-s

Chinese Green Bond Issuance Under Three Global Economic Scenarios
China green bond growth forecast
80,000Catchup Scenario $75,823
70,000Central Scenario $69,944
Slowdown Scenario $64,065

60,000$ Million

50,00040,00030,00020,00010,000
0
2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Source: Amundi calculations based on CBI, IFC, Environmental Finance, Amundi

earlier-than-expected resolution of Russia’s invasion ofincrease of close to 20 percent, partly due to the relatively

Ukraine reduces uncertainty, eases supply-side pressures,

unattractive yields of Chinese local bonds.

and boosts global trade. In this case, recession is avoided andgrowth returns to its pre-pandemic trend. Financial stability
concerns ease, bond prices recover on the expectationof lower rates, and credit quality stops deteriorating. The
combination of higher risk appetite and rates peaking in the
United States would translate into higher capital flows into
emerging markets, which offer higher growth rates (roughly
3 percentage points on average, according the Amundi
Institute) relative to developed markets. Higher asset prices
and stronger emerging market currencies would result inhigher foreign exchange-adjusted returns. Under these
conditions, we would expect green bond issuance to grow by
close to 40 percent cumulatively in 2023–2024 in emerging
markets excluding China. Including China, we see a smaller

Our pessimistic scenario is defined by a global economic
slump driven primarily by tighter-than-expected financial
conditions. Two potential paths could take us there. On the
one hand, this could be the result of persistent inflationarypressures keeping interest rates high. On the other, this
could also be the result of a credit crunch, with banks rapidly
reducing exposures to assets that will underperform in ahigh-rate environment such as commercial real estate andleveraged loans. Recent events in the financial sector suchas the stresses experienced by U.S. regional banks and therescue of Credit Suisse could also contribute to this scenario.
Either way, tighter financial conditions would weighnegatively on both private consumption and investment,Page 41

ultimately leading to weaker economic growth and a broadbased deterioration in credit quality. This alternative scenario
could be compounded by higher geopolitical tensions aroundUkraine (but also Taiwan) and a further fragmentationof global trade. Higher risk aversion would put additional
upward pressure on borrowing costs as well as downward
pressure on emerging market currencies. Overall, this would
translate into lower capital inflows (or even net outflows)

Market Analysis and Outlook

Asia and the Pacific
China is expected to remain the largest single contributor to
overall green bond issuance in emerging markets over the
next two years. Its weight, however, is expected to fall from73 percent in 2022 to 68 percent in 2023–2024 on the backof weaker-than-expected growth in 2023 and disappointing
yields on China’s onshore bonds.

and lower asset values, particularly when measured in

The China Green Bond Principles released in July 2022 now

foreign currency. In this scenario, we would expect green

require that 100 percent of the money raised through green

bond issuance in emerging markets (including China) to bebonds is directed toward green projects rather than the 50

flat cumulatively over the next two years, with an 11 percent

to 70 percent requirement under the previous guidelines.

decline in 2023 followed by a 12 percent rebound in 2024.

Not all issuers are currently applying these principles,
however, because of fragmentation in the governance ofOpportunities for Green Bond
Market Growth
Issuance patterns reflect the prevailing economic,
environmental and structural issues in individual markets.
As mentioned earlier in this section, uncertainty aroundgeopolitics and the interest rate outlook feed into demand
for green bonds. Political factors shaping sustainablefinance policies and frameworks also play a part, as does
the institutional makeup of individual countries. For many
developing economies, limited capital market depth andunderdeveloped financial infrastructure contribute tokeeping green bond issuance below potential. Later sectionsof this report (See Chapters 3 and 4 in particular) highlightthe importance of sound governance and consistent
regulation for healthy financial markets. These, in turn,

China’s green bond market. In a context of growing concerns
around potential greenwashing, uncertainty over the
proportion of funds effectively allocated to green projects
may further reduce the attractiveness of green bonds issued
in China.
Outside China, the pickup in green and sustainability markets
in Asian countries is likely to be further strengthenedby recent policy efforts. Following the publication of ataxonomy for the region, several countries are in advanced
stages of developing their own guidelines or classification
systems detailing which economic activities qualify forenvironmental or sustainable investment. Indonesia andMalaysia published taxonomies in 2022, while both Thailand
and Vietnam have produced draft frameworks which areclosely aligned with those of regional peers. Efforts toimprove data and information disclosure and reporting

depend on political stability.

frameworks will be key to ensuring these voluntary

Table 2.2 illustrates how individual countries perform acrossin the region. Additionally, Malaysia and Indonesia havethese factors and indicates whether there has been aopportunities to grow Islamic sustainable finance markets

notable change from 2021 to 2022. Some members of thethrough the use of green and social sukuks.

IFC-initiated Sustainable Banking and Finance Network have
not yet issued green bonds. Nevertheless, they demonstratepotential based on their commitment to national sustainablefinance initiatives. Market prospects for each region are
discussed in the remainder of this section.

taxonomies support the development of GSSS markets

In South Asia, Indian policymakers are spurring further
development of the green bond market, which has mostly
been concentrated in issuance by renewable firms. The
government published its sovereign green framework in
October 2022 as well as additional criteria for green bond

EMERGING MARKET GREEN BONDS

Page 42TABLE 2.2

Determinants of Green Bond Market Potential
Volume of
Cumulative
Sustainable
Green Bonds Volume of
Banking andIssued inGreen Bonds Network
2022, $Million Issued in 2012- Score
22, $Billion
Overall

China
Fiji
Indonesia
Lao PDR
Malaysia
Mongolia
Philippines
Samoa
Thailand
VietnamArmenia
Czech Republic
Estonia
Georgia
Hungary
Kazakhstan
Kyrgyz Republic
LatviaLithuania
PolandRomania
RussiaSerbiaSlovenia
Slovakia
TürkiyeUkraineArgentina
Barbados
BrazilChile
Colombia
Costa Rica
Dominican Republic
EcuadorGuatemalaHonduras
MexicoPanamaParaguay
Peru
Uruguay
Egypt
Iraq
JordanLebanonMoroccoTunisia
Saudi Arabia
United Arab Emirates
Bangladesh
India
Nepal
Pakistan
Sri Lanka
Cote d'Ivoire
Ghana
Kenya
Maldives
Namibia
Nigeria
Seychelles
South Africa

67.56

163.9

0.81

3.6

5
3
5
2
1
4
3
1
3

0.04

0.2

4

0.1
7.9
0.2
0.8
6.7

1
1
1
4
1
2
1
1
1
1
1
1
2
1
1
4
3
3
1
4
3
5
3
3
3
1
3
4
3
3
3
1
3
3
3
1
4
2
1
1
4
3
1
3
3
1
3
4
2
1
4
1
4

2.58

8.0

0.25

1.3

0.23

2.8

0.55
0.17
3.31

0.11
0.02
0.58
0.82

0.82
0.11
0.35
3.27
1.36
0.03

0.09

0.3
0.5
7.0
2.8
2.5
1.2
0.1
1.3
1.2
1.0
0.0
9.4
14.1
0.8
0.0
0.2
0.7
2.9
0.3

0.03

1.5
0.4
0.9

0.09

0.1
0.1

3.06
3.18

4.4
5.1

2.17

12.9
0.5
0.0
0.1

0.05

0.2

0.55

2.0

Green Bond Momentum

Green Bond
Issuance in
2022

Capital Market Development

Green Bonds
Issuance
Relative toTotal Debt
Issuance in2018-22, %
3
0
3
0
3
0
3
0
3
5
3
5
3
5
5
0
0
3
3
5
3
3
4
2
4
3
4
3
3
3
5
3
0
1
3
4
0
3
3
0
3
3
3
0
0

GovernanceDomestic
MarketEMBI Spreads, Regulatory
Credit to
Capitalization March 2023
Quality
Private Sector as a % of GDP
as a % of GDP

3
3
0
3
0
3
0
3
5
3
5
3
5
5
1
0
3
3
5
3
3
4
2
4
3
4
3
3
3
5
3

3
0
3
3

1
3
4
0
3
3
0
3
3
3
0
0
5
3
0
3
3

3
0
5
0
2
0
3
0

3
0
5
0
2
0
3
0

3
1
3

3
1
3

Rule of Law
Index

5
5
3
0
5
3
4
1
5
5

5
0
4
0
5
0
5
0
5
5

3
0
4
0
3
3
4
0
0
5

3
3
3
2
4
3
3
3
3
3

3
3
3
2
4
3
2
3
3
3

5
4
4
5
3
3
1
3
3
3
3
4
3
3
4
5
3
0
5
5
5
4
4
3
3
3
4
3
5
4
4
3
3
2
5
0
5
0
0
5
3
4
1
2
0
3
2
3
4
5
2
1
5

1
2
0
1
2
3
0
0
0
3
2
4
0
2
0
3
0
0
5
5
5
3
2
0
0
1
0
3
3
1
4
0
2
0
4
0
5
3
5
5
3
5
0
0
2
2
2
3
0
2
2
0
5

3
3
0
3
0
4
0
0
0
4
3
5
3
0
0
3
1
1
0
3
4
3
3
3
1
3
2
3
3
3
3
4
5
3
3
1
3
1
4
4
0
3
0
1
1
3
1
2
4
3
1
0
3

3
5
5
4
3
3
3
4
5
4
3
2
3
4
4
3
3
2
4
3
4
3
3
3
2
3
2
3
3
3
3
4
2
2
3
2
3
3
3
4
2
3
3
2
3
3
3
3
2
3
2
3
3

3
4
5
3
4
3
3
4
4
3
3
2
3
4
4
3
2
3
3
3
4
3
3
3
3
2
2
2
3
2
2
4
3
2
3
2
3
3
3
4
2
3
3
2
3
2
3
3
3
3
2
3
3

Notes: Countries included are those that are Sustainable Banking and Finance Network (SBFN) members or green bond issuers. Countries are scored from 0 to 5 on eachof the components, with 5 being the highest on a relative basis, according to available data. The SBFN Score is based on the Sustainable Banking and Finance Network
measurement framework assessing national sustainable finance policies. Countries that are not SBFN members are indicated in gray. Sovereign Green Bond Issuance isbased on whether the sovereign has already issued green bonds and whether it has announced plans to do so. Relative Green Bond Issuance measures the share of green
bond issuance relative to total bond issuance from 2017–21. Domestic Credit to Private Sector is based on the percent of gross domestic product and refers to financial
resources provided to the private sector by financial institutions. The data source is the World Bank. Market Capitalization data is based on the percent of GDP and aresourced from the World Bank and World Federation of Exchanges. J.P. Morgan Emerging Market Bond Index spreads are measured in basis points and are from May 2022.
Lower spreads are scored as a 5, while higher spreads are scored as a 1. The Regulatory Quality and Rule of Law Index indicators are sourced from the World Bank.

Page 43

Market Analysis and Outlook

issuers. The landmark issuance of two sovereign green bonds

Chile. Mexico and Peru are also developing frameworks ofin early 2023 raised 160 billion Indian rupees, nearly $2 billion,

their own though they have made less progress than somewhich is likely to foster momentum in the broader domestic

regional peers.

bond market. Elsewhere, Bangladesh’s central bank recently
published its taxonomy, setting out guidelines for eight

Middle East and North Africa

sectors with a particular focus on solar facilities, while Sri

Led by Saudi Arabia and the UAE, the momentum generated

Lanka launched its green framework in May 2022.

Europe and Central Asia

in 2022 for green bond issuance in the Middle East and North
Africa has carried over into the early part of 2023. The Saudi
sovereign wealth fund placed its second bond in February

While the rollout and implementation of EU-level standards

2023, raising $5.5 billion and generating considerable interest

and policies related to GSSS bonds have implications forfrom institutional investors, including from Asia. Financial

global markets, they are particularly significant for issuers

institutions in the UAE have been regular issuers, with Dubai

and investors in EU member and accession countries.

Islamic Bank selling a second sustainable sukuk in early 2023.

Hungary plans to update its green bond framework to alignwith the EU Taxonomy, and Romania is working to finalize
its green bond rules. Issuances in 2022 such as Hungary’s
repeat sovereign panda green bond, as well as an expansionof product offerings to include covered green bond issuanceEgypt has announced plans to issue $500 million in green
bonds within the year to finance water, renewable energy,
and electric mobility.

Sub-Saharan Africa

in Poland, demonstrated the region’s potential to tap a

Although GSSS markets are nascent in Sub-Saharan Africa,

broader investor base by using alternative currencies anddevelopments in 2022 have been encouraging. Signs ofstructures. The region has strong prospects for further

progress include Kenya’s draft green fiscal incentives policy

sovereign issuance in 2023, with Slovenia having alreadyframework which is intended to encourage private sector

issued its second sustainability bond early in the year, Türkiye

investment in green projects. At the COP27 summit, Namibia

issuing a $2.5 billion green sovereign bond in April, andand the EU announced a partnership to develop renewable

Romania indicating it plans to issue a sovereign green bond.

hydrogen supply, which included plans to mobilize funding toLatin America and the Caribbean
Issuance of sustainability and sustainability-linked bonds
continues to be a strong thematic focus in Latin America
and the Caribbean. The landmark issuances of sovereign
sustainability-linked bonds in Chile and Uruguay provided asignificant boost to the broader markets in these countries
which are likely to see further growth. Green bond markets,
however, still have significant potential, as demonstrated
by a deal from a renewable energy firm in Argentina earlyin 2023. Brazil plans to issue a sovereign bond in either agreen or sustainable format later this year. Efforts toward
strengthening market infrastructure continue, with thedevelopment of national taxonomies underway in Brazil andsupport infrastructure needs. Identifying a pipeline of green
assets is essential to the growth of markets in Sub-SaharanAfrica, as is strengthening market infrastructure. Financial
regulators in Ghana unveiled new guidelines for listing
and trading green and sustainable bonds, while Nigeria’s
stock exchange aims to deepen the country’s market forsustainable products.

3
Recent Global Initiatives
and Implications for
Emerging MarketsT

he following section starts by examining thefragmentation of international capital markets. Different

issue of “greenwashing” whereby an issuer

rules in different markets make it difficult to compare them,makes misleading claims about a project’s

which acts as a major hindrance to cross-border investors.

environmental credentials to qualify for sustainable

Furthermore, it also raises the risk of greenwashing byfunds. This is an important problem that is drawing theenabling issuers to choose the least onerous rules whenattention from regulators and investors alike. Failure toseeking to issue debt that is eligible for sustainable

tackle this challenge could make investors increasingly

investment.

reluctant to deploy funds in emerging markets becauseof the heightened reputational and compliance risk thatcomes with greenwashing.

Here we outline efforts to achieve better coordination
between markets, such as a joint initiative between the EU
and China, which should unlock greater potential in GSSS

A related obstacle that international investors face whenmarkets. We also include a box outlining a project by a groupdeciding how to allocate resources to green investments

of international investors to assess sovereign issuers from ain emerging markets, addressed throughout this report, isclimate perspective.

underdeveloped regulatory structures. In particular, multiple
jurisdictions are embarking on initiatives to develop green
finance taxonomies to enshrine best practice and set up
parameters for investment. Another issue is the applicationof developed markets standards to emerging market

Greenwashing, addressing a
legitimate concern

countries, which could put emerging market countries

Growing demand for sustainability-related assets, expanding

in a disadvantageous position as they start from a lower

product offerings, and rapidly changing regulations raisebase than their developed market peers. However, a lack

the risk of unscrupulous issuers misstating the extent toof coordination between countries risks exacerbating thewhich bond proceeds fund environmentally or socially soundPage 45

Recent Global Initiatives and Implications for Emerging Markets

projects, a practice commonly referred to as greenwashing.18

They outlined market participants’ roles in greenwashing,

False or misleading sustainability claims include exaggerating

including acting as trigger, spreader, and receiver of aor obfuscating elements of issuers’ sustainability profile assustainability-related claim. They also spelled out areas on

well as vague, immaterial, or unambitious sustainability

which sustainability-related claims can be made. These

commitments.

include an entity’s governance, sustainability strategy,

Greenwashing can occur at different phases of the green
bond life cycle due to weak monitoring and enforcement aswell as failures in reporting the intended use of proceeds.

objectives, qualifications in relation to a bond’s issuer, theproject it finances or the controls in place, and claims about
metrics based on historical data or future targets.

This brings an additional element of risk to the GSSS bond

Another area the regulators identified concerns themarket that threatens to dissuade ESG investors frommisleading qualities of a sustainability-related claim. This

deploying funds in emerging markets. Solutions to address

can include selective disclosure (cherry-picking positive

these challenges include robust third-party certifications

information), omissions, or vagueness and ambiguity. Finally,

and monitoring, mandatory disclosures, the development

the regulators highlighted the channels through which

and adoption of voluntary guidelines, and harmonizedsustainability-related claims are communicated to othertaxonomies (as detailed in Chapter 4). Improvements

participants, including regulatory documents, ratings andin instrument design could also alleviate greenwashing

benchmarks, project information, and marketing materials.

concerns by ensuring financial penalties are sufficiently large

They also outlined the various stages of the green bond’s life

to motivate issuers, embedding sustainability targets thatcycle where these issues can arise.

are both material and ambitious, and eliminating loopholesthat minimize penalty pay-outs.19 Nevertheless, regulatory
and other reforms aimed at improving transparency andcountering greenwashing must be balanced against the needfor flexibility while containing costs. Failure to achieve thatbalance could be counterproductive and dissuade smaller
issuers.

Regulators are focusing on greenwashing claims
Financial authorities are taking some steps to address this.

These areas offer guidance on minimizing the risk ofgreenwashing and maintaining the integrity of sustainablefinance. There are encouraging signs of progress inaddressing greenwashing across the green finance market.
For example, mandatory disclosure practices related tosustainability are becoming more common in different
regions, while entities are using voluntary guidelines
more. There have also been advances in developing global
guidelines on common definitions and methods.

At the end of 2022, three European supervisory authorities—

Calls for mandatory sustainability

the European Banking Authority, European Insurance

disclosure are getting louder.

and Occupational Pensions Authority, and the European
Securities and Markets Authority—launched a public
consultation, seeking insights on analyzing greenwashingclaims.20

Data disclosure requirements enable investors to price risks
appropriately and develop a sustainable finance sector in
emerging markets. Some countries like India have launched18

See for example, Curtis, Q., Weidemaier, M., and Gulati, M., 2023, “Green Bonds, Empty Promises,” Virginia Public Law and Legal Theory Research Paper, No. 2023-14, February 2023.

19

See Ul Haq, I., and Doumbia, D., 2022, “Structural Loopholes in Sustainability-Linked Bonds,” Policy Research Working Paper, No. 10200, October 2022.

20

European Securities and Markets Authority, 2022, “ESAs Launch Joint Call for Evidence on Greenwashing,” Press Release, November 15, 2022.

EMERGING MARKET GREEN BONDS

new guidelines to make these disclosures mandatory.21
Company disclosures will also lead to an expansion of policy
and research analysis. In the EU, the Corporate Sustainability
Reporting Directive entered into force at the start of 2023
and was set up to ensure that companies report reliable
and comparable sustainability information. In Singapore,climate disclosures are mandatory for financial companies.22
Meanwhile, climate disclosure rules proposed by the
Securities and Exchange Commission in the United States
are still under development.23

Page 46

requirements.
Efforts on sustainable regulatory disclosures and common
guidelines or taxonomies on best practices for green
definitions are indications that the global market ismobilizing to minimize the risk of greenwashing into the
future. The importance of this cannot be overstated. The
prevention and identification of greenwashing must be
clearly defined to ensure issuers and investors redress thisissue. This would be a major step in preventing the green
bond market from suffering reputational damage that

A shift is underway from voluntary to morechokes off flows of much-needed investment in sustainable

formal guidelines on green principles.

projects across emerging markets.

Adherence to the ICMA’s green bond principles can help
strengthen investor confidence in green bond instruments
and support establishing local green bond markets. Whilevoluntary market principles have proven effective in many
areas, formal measures enshrined within regulation could
further support and incite green bond issuers to define clear
objectives and performance indicators while producing clear

Toward Standardization of Taxonomies
To achieve goals set out in the Paris Agreements, significant
resources must be deployed globally to build resilient
economies in light of the challenges posed by climatechange. For renewable energy alone, investments amounting

impact reporting.

to $1 trillion per year are necessary between now and 2030

Developing global sustainability disclosure

International Energy Agency.25

standards will foster integrity in sustainable
markets and avoid fragmentation in global
capital markets and regulatory approaches.
The International Sustainability Standards Board at the IFRSFoundation—a public body overseeing financial reporting
standards—has recently outlined the steps required toestablish a comprehensive global baseline of sustainability
disclosures.24 It intends to serve as a global baseline to
reduce further fragmentation of sustainability disclosure

to reach net zero objectives by 2050, according to theIn emerging markets, adapting to a carbon-neutral global
economy will be especially challenging, given a relative
scarcity of capital compared with developed countries.
Plugging this financing gap will become harder still amid
multiple challenges and economic distortions associatedwith climate change. Governments will face simultaneous
demands to contain energy prices, maintain economic
growth and create jobs, amid ever rising costs from more
frequent extreme weather events associated with climate

21

SEBI has prescribed additional disclosures in offer documents for issuance of green debt securities (including the environmental objectives of the issuance and details of the project where
proceeds are to be deployed), as well as post-listing continuous disclosures in relation to the utilization of the proceeds, details of unallocated proceeds and performance of the project.
Source: https://www.lexology.com/library/detail.aspx?g=954cd74b-bf66-4ec6-a2c3-45cd2fa5c547

22

See https://www.sgx.com/sustainable-finance/sustainability-knowledge-hub

23

Federal Register, 2022. “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” Proposed Rule by the SEC.

24

IFRS, 2022, “ISSB Delivers Proposals That Create Comprehensive Global Baseline of Sustainability Disclosures,” Press Release, March 31, 2022.

25

International Energy Agency, 2021, “Financing Clean Energy Transitions in Emerging and Developing Economies Report.”

Page 47

Recent Global Initiatives and Implications for Emerging Markets

EXHIBIT 3-a

An International Overview
Progress toward sustainable finance taxonomies varies internationallyIn place
High-level guidance in place
Under development
In discussion
Source: FoSDA Workstream on Taxonomies

change. Therefore, ensuring that policy and regulatory
frameworks on sustainable finance are robust will be
critical for mobilizing financial resources and attracting theinvestment needed to close financing shortfalls.

Indonesia, South Africa, and Georgia.
These green taxonomies define environmentally sustainableeconomic activities or investments that can help countries
progress toward meeting targets related to priority

Progress in closing financing gaps in emerging markets

environmental objectives.26 They seek to address the risk ofhas been slow thus far, in large part due to the absence orgreenwashing around corporate and sovereign borrowing

deficiency of public policy on funding economic and energy

while promoting the development of green finance bytransitions. A lack of standardized regulatory frameworks forhelping companies, investors, and policy makers to makesustainable finance is keeping flows of investment capital

better-informed decisions.

below their potential. To address this deficiency, a numberof developing country governments have taken steps since2022 to introduce green classification frameworks, including

26

World Bank, 2020, “Developing a National Green Taxonomy.”

The number of emerging market countries considering
setting up green taxonomies is rising around the world.
Regulatory frameworks are already under development inEMERGING MARKET GREEN BONDS

Page 48

However, this expansion of taxonomies around the world

BOX 3.1

raises issues of comparability, interoperability, and credibility,

Indonesian and South
African Taxonomies

allocate funds in multiple jurisdictions.

a significant problem for potential investors seeking to

For example, Indonesia relies on qualitative assessments

Launched on January 20, 2022 by President Joko

to evaluate economic activities, whereas the EU uses

Widodo, the Indonesian taxonomy is based on thequantitative measures, making the two systems

evaluation of sectors and sub-sectors of the economy

incompatible from international investors’ perspective.

in terms of their impact on the environment andsociety. It introduces a classification system which
divides sectors into three categories. These are:•••Another notable example is the EU’s system for rating
green buildings based on its Energy Performance Certificate
and Near Zero Energy Building definition. Neither of theseGreen: The activity has a positive impact on

are applicable outside Europe, though the EU has recently

the environment and is aligned with national

communicated its intention to standardize these twoenvironmental objectives.

measures globally.

Yellow: The activity does not have a significantly

Part of the problem of comparability relates to the existence

negative impact on the environment but needsof two alternative approaches to establishing national

to adapt for transitional purposes to align withtaxonomies. The first of these, a whitelist-based approach,national environmental objectives.

relies on the identification of projects or economic activities

Red: The activity has a negative impact on theenvironment.

Similarly, South Africa published a Green FinanceTaxonomy in April 2022. This encompasses aclassification system that maps the sectors andactivities that need to contribute to tacklingclimate change and informs companies of areas for
improvement and their associated screening criteria.

that have an environmental or social impact in each sectorof an economy. China, Mongolia, and Russia are among thecountries with taxonomies modeled around this system.
The second method focuses on technical screening criteria
and thresholds which are specific to each economic activity,
without assessing them at the level of technologies or subsectoral activities. Chile, Colombia, the EU, South Africa, andSouth Korea have opted for this approach.

The South African taxonomy initially focuses on

But the existence of more than one model makes

climate change but is expected to be extended tocomparisons between markets difficult for international

other areas such as biodiversity and land use.

investors, undermining the appeal of green finance as an
asset class and contributing to market fragmentation.

the Dominican Republic, Kazakhstan, India, Thailand, and theUAE, while other jurisdictions including Costa Rica, Egypt,
and Mexico, are preparing similar steps.27

Harmonizing taxonomies would
help reduce greenwashing.
Standardization would make it possible to provide acommon definition of the procedures for assessing economic

27

Future of Sustainable Finance Alliance, 2022, “Taxomania! International Overview Update 2022,” accessed on February 26, 2023.

Page 49

Recent Global Initiatives and Implications for Emerging Markets

activities. This would prevent issuers referringto the least onerous standard available to

EXHIBIT 3-b

them, thereby undermining the effectiveness

Building Blocks for Bridging
Climate Data Gapsof climate finance instruments in channeling
capital to areas where it can have a meaningful
impact on sustainability.
In emerging markets, in addition to data gaps
and statistical challenges, the lack of clarity

CONSISTENT METRICS,LABELS AND
METHODOLOGICAL STANDARDS

about which activities and assets can be definedas green has hindered the scaling up of green
finance. The development of harmonized

Development and transparent use of labels andmethodological standards. Work toward a
common set of well-deﬁned anddecision-useful metrics.

classification definitions and methodologicalstandards would help ensure the availability,
comparability, and reliability of climaterelated data (See Exhibit 3-b). To support
environmentally sustainable investments,

Available,
reliable andcomparable data

there is a need to set up a widely accepted
global taxonomy and sustainable finance

TAXONOMIES

classifications.

Eﬀorts toward a minimally
accepted global taxonomy.

The convergence of different taxonomies over

DISCLOSURES

Rapid convergence toward a
common and consistent set ofglobal disclosure standards.

time will be important in ensuring consistency inclimate-related disclosures but will also improvethe comparability of credit ratings acrossmarkets. It is in this spirit that the International
Platform on Sustainable Finance was developed.
Co-developed by the People’s Bank of China
and the European Commission, a comparison

Source: NGFS

between the Chinese and European taxonomies
was established in 2021 and revised in 2022
under the “Common Ground Taxonomy” (CGT).
Other taxonomy standardization processes are currently
being planned or are already under development. The
first version of the ASEAN Taxonomy was published in
November 2021. July 2022 saw the launch of the Working
Group on Sustainable Finance Taxonomies in Latin America
and the Caribbean. More emerging market authorities may
be tempted to turn to the EU Taxonomy as a standard.
However, the European model does have its limitations as an
example for developing countries amid significant differencesin production methods and levels of economic development.

For example, the EU taxonomy includes nuclear energy andnatural gas in its “sustainable investment” category, which
may not be applicable in other countries or regions.
Another issue limiting the applicability of the European
system to emerging markets is its binary assessment of
which economic activities are sustainable and which ones
are not. It does not consider efforts made by companies
toward embarking on a transition. If these initial steps are
not taken into account by local taxonomies, companies
cannot access funding from private firms to finance theirtransition efforts.

EMERGING MARKET GREEN BONDS

Page 50

On top of this, local economic andBOX 3.2

social realities in developing countries

The Common Ground Taxonomy

for emerging market companies thanrequire transitions to be more gradualfor their European counterparts.
Taxonomies should, therefore, take

The CGT aims to help reduce

The CGT was greeted withlocal conditions into account, adapting

transaction costs and facilitate

enthusiasm by market participants assustainable activity thresholds andinternational green capital flows by

well as policy makers. Indeed, Chinese

granting more flexibility to transitional

strengthening market confidence andfinancial institutions welcomed

activities. To this end, the EU

reducing fragmentation. Based on

the ability to label bonds as CGT-

Platform on Sustainable Finance has

the International Standard Industrialaligned. Internationally, the Bank ofrecommended mapping EU Taxonomy

Classification guidelines for the

China branch in Frankfurt issued theactivities, comparing them to well-categorization of sectors, the CGT isfirst-ever green bond aligned withknown industry classifications, in order

designed to promote cross-border

the CGT, a $500 million three-year

to facilitate the alignment of non-EU

economic activity while taking into

senior unsecured fixed -rate offering.

entities.28

consideration national and regional

In addition, Deutsche Bank signed in

specificities. To harmonize the twoJune 2022 the first transaction aligned

taxonomies, when they diverge on

with the CGT, earmarking proceeds

a particular issue, the CGT adopts

to finance Huaneng Leasing’s

whichever criteria are more stringent.

direct leasing for two wind power

The CGT covers 72 activities and six
sectors including:•••

Agriculture, forestry, and fishing
Manufacturing
Electricity, gas, steam, and air
conditioning supply•

To conclude, the challenges faced byvarious emerging market jurisdictions
in establishing their taxonomies are
considerable. Comparability, thedevelopment projects in China.

categorization of activities, and theThere are signs that the CGT is being

just some of the problems faced byexamined in other emerging market

authorities seeking to make theirjurisdictions as a potential model formarkets more attractive to investors.

international alignment of their own

However, addressing these challenges

taxonomies. Indeed, Sri Lanka drewis crucial for strengthening the roleon the CGT as an example whenof private capital in emerging market

developing its system.

climate finance and ensuring the green

subjectivity of classifications are

Water supply, sewage, wastebond market maintains momentum

management, and remediationin these vulnerable economies.

activities

Harmonization of classification•

Construction•

Transportation and storage

systems around the world will be key.
But local conditions will also need tobe considered in order to encourage
effective transitions in emerging
markets.

28

https://finance.ec.europa.eu/system/files/2022-03/
sustainable-finance-taxonomy-nace-alternate-classification-mapping_en.xlsx

BOX 3.3

The ASCOR Project–the first public investor framework to assesssovereign risks1
The Assessing Sovereign Climate-

ASCOR has the principle of fairness

information, so that investors canRelated Opportunities and Risks

at the core of its framework withmore effectively support country(ASCOR) Project, an initiative set

the aim of encouraging financialtransition plans. The framework will

up by a coalition of internationalflows to support a just and resilient

enable scrutiny of country climate

investors, seeks to establish a

low-carbon transition, especiallypolicies both in terms of theircoherent framework for assessing

in countries that are least able tocontribution to mitigating climate

sovereign bond issuers from thefinance it themselves.

change as well as building resilience

perspective of climate change. The
aim is to provide an independentand publicly available tool to help
investors engage with issuers while
giving governments the opportunity
to showcase their progress inaddressing climate change.

1

It sets out a common basis to analyze

to its impact.

individual country approaches andwill reinforce public disclosures tohelp investors understand sovereign
actions and progress. It builds on
existing data but will also further
enable issuers to detail material

The framework is still to be finalized and subject to changes. An updated framework will be published in autumn 2023 based on the feedback received during ASCOR’s
consultation process in Q1 2023.

The Three Pillars of the ASCOR Framework:
PERFORMANCE OF COUNTRY ON MANAGINGLANDSCAPE OF COUNTRY’S

CLIMATE CHANGE

RISKS AND OPPORTUNITIESPILLAR 1:

PILLAR 2:

Emissions pathways

Climate policies•

Emissions trends•

Mitigation•

2030 targets•

Adaptation•

Net zero targets•

Just transition

PILLAR 3:
Opportunities to finance thetransition•

Financing to mitigate•

Financing to adapt•

Financing to harness
opportunities

4
Central Banks,
Financial Technology, and
the Public SectorT

he following section outlines three areas thatwill play a crucial role in deepening capital
markets in emerging markets so that more

funding can be channeled toward financing green
transitions at a lower cost. The first of these relates tocentral banks. Debt markets are shaped by monetary
policy as this has a direct impact on how bonds andloans are priced. Therefore, central banks will play animportant role in energy transitions on account of theirinfluence on international financial markets.
The second segment focuses on how financial technology
companies, commonly known as “fintech,” and blockchainbased solutions can aid domestic resource mobilization forsustainable investments.

Monetary Policy Implications of Climate Change
Climate change and the transition toward cleaner energies
entail significant risks for economic and financial systems.
They also represent a sizeable challenge for central banks
because of their direct impact on macroeconomic andfinancial stability.
Rising prices associated with the cost of green transitions,known as “greenflation,” and the risk of de-anchoring
inflation expectations could result in some central banks
rethinking their monetary policy strategies. As well as their
day-to-day responsibility for ensuring price stability, thecritical nexus of climate change and the financial system
could make it increasingly necessary to incorporate climate
risks into regulatory and supervisory frameworks. These, in

Next, we examine what role public sector actors can playturn, could shape the data disclosure and risk management

in reducing the cost of capital in emerging markets while

practices required by authorities of the financial institutions

increasing the availability of funds for the energy transition.

that they supervise.

In particular, we address how energy transitions in emerging
markets would benefit from using synthetic securitizations—
repackaging risky debt into new securities with the backingof government or multilateral agencies— to attract moreprivate investment into emerging market green bonds.

Furthermore, central banks could actively support thegreening of economies by potentially adapting their lending
operations, collateral frameworks, and asset purchases. This
would present some risks, however. In doing so, central

Page 53

Central Banks, Financial Technology, and the Public Sectorbanks would need to monitor whether active involvement ineconomies, the declining profitability of high-emission

climate policy undermines their independence, leaving them

activities, higher exposure to physical risks, and a broader

open to accusations of stepping beyond their mandates andpreference for greener investments could all cause sharp

thereby weakening their credibility.

selloffs of emerging market assets. To counter these external

Climate-related macroeconomic stabilization
challenges for central banks.
The interactions of climate change and monetary policy
may significantly influence macroeconomic outcomes andrepresent sizeable challenges for central banks. Transition
policy uncertainty, increased volatility, and damage toshocks, central banks would need to act by adapting theirforeign exchange reserve management, for instance, by
shifting to a flexible exchange rate regime to preserve costcompetitiveness.

Greenflation may require central bank action but
also rethinking the monetary policy strategy.

production from climate shocks can destabilize economic

The primary mandate of most (orthodox) central banks is tosystems, forcing central banks to step in and stabilize pricekeep inflation low, stable, and predictable. Climate change

and output fluctuations.

represents a sizeable challenge to central banks because of

Extreme weather and other physical risks linked to climatechange may result in significant output losses, requiringcentral bank action to smooth the economic cycle orspur growth. The challenges are particularly acute forits direct impact on inflation and output. The materializationof climate-related risks could significantly increase pricevolatility over extended periods and potentially de-anchor
inflation expectations.

emerging markets, especially in Africa, where monetary

The materialization of physical risks could trigger similarauthorities typically have fewer financial resources than

dynamics to negative supply shocks, such as the surging

their developed country counterparts, and exposure tofood prices often seen in the wake of floods or droughts.

extreme weather events such as droughts and floods is

These might be difficult to counter with the traditional

greater. Transition policies in advanced economies could alsomonetary policy toolbox, as evidenced by the food andgenerate undesired spillovers to developing countries andenergy price spikes seen after Russia’s invasion of Ukraine.

cause serious balance-of-payment challenges. For example,

Climate-related upheavals will present central bankers

implementing a carbon tax on goods entering the EUwith a complex trade-off between inflation stabilization

would harm the price competitiveness of emerging market

and economic growth.29 While an interest rate hike would

exporters to Europe, particularly in neighboring North Africa.

partially contain supply-driven inflation, it may seriously

After a radical policy shift, such as introducing carbon pricing

restrain credit expansion and weigh on economic activity.

or a carbon tax, lower demand for emerging market exports
and higher export production costs may generate external
imbalances in export-oriented economies.
Climate risks could destabilize external liquidity conditions in

The potential disruptions associated with adapting economicand energy models to climate change, known as transition
risks, also present the possibility of highly persistent negative
supply challenges that are inflationary.30

other ways. The introduction of new regulation in advanced

29

The IMF finds that the output-inflation trade-off will be larger for the central banks of countries where there is a significant delay in implementing climate policies. The longer the transition to clean energy generation is delayed, the greater the costs of inflation and output losses. See Carton, B. and Natal, J-M., 2022, “Further Delaying Climate Policies Will Hurt Economic
Growth,” IMF blog, October 5.

30

See: Schnabel, I., 2022, “A New Age of Energy Inflation, Climateflation, Fossilflation, and Greenflation,” Speech to ECB panel on monetary policy and climate change, ECB, Frankfurt, March
17, 2022.

EMERGING MARKET GREEN BONDS

Page 54

The implementation of a carbon tax in advanced economies

price spiral. By causing higher and more volatile inflation

or a dramatic hike in the global carbon price to align it within the short and medium term, climate change impacts

the true environmental cost of emissions would incentivize

how households and businesses plan for further ahead.

the shift toward clean energies. These transition policies

Government actions could also directly shift inflation

would also raise global fossil fuel prices and increase their

expectations as economic actors respond to announcements

short- to medium-term volatility.31 Central Europeanof new policies and regulations to reduce greenhouse gas

countries with large and fossil fuel-intensive manufacturing

emissions.

sectors within the EU are highly exposed to this type of
inflation risk. The progressive phasing out of fossil fuelsubsidies in developing countries is also a potential trigger
for energy inflation.

Climate risks increase uncertainty around central banks’macroeconomic diagnosis and have significant strategic
implications for their monetary policy. Central banks
measure price stability by a level or range of inflation

Rising energy prices could also arise from strong demand fortargeting that is publicly communicated to anchor inflationmaterials that are central to the expansion of low-carbon

expectations. By impacting different aspects of theirtechnologies, such as copper, lithium, and nickel, given

inflation-targeting framework, climate change may cause

inelastic supply in the near term.32 Indeed, an International

central banks to rethink the design of their monetary policy

Monetary Fund (IMF) study finds that copper, nickel, cobalt,

regimes.34 More precisely, central banks may need to review

and lithium prices could all reach historical peaks and staytheir strategy relative to the measure chosen as the inflation

at elevated levels for as long as a decade.33 These pricetarget, addressing the choice between a target expressedpressures will likely spill over into other material-dependent

as a level or interval, the horizon over which the inflation

sectors and impact wage dynamics. The extent to whichtarget must be reached, and the level of the target itself.

these transition-specific pressures affect different areas andIntegrating these key implications of climate change into

drive up consumer prices remains uncertain and warrants

monetary strategy is currently being discussed among major

future research.

central banks.

Climate change could push central

The implications of climate change forbanks to act against the risk offinancial stability and supervisionde-anchoring inflation expectations.

Climate change may significantly alter financial conditions

Climate-related inflation is most likely to affect food andand endanger the stability of financial systems, a prospect

energy prices in the first instance. Yet, households tend tothat is attracting increased attention from central banks

overestimate the weight of these price rises while forming

and supervisory authorities. In 2017, eight financial andtheir inflation expectations. Therefore, this inflation typemonetary authorities launched The Network of Central

could amplify the second-round effects and trigger a wage-

Banks and Supervisors for Greening the Financial System(NGFS), bringing together 114 central banks, supervisors, and31

In the long term, fossil fuel inflation is likely to progressively give way to relative price adjustments. But while clean energies are expected to become cheaper with easing supply bottlenecks and scale economies, fossil fuel prices may remain elevated in the long term as a result of environmental taxes and regulations.

32

Miller, H., Dikau, S., Svartzman, R., and Dees, S., 2023, “The Stumbling Block in the Race of Our Lives,” Centre for Climate Change Economics and Policy Working Paper 417, London: London School of Economics and Political Science.

33

Boer. L., Pescatori, A., and Stuermer, M., 2021, “Energy Transition Metals,” Working Paper No. 2021/243, IMF.

34

Dees, S., Weber, P-F., “Les consequences du changement climatique pour la politique monetaire,”, Revue d’Economie Financiere, 2020/2 No.138.

Page 55

18 observers.35 Participation is voluntary, and the network’s
purpose is to strengthen and align responses to the Paris
Agreement and to enhance the financial system’s ability to
manage risks and mobilize capital for green and low-carbon
investment.

Central Banks, Financial Technology, and the Public Sector

increasing the risk of sudden price corrections.38
The materialization of greenwashing risk could trigger asudden withdrawal by investors from financial products
perceived to be green, hence generating significant capitaloutflows and selling pressures.39 Any market perception thatCentral banks and financial supervisors are placingsome green bonds might not meet their green aspirations

increasing focus on how climate risks could affect themight cause a cliff-edge effect with abrupt repricing for thefinancial soundness of banks, insurers, and other financial

asset class that could even endanger financial stability.

institutions.36 More frequent and severe climate-induced
natural disasters are likely to translate into higher losses for

The financial sector’s exposure to

insurance companies, trigger sharp drops in property prices,climate risks means data collection, risk

and cause severe deterioration of balance sheets and the

management, and regulation must adapt.

creditworthiness of households and companies.

Risk management frameworks for banks and supervisors

Transitioning to a low-carbon economy may also cause

need to adapt to incorporate the economic and financial

financial losses stemming from stranded capital and lower

impacts of climate risks, which are complex and multi-

future profit prospects from non-green investments.37

dimensional. Financial institutions are exposed to climate-

Sudden changes in climate policies, technology, or market

related financial risks through their relationships withsentiment could undermine the value of financial assets

customers and counterparties. A complete assessmentwith a high carbon footprint. Under a late and disorderlyof their risk exposures would require the disclosure oftransition scenario, the collapse of emission-intensive asset

comprehensive climate-specific data sets with sufficient

prices would be more severe and cause sizeable damage tohistorical depth and granularity, accounting for thefinancial assets and the balance sheets of energy companies

heterogeneity of their portfolios.40

that rely on fossil fuels. These sudden revaluations could
inject fragility into the wider financial system, weakening thefinances of corporations, households, financial institutions,and central banks. They could also alter risk premia andcredit conditions.

Several central banks and supervisory authorities haverecently launched climate stress tests to assess the impact
of climate risks on the financial system and the overall
economy. Stress testing has been traditionally used toevaluate a financial institution’s resilience to economic

Conversely, rapid changes in the price of low-carbon assets

shocks, often through a capital adequacy target. Unlike

may destabilize financial markets if greater demand forstandard stress tests, climate assessments pose additionalsuch investments incentivizes greenwashing. The rush forchallenges regarding data availability and model uncertainty.

green investment could create green asset bubbles while

Without historical precedent on which to build quantitative35

The NGFS is chaired by Ravi Menon, Managing Director of the Monetary Authority of Singapore, and the Banque de France provides the secretariat function.

36

Network for Greening the Financial System, 2021, “Progress Report on the Guide for Supervisors, Technical Document.”

37

Network for Greening the Financial System, 2019, “A Call for Action: Climate Change as a Source of Financial Risk, Report.”

38

Breeden, S., 2022, “Balancing on the Net Zero Tightrope,” Speech at TheCityUK International Conference, April 7, 2022.

39

European Central Bank and European Systemic Risk Board, 2022, “The Macroprudential Challenge of Climate Change Report.”

40

At the request of the Financial Stability Board, since 2017, the Task Force for Climate-related Financial Disclosures (TCFD), has issued recommendations to companies and other organizations to help them improve transparency on the actual and potential impact of climate change on their activities.

EMERGING MARKET GREEN BONDS

Page 56

scenarios, climate scenarios rely on forward-looking data

Another example is the Philippines Financial Sector

and transition reference scenarios published by the NGFS.

Assessment Program41 by the IMF and the World Bank,

Long-term climate socio-economic pathways fundamentally

evaluating the impact of extreme weather events on

differ from the three- to five-year horizons used infinancial stability. The results show that the materialization

standard stress test exercises. Finally, incorporating firm-of physical risk could significantly endanger banks’ capitallevel heterogeneities to capture the impact of the mostadequacy and asset quality under a compound shock

disruptive climate shocks is a sizeable challenge. Banks andscenario such as, for example, a typhoon that follows ainsurers tend to have limited information at their disposal

pandemic.

to understand the current emissions, transition plans, andphysical risk exposure of their customers.

Beyond identifying and measuring climate risks, developing
new supervisory tools, and adapting existing frameworks

Climate stress tests on banks have revealed

will be pivotal for regulators to mitigate climate-related

potential vulnerabilities around capital adequacy

financial risks. Integrating climate risk into capital adequacy

and long-term drags on profitability.

frameworks is a widely discussed avenue among supervisory
authorities.42 Stronger capital rules for climate exposure

In 2021, the Bank of England ran its first climate stresswould increase the banking system’s capacity to withstandtest on the largest U.K. banks and insurers. The exercise

future climate-related losses. In addition, adjusting capital

revealed that while results vary across firms and scenarios,

risk weights in the function of the bank’s climate risk

overall climate-related losses would reach a level equivalent

exposures would incentivize the banking system to support

to 10–15 percent of annual profits. This implies that

low-carbon projects.

climate risks may persist over time on banks’ and insurers’
profitability, leaving them more vulnerable to future shocks.
Firms’ projections suggest that these costs will be lower ifearly, well-ordered action is taken to lessen their climaterisk exposure. Given data limitations, this stress test exercise
will not be used to set capital requirements for banks andinsurers. However, it plays a pivotal role in moving forward
the discussion among central bankers.

A lack of reliable data, the absence of common definitions,and partially developed methodologies for running sensitivity
analyses and stress tests, are the biggest impediments
to fully incorporating climate risks into capital adequacy
requirements. Yet, supervisors should also be mindful ofthe potential unintended consequences of climate-risk
capital buffers. Underestimating the risk associated withgreen assets may lead to under-capitalizing banks andinsurers, making them more vulnerable to shocks. On theother hand, excessively punitive capital requirements forcarbon-intensive financial activities may prove inefficient.
Over-capitalization of financial institutions would reduce
their ability to support the economy through the transition.
Banks and insurers must continue providing finance to morecarbon-intensive sectors in developing countries with high41

International Monetary Fund, 2022, "Philippines, Financial Sector Assessment Program: Technical Note on Bank Stress Test for Climate Change Risks".

42

The work on incorporating a minimum capital (Pillar 1) and bank-specific additional (Pillar 2) capital treatment for climate-related and environmental risks in the prudential framework is
at an early discussion stage. The Bank of England and U.K. banking regulator, the Prudential Regulation Authority, have proposed an "escalating" climate buffer, which is based on a risk
assessment on the materiality of future system-wide transition and the physical risks associated with climate change. Canada’s financial regulator is also considering a new set of capital
buffers to ensure that federally regulated financial institutions can endure an abrupt transition to a green economy.

Page 57

Central Banks, Financial Technology, and the Public Sector

climate exposure and limited financial resources to allow

positive screening, expanding eligibility criteria to incentivize

them to invest in the transition.

banks to lend or capital markets to fund environmentally

How can central banks support thetransition to a low-carbon economy?
Including climate change considerations in monetary policy
actions will require significant changes in central banks’operations. The European Central Bank (ECB) and the Bank

beneficial projects. In 2018, the People’s Bank of China
included green loans and green bonds as eligible collateral.
The National Bank of Hungary started to incentivize green
securities. The ECB has announced that it would include
negative screening, climate-related disclosure requirements,and haircuts into its collateral program beginning in 2026.

of England have been pioneers in initiating the inclusion ofCentral banks could align their balance sheets with Parisclimate-related policies into their operational frameworks.

Agreement objectives through asset purchase programs.

Implementing these policies by a wider selection of central

They can implement green quantitative easing policies bybanks would go hand in hand with resolving underlying datatargeting asset purchases based on climate-related criteria

gaps and establishing a widely accepted green taxonomy.

at the issuer or asset level to support green bond markets

Green central banking initiatives in developing countries are

and increase the share of clean assets in their balance

mostly limited to reporting and disclosure. At the same time,

sheets. The Bank of England has committed to a 25 percent

the People’s Bank of China stands out by introducing green

reduction in its corporate bonds portfolio’s weighted average

instruments into its operational framework.

carbon intensity by 2025, and complete alignment with net

Central banks could put in place green lending initiatives bymaking the interest rate on lending facilities conditional oncommercial banks’ contribution to tackling climate changeor the decarbonization of their business models. Japan andzero by 2050. Since the end of 2022, the ECB has also started
to tilt its corporate bond holdings toward issuers with
better climate performance through the reinvestment ofredemptions.45

China’s central banks have already introduced various credit

These green asset purchases have so far been limited toincentives to boost green projects. The ECB has announced

corporate bonds. Greening public sector asset holdingsthat it might consider green-targeted lending operations inwould prove more challenging. In the case of the ECB,

the future when its policy becomes expansionary again.43

purchases of sovereign bonds are guided by the capital

Monetary authorities could also adjust their collateralframeworks to align with climate objectives and incentivize
asset allocation favoring low-carbon projects.44 They could
apply negative screening, limiting the share of assets issued
by entities with a high-carbon footprint that can be pledged
as collateral by counterparties when they borrow. They could
apply haircuts to corporate and government bonds to better

key, which limits the scope for tilting strategies based on
countries’ carbon intensities. Compared to the size of central
banks’ sovereign bond portfolios, the overall supply of green
sovereign bonds remains insufficient. But more importantly,
a reliable worldwide taxonomy and sovereign rating
framework to assess the alignment of sovereign bonds with
Paris Agreement goals is still lacking.

account for climate-related risks faced by the issuers but also

Overall, the aforementioned options for green central bankto incentivize the issuance of green bonds. Another option is

operations would help incentivize borrowers to improve

43

Schnabel, I., 2023, “Monetary policy tightening and the green transition,” Speech to the international Symposium on Central Bank Independence,” January 10, 2023.

44

Central bank collateral policy defines the type of assets to be pledged to secure central bank credit operations, as well as the risk control measures that apply to them.

45

For now, the ECB follows only a flow-based tilting approach by adjusting its reinvestments of corporate bonds based on a climate score that reflects issuers’ carbon intensity, theirdecarbonization plans and the quality of their climate-related disclosures.

EMERGING MARKET GREEN BONDS

Page 58

their disclosures and reduce their carbon emissions. They

financial resources, extending central banks’ mandates towould also let central banks set a good example to otheraddress climate change may expose them to greater politicalfinancial institutions through their lending, collateral, andpressure that may endanger their autonomy and credibility.

asset purchase practices. Most importantly, these green
operations would benefit central banks by reducing theirbalance sheet exposure to climate risks. In emerging market
economies, central bank green policies will undoubtedly
be instrumental in deepening the green bond market byUsing Technology to Mobilize
Domestic Resources

boosting demand for green financial products and lowering

This sub-section focuses on how financial technology

their yields.

companies, often referred to as fintechs, and blockchain-

What are the risks for central banks?
While climate-related economic and financial considerations
may require central bank policy action, governments should
retain overall control of climate policies. Governments andsupranational entities tend to have a broader range of fiscal
and regulatory tools to foster the low-carbon transition andmitigate physical risk.
Addressing climate-related challenges may require policy
decisions that fall beyond the remit of central banks andfinancial regulators. There is so far no common agreement
among central bankers on how to include climate change intheir monetary policy operations and which boundaries torespect. Central banks’ mandates generally exclude actions
that target specific agents such as firms, households, sectors,
and regions or systemically provide direct financing togovernments to support climate adaptation or mitigation

based solutions—decentralized databases—can aid domestic
resource mobilization for sustainable investments.
We explore how fintechs could complement traditional
capital markets and help mobilize financial resources forsustainable infrastructure investments. We also discuss
existing notable blockchain-based solutions for bonddevelopment, fintech applications in trading, and cases
for mobilizing domestic savings to scale up sustainable
investment. The importance of domestic savings in areas
such as developing infrastructure was highlighted by
the large-scale withdrawal of international capital fromemerging economies’ bond markets in March 2020.46 We
also highlight a comprehensive framework published by
the Asian Development Bank Institute, the Pathfinder
Initiative with the Government of Bangladesh, the Bank forInternational Settlements’ Genesis 2.0: Smart ContractBased Carbon Credits Attached to Green Bonds, and thespending.

World Bank’s CAD Trust.47

Adding the fight against climate change to central banks’

There are various potential uses for blockchain technology

mandates so that they actively undertake green monetary
policy carries risks. Central banks may endanger their

which can improve the implementation of infrastructure
projects by upgrading processes and enhancing transparency

credibility in core activities by making themselves publicly

around record-keeping and revenues.48

accountable in areas where they have limited capability andHowever, questions remain around the political pressuresrisk-assessment accuracy. In developing markets with scarcethat may arise as standards and governance processes are

46

Hofmann, B., Shim, I., & Song Shin, H., 2020, “Emerging Market Economy Exchange Rates and Local Currency Bond Markets Amid the Covid-19 Pandemic,” (BIS Bulletin No. 5). Bank forInternational Settlements.

47

See Chen, Y., & Volz, U., 2022. “Scaling up sustainable investment through blockchain-based project bonds,” Development Policy Review, 40.3

48

Smart contracts are simple programs stored in the blockchain that can be used to automatically exchange coins based on certain conditions.

Page 59

Central Banks, Financial Technology, and the Public Sector

developed. Blockchain-based solutions can certainly address

markets, carbon credits, and innovation in financial

some of the data challenges and increase efficiencies. But

instruments, including green bonds. For example, several

they are not a standalone solution and should not work in a

fintech investment platforms have emerged that enablevacuum.

consumers to screen assets and invest personal funds

How can fintechs be complementary
to conventional capital markets?
New technologies are enabling sustainability solutions

exclusively in green initiatives.

Debt financing has readily embraced
principles around ESG frameworks.

that can help alleviate the negative implications of climate

Emerging fintech lending companies are focusing onchange.49 A growing body of research indicates that green

sustainability and providing dedicated platforms andfintech has the potential to impact the whole value chain

products aimed at addressing ESG objectives for their clients.

of financial services covering consumer-to-consumer,
business-to-consumer, and business-to-business services.50

A separate but related issue is the importance of addressing
concerns like data quality, availability and comparability,

Global investment in green finance, particularly in developing

and asymmetries in information access between investors

economies, requires immediate actions and climate policies,

and other stakeholders. These challenges are especiallywhich must be accompanied by fund flows to address global

relevant in emerging markets. Technology-based solutions

financing gaps. Reducing risks and constraints throughhave the potential to address some of these data

public-private partnerships, with the involvement of entities

challenges. For instance, they can enable a more efficientthat leverage blockchain technology, artificial intelligence,collection of information, while blockchain platforms canand machine learning, can help mobilize domestic andhelp ensure the provenance of ESG certifications. Naturalforeign private sector capital in climate finance.

language processing—using artificial intelligence systems

Public-private partnerships with fintechs can aid thedevelopment of a sustainable finance framework. To
illustrate, Mauritius is one country actively exploring ways tothat allow computers to understand written or spoken
communications— can help to analyze reports and distill
relevant sustainability-related information.52

encourage private actors to cooperate with the public sector

Blockchain-based projects are facilitatingin creating enabling environments and promoting financing

the mobilization of domestic resources

structures such as green bonds. In February 2021, the Bankof Mauritius published its “Guide for the Issue of Sustainable

for sustainable investments.

Bonds,” which followed the creation of the Mauritius Africa

Distributed ledger technologies that underlie blockchains

FinTech Hub, launched by the country’s government inare being leveraged to support climate action by facilitating

October 2018.51

transparent and standardized transactions and enabling

Fintechs can be used in areas such as renewable energy,
harnessing blockchain technology, decentralized electricity

more efficient monitoring and accreditation. Blockchainsare decentralized databases that are effective at storinga registry of money, ownership rights, contracts, goods,

49

Schillebeeck, G., 2021. “Digital Sustainability and its Implications for Finance and Climate Change,” MAS Special Feature A, April 2021, Macroeconomic Review.

50

Puschmann, T., Hoffmann, C. H., and Khmarskyi, V., 2020. “How Green FinTech Can Alleviate the Impact of Climate Change—The Case of Switzerland” Sustainability 12, no. 24: 10691.

51

More information can be found at: https://mauritiusfintech.org/about-mafh/

52

Menon, R. 2021. “What We Need to Do to Make Green Finance Work.” Keynote speech at the Financial Times Investing for Good Asia Digital Conference, Singapore, September 8, 2021.

EMERGING MARKET GREEN BONDS

Page 60

personal information, and transactions. They can provide

technology. IDB promoted the initiative to accelerate the use

a tamper-proof, encrypted, and transparent system forof blockchain technology. It will enable BBVA to roll out its

implementing innovative business solutions. Blockchain-service in Latin America, where access to alternative projectbased methods allow for a direct exchange of information

finance is limited.55

without going through a central server or an authorized
institution. In the conventional bond market, it is difficult

Blockchain technology can makefor multiple stakeholders to monitor the flow of money andtrading green financial assets moreexchange real-time updates on the development status.

efficient in emerging markets.

In contrast, blockchain-based solutions in the green bondmarket could enhance traceability and transparency.

Trading of carbon credits and other green financial
assets has enormous potential to leverage blockchain

Issuers in high-income and emerging

technology, lowering costs and reducing the involvement of

economies are leveraging blockchainintermediaries.

technology for bond development.

Examples of global carbon exchanges include Climate Impact

In February 2023, the Hong Kong government sold its first
digital green bonds, working with the Bank of China, Credit
Agricole, Goldman Sachs, and HSBC. This move will put tothe test Hong Kong’s legal and regulatory framework amid a
broader push into sustainable financing.53 The initiative also
includes a policy component, as Hong Kong will embark on
a three-year training program for financial professionals ongreen and sustainable finance.
Meanwhile, in January 2023, National Australia Bank (NAB)
partnered with agritech start-up Geora to help Australian
farmers report the impact of their sustainability practices.
The project uses blockchain technology to help farmers
with NAB’s Agri Green Loan reporting covenant.54 Geora
will integrate existing sustainability data into blockchain
to create a standard record of environmental impact andemission reduction efforts, adding a layer of transparency to
the Agri Green Loan book.
In July 2022, Bolsas y Mercados Españoles, throughIberclear, BBVA, and the Inter-American Development
Bank (IDB), completed the first bond issuance in Spain

X and Aircarbon, both headquartered in Singapore. Climate
Impact X is a marketplace for carbon credits established by
DBS bank, Standard Chartered Bank, Temasek, and Singapore
Exchange Limited. It enables the trading of carbon credits
created from projects involved in protecting and restoring
natural ecosystems, with portfolios connected to several
recognized forest conservation and restoration projects in
Africa, Asia, and Central and South America.
Similarly, Aircarbon is built on blockchain technology andbundles carbon credits from various projects into a single
instrument that can then be traded on its digital platform.
Bundling projects can promote a more standardized carbon
credit economy and enable larger-scale trading.

Public sector and non-governmental organizations
are exploring the potential of blockchainbased solutions for several applications.
This segment explores ways in which domestic savings
could be mobilized through fintech solutions to scale up
sustainable investment.

listed in a regulated market and registered using blockchain

53

Bloomberg News, February 15, 2023. “Hong Kong Hires Banks for Debut Digital Green Bond Sale.”54

National Australia Bank, 2023, “NAB Helps Farmers Report on Sustainability of Agri Green Loans Using Blockchain.”

55

Inter-American Development Bank, 2022, “BME, BBVA, and IDB Issue Spain’s First Blockchain-Based Regulated Bonds,” Press Release, July 26, 2022.

Page 61

Central Banks, Financial Technology, and the Public Sector

One comprehensive proposal published by the Asian

Overall, this framework could be adjusted to fit different

Development Bank Institute56 proposes a blockchain-based

projects that mobilize domestic resources for sustainable

solution that integrates multiple fintech applications toinvestments in emerging markets, improving efficiency andmobilize domestic financing for sustainable infrastructuretransparency. The framework approach has the potential toinvestment. The approach uses a public-private partnershipprovide opportunities to purchase local-currency assets to amodel enhanced by including local residents and potentiallybroad range of investors with varying amounts of money tointernational development agencies. The proposal, which

deploy. It can also help issuers such as municipalities to raiseis described below, addresses the three key phases offunds for sustainable infrastructure investment.

an infrastructure project’s life cycle from inception andfundraising to realization and to its operational phase.

The Pathfinder Initiative with the government of Bangladesh
is exploring how to use this framework to mobilize domestic

In the inception and fundraising phase, blockchain integrates

savings for sustainable infrastructure investment. The

with the crowdfunding fintech solution to mobilize domestic

initiative has support from the United Nations Development

savings for investment in the domestic local-currency bond

Program, the United Nations Democracy Fund, and the UN

market. In this case, the ledger records the ownership

Secretary General’s Taskforce on Digital Financing of thestructure to ensure customers’ rights. Existing fintech

Sustainable Development Goals. It aims to reduce the needapplications, such as M-Akiba, a retail infrastructure bondfor international borrowing and uses blockchain-based

issued by the government of Kenya, which seeks to enhancesolutions to enforce accountability for the funds, the returns,

financial inclusion for economic development,57 could be

and the dividends from infrastructure investment.

used to mobilize local savings for the domestic bond market
allowing smaller-sized investments through mobile phones.
Additionally, applying smart contracts can help reduce theasymmetry of information.

Project Genesis is a pilot project from the Bank forInternational Settlements Innovation Hub’s Hong Kong
Centre, exploring ways to make investing in green bonds
more attractive. To this end, it is developing a new

In the realization phase, stakeholders would be able toframework for green bonds using blockchain and digital

trace the use of proceeds and the construction status

tokenization to help investors who purchase climate-relatedtransparently. One of the main issues in several emerging

bonds track carbon credits in real time.

market economies has been dealing with corruption andthe potential misuse of funds. By using blockchain to record
information, investors can better understand the project’s
status and exchange information in real time. Here, smart
contracts are once again leveraged to automate theinterest rate and return. Finally, in the operational phase,recording operational data through blockchain can allow fortransparency on project revenue streams and minimize therisk to investors of being exposed to corruption.

The main concept of the product is a mitigation outcome
interest, which would take the form of a warrant attachedto the green bond that entitles the holder to receive carbon
credits generated by the reduction of greenhouse gas
emissions achieved by projects financed by the debt. The
warrant and green bond would be traced separately, and themitigation outcome interest warrant holder will receive thecredits generated by the green bond. Blockchain would be
used to keep track of the warrant ownership and verify thecredits generated by the green bond project. Two prototypes

56

Chen, Y. and Volz, U., 2021, “Scaling Up Sustainable Investment Through Blockchain-Based Project Bonds,” ADBI Working Paper Series, No. 1247, April 2021.

57

M-Akiba is administered through the Central Bank of Kenya in collaboration with: Nairobi Securities Exchange, Central Depository Settlement Corporation, Mobile Network Operators,
and the Kenya Association of Stock Brokers & Investment Banks. The money raised from the bond will be used for funding government infrastructure development projects.

EMERGING MARKET GREEN BONDS

Page 62

were developed to track, deliver, and transfer digitized

all sectors, it is particularly important for climate-related

mitigation outcome interests using blockchain, smart

adaptation and mitigation projects, given the amount ofcontracts, and other related technologies.

capital required to hit targets—as much as $4.55 trillion

Climate Action Data Trust is an open-source metadata
system that uses distributed ledger technology that “links,
aggregates, and harmonizes all major carbon registry data
to enhance transparent accounting in line with Article 6 of
the Paris Agreement.”58 It was established by a joint initiative
between the World Bank Group, the International Emissions
Trading Association, and the government of Singapore. It
aims to create a decentralized record of carbon market
activity to avoid double counting, increase trust in carbon
credit data, and build confidence in carbon markets.
The examples discussed in this section show how
blockchain-based solutions can improve the implementationof infrastructure and other projects by upgrading processes
and enhancing transparency. However, for initiatives tosucceed in channeling more capital to sustainable projects,
there is also a need for effective public-private partnerships,
wider frameworks, and robust standards for governance.
Blockchain-based solutions can make a fundamental
difference in addressing data challenges, increasing efficiency
and promoting transparency. Nevertheless, this type oftechnology and the involvement of fintechs should be
regarded as complements to effective capital markets rather
than a standalone solution.

globally, on average, for the remainder of this decade, under
BNEF’s Net Zero Scenario. Other factors to consider include
the typically long-term nature of the projects, many of which
are focused on infrastructure, and the urgency of limiting
global warming to the Paris Agreement target of 1.5 degrees
Celsius above pre-industrial levels. Furthermore, the need forinvestment is particularly acute in emerging markets, where
public funding is scarcer and capital markets less liquid thanin developed economies. While they account for two-thirdsof the global population, emerging markets receive just onefifth of global clean energy investments.60
The small number of dedicated emerging market green bondinvestment funds further illustrates this. From its inception
in 2018 until 2021, Amundi’s EGO fund, which is targeting$1.5 billion in assets under management, stood alone. Morerecently, four other dedicated funds have emerged. Amundi
set up a second vehicle, BEST, seeking to raise $1 billion, in
partnership with IFC. Meanwhile, HSBC launched the REGIO
fund, which raised $538 million in assets in March 2021, with
IFC as an anchor investor alongside HSBC. Additionally,
BlackRock set up the BGF fund, with a more modest$56 million, while and Germany’s KfW launched LAGreen,
aiming to raise $500 million from investors by 2024. This is
the first fund dedicated to green bonds in Latin America andis supported by the EU, the German government, Finance in

Public-Private Partnerships: Reducing
the Cost of Capital

Motion, and Santander Asset Management.61
A commonly used measure of funding costs for a project isthe weighted average cost of capital (WACC). This comprises

A structural challenge in emerging markets is the high cost

the average cost of equity (COE) and the cost of debt (COD)of capital for investing in projects compared with developed

for a project, weighted according to the proportion of eacheconomies.59 While this is an issue that is common acrossin a project’s capital structure.

58

See https://climateactiondata.org/

59

See International Energy Agency, 2021, “The Cost of Capital in Clean Energy Transitions Report.”

60

International Energy Agency, 2022, “World Energy Investment 2022.”

61

See Environmental Finance, 2021, “Green Bond Funds: Impact Reporting Practices.”Page 63

Central Banks, Financial Technology, and the Public Sector

The higher WACC of projects in emerging markets isrisk retention “skin in the game” rules. Because of selling a

explained by a higher risk-free rate and a higher country

controlling stake in the equity tranche, participating banksrisk premium compared with investments in developed

could deconsolidate their non-performing loans.

countries.62 In practice, however, the actual WACC ofan emerging market project is even higher, as the lower
capacity to tap the debt market in developing economies
skews the capital structure of projects toward equity.
A higher equity weight in the project’s capital structure
pushes the WACC higher.

Synthetic Securitizations
Synthetic securitizations involving some public-sector

Some of the key investors in the junior and mezzanine
tranches were granted servicing rights over the overall
non-performing loan portfolio, with a performance-based
remuneration structure. This helped align the interests ofthese investors with those of all other stakeholders, including
the banks themselves, their shareholders, and the Italian
government. It also provided them with a potential upsidethat improved the risk-reward profile of their investment.

protection have been widely used for making high-risk

Crucially, apart from the seeing their ratios of non-assets attractive to institutional investors. They were at

performing loans as a proportion of total loans fall, the key

the core of successful programs, such as Italy’s GACS andadvantage for Italian banks was that they were effectively

Greece’s HAPS, to sell on non-performing loans that were

swapping bad debt with high risk-weighted assets, for seniorweighing down the balance sheets of southern European

notes with no risk-weighted assets attached. This allowedbanks in the wake of a regional financial crisis that emerged

them to free some capital to strengthen their capital ratios

as an aftershock from the global storm of 2008 to 2009.63

while increasing the appeal of their non-performing loans,

The Italian GACS (Garanzia Sulla Cartolarizzazionedelle Sofferenze or Non-Performing Loan Securitization

thereby making it possible to sell the junior and mezzanine
tranches to private investors.

Guarantee) program involved government guarantees,

The HAPS (Hercules Asset Protection Scheme), introduced

issued for a fee, on a securitization transaction whereby the Greek government in 2019, was similar to the GACS

non-performing loans comprised the underlying asset.

scheme. The key difference was that with HAPS, the senior

Operationally, local banks transferred their bad loans to anotes could not qualify for an investment-grade rating due

Special Purpose Vehicle that then issued notes (i.e., asset-

to the sub-investment-grade score of their guarantor, thebacked securities) across three tranches—junior, mezzanine,

Greek government. However, an exception was made underand senior— each carrying distinct levels of risk.

Europe’s Single Supervisory Mechanism so that the notes

GACS served to protect the senior tranche, enabling an

also carried a zero-risk weight.

investment-grade rating that put the securities on a par

These two programs, which would not have been possible

with Italy’s sovereign rating at the time. Senior notes

without government backing, enabled banks to offload

were retained by the banks themselves, while the juniorlarge portfolios of risky assets. In practice, they reduced theand mezzanine tranches were sold to private—generally

effective WACC of non-performing loan portfolios by letting

private equity—investors, though the banks did hold on to

the government absorb part of the risk while optimizing risk

a 5 percent vertical slice in both tranches to comply withallocation for investors.

62

For an illustrative breakdown of risks that explain country-by-country variations in the levelized cost of electricityfor a given clean energy project, see: International Energy Agency (IEA),
2022, “Cost of Capital Observatory: Tools and Analysis.”63

For a review of NPL securitizations and related governmental guarantee programs in Europe, see: Deloitte, 2020, “NPL Securitizations and Related Governmental Guarantee Schemes in
Europe Report.”

EMERGING MARKET GREEN BONDS

Page 64

Beyond non-performing loans, synthetic securitizations are

From a financial viewpoint, there are similarities between

also beginning to be used to manage other types of risk,both cases. They both involve a need to improve the risk-

including that associated with emerging market assets.

reward profile of a risky underlying asset to a level that

Amundi’s EGO fund, the first-ever dedicated emerging

unlocks significant private-sector investment inflows, while

market green bond fund, offers a relevant example. EGO

minimizing public-sector involvement because of limited

invests in green bonds issued by emerging market banks

fiscal resources.

and then pools the debt before dividing it into threetranches. The junior and mezzanine tranches, amounting
to 10 percent of the total debt, are sold to international
financial institutions, while the senior tranche goes to private
investors. This implies a multiplier effect of up to 10 times.
Placing the riskiest portion among development financeinstitutions improves the risk-reward profile of the seniortranche via credit enhancement. Indeed, because of this, thetranche’s credit rating is elevated by two notches, from afrom BB+ “junk” rating to an investment grade BBB+.
The result is that, out of the five existing emerging market
green bond funds, EGO is not just the largest, with $1.4 billion
in assets at the end of 2022, but also sets an example ofpartnering with international financial institutions in waysthat attract more private finance into emerging market
projects.64

The energy transition in emerging markets and theassociated potential for green bond issuance would benefit
from using synthetic securitizations to mobilize developed
market investors.
We suggest five conditions are necessary to maximize thechances of success for large-scale synthetic securitizations.
The first is increased involvement by international financial
institutions, either as guarantors for the senior tranche or as
anchor investors in the junior and/or mezzanine tranches.
Backstops by local governments are, at least in theory, apotentially effective tool to reduce a project’s WACC. But
government guarantees may not work as well in emerging
markets as in the Italian case due to lower sovereign credit
ratings and higher risk perceptions among investors. Also,just as the market prices for the higher riskiness of emerging
versus developed markets, via both a higher risk-free rate

Gaining scale to support theand a higher, non-zero country risk premium, the market

transition in emerging markets

will also assign a lower value to guarantees granted by a

The last United Nations COP27 climate summit saw an

potential of an emerging market government will be lower

agreement on the setting up of a “loss and damage” fund forthan that of a developed country government. For thisdeveloping economies. The next meeting, COP28 which isreason, more involvement by multilateral development

scheduled for late 2023, is expected to yield details around

finance institutions may be necessary, sponsoring more

its size—potentially up to $100 billion per year, as agreed infunds and increasing their stakes in those vehicles.

2009 at COP15—how it will be funded, and its functioning.

developing country government. That is, the mitigation

These institutions’ participation can be either remunerated

In the context of such negotiations, it is worth exploring theguarantees on senior tranches—as with the GACS and HAPS

virtues of synthetic securitization on a large scale to improve

programs—or direct investments in the junior or mezzanine

the risk-reward profile of projects in emerging markets,

tranches, similar to the EGO Fund. This seems feasible, as thereplicating how these structures were used to address

use of equity by international institutions remains extremely

the problem of non-performing loans in southern Europe.

limited, at about 1.8 percent of their total commitments to64

Bolton, P., Musca, X., and Damama, F., 2020, “Global Public-Private Investment Partnerships: A Financing Innovation with Positive Social Impact,” Journal of Applied Corporate Finance,
Volume 32, Issue 2.

Page 65

Central Banks, Financial Technology, and the Public Sector

private climate finance in emerging markets at the end

Fifth, in order to ensure synthetic securitizations serveof 2020.65

the purpose discussed in the report and do not create any

Second, anchor investors in the junior or mezzanine
tranches, whether they are multilateral institutions or
specialized asset managers, should be allowed to participate

systemic risks, there should be restrictions on the originateto-distribute business model via adequate bank supervisionand credible reporting standards.

in managing the Special Purpose Vehicle containing the risky
assets for a claim against all or part of the management
fees. This would improve the risk-reward profile of theirinvestment while aligning their incentives with those of allother stakeholders, as was the case with the GACS and HAPS
programs, where a key investor in the junior or mezzanine
tranche was also the servicer of the non-performing loan
portfolio.
Third, securitization should be conducted at the bank, rather
than at the investor level, to increase emerging market
banks’ capacity for further green debt origination. In otherwords, it would allow local lenders to finance more green
projects and then sell them via the issuance of green notes,
or asset-based securities, to private investors in the capital
markets.
Fourth, deals should allow for local currency-denominatedassets. Denominating a project’s revenues in hard currency
may make sense from a risk management perspective, but it
has major implications from a policy viewpoint. In particular,
it may limit the size of the overall market being addressed.
Around 70 percent of all green bonds issued in 2022 weredenominated in local currency. It may also incentivize
local issuance denominated in hard currency, potentially
increasing the risk of currency mismatches for sponsors incase of sharp foreign exchange market moves, raising thepotential for financial instability. At the same time, however,
local currency-denominated projects will carry a higher
WACC, due to foreign exchange risk, which will impact thecalibration of the size of the junior and mezzanine tranchesof a synthetic securitization.

65

International Monetary Fund, 2022, “Scaling Up Private Climate Finance in Emerging Market and Developing Economies: Challenges and Opportunities,” Chapter 2 of the Global Financial Stability Report (GFSR), October 2022.

5Case Studies on
Specific Emerging Market
Countries
BRAZIL:The new government is planning
to return to the international capital
markets with a bond offering to help
address environmental concerns.

biomes. Farmers have also been told they must revitalize

The victory of Luiz Inácio Lula da Silva in Brazil’s presidential

year between 2015 and 2018, to 11,400 square kilometers

election in October 2022 is expected to give a boost to

per year from 2019 to 2022 (See Exhibit 5-a). This was athe country’s environmental agenda. Lula’s plans include

significant setback to global efforts to promote sustainability.

granting a new protected status to half a million squareBrazil is influential on the global environmental stage, on

kilometers (193,000 square miles) of Amazon rainforest,

account of the fact that more than 46 percent of its territorysubsidies for sustainable farming, and introducing fiscal

is covered in rainforest. The country also claims some of the

incentives–via a reform of Brazil’s tax code–for the energy

world’s highest levels of biodiversity.66

transition.

degraded land if they want to plant more crops. Thisbalance will have to be weighed against the microeconomic
challenges that local people will face as second-round effects
of any newly enacted policies.
The rate of deforestation in the Amazon region surged
59 percent from an average of 7,500 square kilometers per

The Amazon rainforest plays an important role in absorbing

The new government has set a goal of halting deforestation

carbon dioxide from the atmosphere. Indeed, if all the CO2

by 2030 and stated a willingness to use the power of thestored in the region were released, it would equate tostate to prevent further invasions of protected lands androughly 730 billion tons, equivalent to 20 years of global

66

Rainforest Foundation US, 2022, Brazil, Viewed January 31, 2023, https://rainforestfoundation.org/our-work/where-we-work/brazil

Page 67

Case Studies on Specific Emerging Market Countries

EXHIBIT 5-a

Brazil’s New Government Aims to Halt Deforestation
After Recent Increases
Deforested area in the Amazon rainforest in Brazil
30

28

1,000 km2 per year

25
20

13

15
10
5

2022F

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Source: Instituto Nacional de Pesquisas Espaciais, IFC

emissions at current rates.67
Conservation in the Amazon and other environmental goals
will require funds, a major challenge given Brazil’s fiscal
rules leave it little room for maneuver in terms of securing
bigger environmental budgets. Germany and Norway haveforeign donations destined for the environmental agenda,
from a constitutionally mandated spending cap. Importantly,
the country’s Public Debt Operations office is planning toreturn to the international capital markets with a bondoffering to help address environmental concerns.68

both signaled that they will restart donations to the Amazon

One option for Brazil’s government is to sell a sustainability-

Fund, an essential tool in combating deforestation. Further

linked bond, where the interest it pays creditors hinges on

options under discussion to ease the burden on public

whether the country protects the rainforest. As mentioned

budgets include the exclusion of certain expenses, including

elsewhere in this report, two of Brazil’s Latin American peers,

67

Nobre, C., Sampiao, G., and Borna, L., 2015, “Land Use and Climate Change Risks in the Amazon and the Need of a Novel Sustainable Development Paradigm,” PNAS, https://www.pnas.
org/doi/10.1073/pnas.1605516113

68

Reuters, 2023, “Brazil Says Plans Green Bond Sale This Year,” January 25, 2023, Viewed January 26, 2023, https://www.reuters.com/business/environment/brazil-looks-forward-environmental-bond-sale-debt-head-2023-01-26/

EMERGING MARKET GREEN BONDS

Page 68

EXHIBIT 5-b

A Sovereign GSSS Bond Issue Could Prompt Brazil’s
Corporates to Follow
Brazilian green and sustainability-linked bond issuance versus other emerging markets

3530$ Billion

25

Emerging Markets excuding China andBrazil Green Bonds

20
15

Emerging Markets excluding China and Brazil
Sustainability-Linked Bonds

10
5

Brazil Green Bonds
Brazil Sustainability-Linked Bonds

0
2017

2018

2019

2020

2021

2022

Source: CBI, Bloomberg, IFC

Chile and Uruguay, have already made use of this type of

A sovereign sustainability-linked or green bond from Brazil

instrument. Market participants led by NatWest Bank, havewould also help revive the broader Brazilian GSSS market.

proposed the idea of a $10 billion sustainability-linked bondBrazilian corporations only accounted for 11 percent ofto help Brazil reclaim leadership on the climate front.69

total emerging market issuance of sustainability-linked

Challenges Brazil will face include ensuring a strong
governance framework to align with investors and to set
targets and a baseline that complement existing efforts tobonds, down from 40 percent. Meanwhile, Brazil’s shareof emerging market green debt issuance increased from
5 percent to 12 percent (See Exhibit 5-b).

reduce deforestation. Additional areas for consideration will
be around social safeguarding and ensuring that the rights ofindigenous peoples are respected, a key concern for the new
government.

69

Reuters, December 19, 2022, “Bank Floats $10 bln Brazilian Bond Plan to Halt Amazon Deforestation,” Accessed December 19, 2022, https://www.reuters.com/markets/rates-bonds/
bank-floats-10-bln-brazilian-bond-plan-halt-amazon-deforestation-2022-12-19/

Page 69

URUGUAY:
A two-way coupon structure for asustainability-linked bond
In September 2022, Uruguay published its first sovereign
sustainability-linked bond framework ahead of a planned
issuance of new debt. This makes the bond’s interest

Case Studies on Specific Emerging Market Countries

EXHIBIT 5-c

The Terms of Uruguay’s
Sustainability-Linked BondKEY PERFORMANCE INDICATOR 1

payment conditional on the country meeting environmental

Reduction of aggregate gross GHG emissions

objectives and the achievement of climate and nature-based(in CO2 equivalent) per real GDP unit withgoals aligned with the Paris Agreements. The Inter-American

respect to reference year 1990 (in %)Development Bank and the United Nations Development
Nationally Determined Contributions

Programme provided technical support for the issuance.
The most differentiating feature of the 10-year dollardenominated bond is that there are two key performance(NDCs) commitment: Achieve at
SPT1.1emissions intensity by 2025 from 1990

indicators: reduction of greenhouse gas emissions intensity

reference year.

as a share of GDP and the maintenance of native forest area.

Outperformance compared to NDC

The coupon will step up by 15 basis points if either of thetargets is not met. For the coupon to step down 15 basis
points, however, the country will need to exceed the targets

least 50 percent reduction in GHG

SPTI 1.2

commitment: Achieve more than
52 percent reduction in GHG emissions
intensity by 2025 from 1990 reference year.

by twice as much as the levels set for the penalty.
Meanwhile, Uruguay exceeded United Nations reporting
requirements on providing greenhouse gas emissions data
under the Paris Agreement. For the second performancetarget, Uruguay will commit to carrying out satellite
mapping of its native forest area every four years up to 2033.

KEY PERFORMANCE INDICATOR 2
Maintenance of native forest area (in hectares)
with respect to reference year 2012 (in %)From the investors’ perspective, the step-down risked
NDC commitment: Maintain at least

lessening the bond’s appeal to so-called buy-and-holdinvestors if they perceive the coupon as likely to revise lower

SPT2.1100 percent of the native forest area
compared to reference year 2012.

during the debt’s duration.
In the event, however, the bond met considerable demand

Outperformance compared to NDC

and led to many investors allocating capital to Uruguay forthe first time. This suggests that ambitious, but credible,
sustainability targets are appealing to global investors
seeking to deploy funds in assets that meet environmental

SPTI 2.2

commitment: Achieve an increase higher
than 3 percent of the native forest area
compared to reference year 2012.

or social criteria. Furthermore, the success of the deal may
encourage subsequent use of the structure by other issuers
both within Uruguay as well as across the broader region,
boosting the liquidity of sustainability-linked bonds as an
emerging market asset class.

Source: FoSDA Workstream on Taxonomies

EMERGING MARKET GREEN BONDS

INDONESIA:
Leader in Green Sukuk issuance andClimate Budget Tagging
Since 2018 when Indonesia issued the world’s first sovereign
green sukuk, a bond-like instrument that adheres to Islamic
law, the country’s government has continued to develop
the market. Proceeds from the sukuk have been allocatedtoward projects in renewable energy, energy efficiency,
sustainable transport, waste management, and resilience toclimate change.
What makes Indonesia’s climate finance initiatives ambitious
is its Climate Budget Tagging mechanism, which enables the
tracking and evaluation of climate-related expenditure fromthe national budget system. Indonesia is the first country in
the world to have adopted this new climate finance tracking
system which is based on recommendations from the United
Nations Development Programme and United Nations
Environment Programme.
Budget Tagging has proved an effective mechanism forpreventing greenwashing and ensures financing is directed
to areas of the economy where it is needed. It should also
help with the government’s commitment to climate financeeven at times of regime change.

Page 70

Page 71

Annex

Annex
Annual Emerging Market Green Bond Issuanceby Market Segment

This analysis uses data consolidated from Bloomberg,

maturity of over one year to capture better bonds issued

the Climate Bonds Initiative, and Environmental Finance,

to fund medium- to long-term projects. It also includes

according to the bond definitions in Box 1.1 (Section 1) of

eligible bonds, as per the definitions of Box 1.1., issued by

the report. A complete data set showing issuance volumes

supranational entities.

per region, in billions of U.S. dollars from 2012 to 2022 canbe found in the table below. According to Bloomberg’s
methodology, bonds are associated with the issuer’s countryof risk, which comprises four factors: management location,
the security’s country of primary listing, the country ofrevenue, and the issuer’s reporting currency. Categorizing
a country as an emerging market aligns with criteria usedby the Amundi Planet Emerging Green One fund. This list
is made up of IFC members, including countries eligible toreceive International Development Association resourcesand official development assistance, as defined by theOrganization for Economic Cooperation and Development’s
Development Assistance Committee. Although Russia is
not included in the fund’s investment universe, it is includedin this data set. Bonds issued in China that do not meetinternational norms or standards as defined by the Climate
Bonds Initiative are excluded from the data set. Unlike
previous editions, this report only includes bonds with a

Finally, we acknowledge there is only a brief mention of“transition bonds” in the report (in Box 1.1). While we do takethem into account, when calculating GSSS issuance, we also
flag their small scale, with their contribution to overall GSSS
issuance being under 0.5 percent of the total in 2022. This
does not negate the fact that these instruments may havean important role to play in financing transitions to greener
practices in hard-to-change sectors, as well as in aligning
heavy industry with global net-zero efforts. Specifically,
we highlight increasing issuance of transition bonds inJapan, where the Ministry of Economy, Trade, and Industry
published Basic Guidelines on Climate Transition Finance,
leading to a significant uptake of transition bonds in 2022.
In this regard, we also emphasize the importance of othernations adopting similar frameworks to endorse credible
transition financing and drive market transformation.

GSSS Issuance Volumes per Region, in Billions of U.S. Dollars, 2012–2022
Change between 2021 Total Issuance 2012-22

Green

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

East Asia and the Paciﬁc (excluding China)

0.0

0.0

0.0

1.2

1.8

5.2

3.4

6.6

4.3

9.1

6.1

-33%

37.7

Europe and Central Asia

0.0

0.0

0.0

0.1

0.8

0.5

1.7

4.4

6.6

14.8

6.5

-56%

35.4
38.4

and 2022

in US$bn

Latin America and the Caribbean

0.0

0.0

0.2

1.1

1.6

4.2

1.3

5.8

9.0

10.1

5.1

-49%

Middle East and North Africa

0.0

0.0

0.0

0.0

0.2

0.7

0.1

1.3

2.1

0.7

7.2

932%

12.4

Sub-Saharan Africa

0.0

0.0

0.0

1.3

15.7

14.3

21.6

21.1

11.7

41.9

67.6

61%

195.2

China

0.0

0.0

0.0

1.3

15.7

14.3

21.6

21.1

11.7

41.9

67.6

61%

195.2

Developed Markets

1.4

5.1

25.8

32.0

47.4

114.5

121.7

197.7

237.9

414.4

353.1

-15%

1,551.0

Supranational

1.7

5.8

9.6

8.3

10.5

10.0

11.7

15.3

15.8

28.5

41.6

46%

158.6

Total

3.1

10.9

35.5

45.2

93.7

163.8

183.1

273.3

299.2

561.3

554.7

-1%

2,223.9

Social

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

East Asia and the Paciﬁc (excluding China)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.3

1.2

1.0

0.6

-40%

3.1

Europe and Central Asia

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.3

0.3

0.0

-100%

0.6

-92%

22.8

14%

0.9

Latin America and the Caribbean

0.0

0.0

0.0

0.0

0.0

0.3

0.2

0.0

3.4

17.5

1.4

Middle East and North Africa

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Sub-Saharan Africa

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.3

0.0

0.3

0.3

Change between 2021 Total Issuance 2012-22
and 2022

in US$bn

0.6

China

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.6

0.0

0.0

Developed Markets

0.2

0.8

0.5

3.2

2.9

8.2

11.3

16.5

94.4

125.1

144.4

15%

407.4

Supranational

0.0

0.0

0.5

0.1

0.0

2.8

2.9

1.3

68.9

67.7

17.8

-74%

162.0

Total

0.2

0.8

1.0

3.3

2.9

11.3

14.4

18.4

168.8

211.9

164.4

-22%

597.5

Sustainability

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Change between 2021 Total Issuance 2012-22
and 2022

in US$bn
21.5

East Asia and the Paciﬁc (excluding China)

0.0

0.0

0.0

0.0

0.0

0.0

0.2

2.0

2.2

8.9

8.2

-9%

Europe and Central Asia

0.0

0.0

0.0

0.0

0.3

0.3

0.0

0.0

0.8

4.2

0.4

-91%

5.9

Latin America and the Caribbean

0.0

0.0

0.0

0.0

0.0

0.9

0.3

1.6

1.2

10.4

17.0

64%

31.4

Middle East and North Africa

0.0

0.0

0.0

0.0

0.0

0.0

0.1

0.0

0.1

0.0

2.3

Sub-Saharan Africa

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

1.0

0.1

-86%

1.1

China

0.0

0.0

0.0

0.0

0.0

0.0

1.4

0.0

0.5

1.4

0.0

-100%

3.2

2.4

Developed Markets

0.0

0.5

0.6

2.1

4.2

9.8

13.9

34.8

49.4

89.4

77.4

-13%

282.2

Supranational

0.0

0.0

0.0

0.0

0.1

0.3

2.7

11.1

79.6

70.6

44.7

-37%

209.0

Total

0.0

0.5

0.6

2.1

4.5

11.4

18.5

49.5

133.8

185.8

150.0

-19%

556.7

Sustainability-Linked Bonds

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

East Asia and the Paciﬁc (excluding China)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

2.2

Europe and Central Asia

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.5

1.0

Latin America and the Caribbean

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

2.5

14.3

7.9

Middle East and North Africa

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.6

0.0

0.0

Sub-Saharan Africa

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.3

0.0

-100%

China

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

1.7

1.1

-39%

2.8

Developed Markets

0.0

0.0

0.0

0.0

0.0

0.0

0.0

4.2

6.7

72.4

59.2

-18%

142.4

Total

0.0

0.0

0.0

0.0

0.0

0.0

0.0

4.2

10.3

91.8

71.7

-22%

178.1

Transition

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Change between 2021 Total Issuance 2012-22
and 2022

in US$bn

1.3

-39%

3.5

2.2

126%

3.7

-44%

24.7
0.6
0.3

-

Supranational

Change between 2021 Total Issuance 2012-22
and 2022

in US$bn

East Asia and the Paciﬁc (excluding China)-

Europe and Central Asia-

Latin America and the Caribbean-

Middle East and North Africa-

Sub-Saharan Africa

-

China

-

Developed Markets

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

1.8

3.2

3.5

Supranational

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.5

0.2

0.0

0.0

Total

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.5

2.1

3.2

3.5

10%

8.5
0.8

10%

9.3

Page 73

Bibliography

Bibliography

Amundi and IFC. 2022, “Emerging Market Green Bonds - Report 2021,” June
2022, https://www.ifc.org/wps/wcm/connect/f68a35be-6b49-4a86-9d65c02e411de48b/2022.06+-+Emerging+Market+Green+Bonds+Report+2021_
VF+%282%29.pdf?MOD=AJPERES&CVID=o5EzvO0

Bloomberg, 2022, “ESG Downgrade Sparks New Penalty in $200 Billion
Bond Market,” November 29, 2022, https://www.bloomberg.com/news/
articles/2022-11-29/esg-downgrade-sparks-rare-penalty-in-a-200-billionbond-market?leadSource=uverify%20wall#xj4y7vzkg

Bloomberg, 2023, “Hong Kong Hires Banks for Debut Digital Green Bond
Sale,” February 15, 2023, https://www.thestandard.com.hk/breaking-news/
section/2/200234/Hong-Kong-hires-banks-for-debut-digital-green-bondsale

Chaudhary, S. 2020. “Look for the green bond label,” GreenBiz. April 2020,
https://www.greenbiz.com/article/look-green-bond-label

Chen, Y. and Volz, U., 2021, “Scaling Up Sustainable Investment ThroughBlockchain-Based Project Bonds,” ADBI Working Paper Series, No. 1247, April
2021, https://www.adb.org/sites/default/files/publication/696276/adbiwp1247.pdf

Climate Action Tracker, November 2022: https://climateactiontracker.org/
documents/1094/CAT_2022-11-10_GlobalUpdate_COP27.pdf

Curtis, Q., Weidemaier, M., and Gulati, M., 2023, “Green Bonds, Empty
Promises,” Virginia Public Law and Legal Theory Research Paper, No. 2023-14,
February 2023

BloombergNEF, “Global Low-Carbon Energy Technology Investment Surges
Past $1 Trillion for the First Time,” January 26, 2023, https://about.bnef.com/
blog/global-low-carbon-energy-technology-investment-surges-past-1trillion-for-the-first-time/

Dees, S., Weber, P-F., “Les consequences du changement climatique pour lapolitique monetaire,”, Revue d’Economie Financiere, 2020/2 No.138, https://www.cairn.info/revue-d-economie-financiere-2020-2-page-243.htm

Boer. L., Pescatori, A., and Stuermer, M., 2021, “Energy Transition Metals,”Working Paper No. 2021/243, IMF, https://www.imf.org/en/Publications/WP/
Issues/2021/10/12/Energy-Transition-Metals-465899

Deloitte, 2020, “NPL Securitizations and Related Governmental Guarantee
Schemes in Europe Report,” October 2020, accessed June 21, 2023, https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/corporatefinance/deloitte-uk-npl-securitisation-report.pdf

Bolton, P., Musca, X., and Damama, F., 2020, “Global Public-Private Investment
Partnerships: A Financing Innovation with Positive Social Impact,” Journal ofApplied Corporate Finance, Volume 32, Issue 2

Breeden, S., 2022, “Balancing on the Net Zero Tightrope,” Speech at TheCityUKInternational Conference, April 7, 2022, https://www.bankofengland.co.uk/
speech/2022/april/sarah-breeden-thecityuk-international-conference

Carton, B. and Natal, J-M., 2022, “Further Delaying Climate Policies Will Hurt
Economic Growth,” IMF blog, October 5, 2022, https://www.imf.org/en/Blogs/
Articles/2022/10/05/further-delaying-climate-policies-will-hurt-economicgrowth

CDP and OliverWyman, 2022, “Missing the Mark Report,” https://www.
oliverwyman.com/content/dam/oliver-wyman/v3/CDP%20Whitepaper%20-%20Missing%20the%20mark_FINAL.pdf

Environmental Finance, 2021, “Green Bond Funds: Impact Reporting Practices”
accessed June 21, 2023, https://www.environmental-finance.com/assets/files/
reports/green-bond-funds-impact-reporting-practices-2021.pdf

European Central Bank and European Systemic Risk Board, 2022, “TheMacroprudential Challenge of Climate Change Report,” accessed June 21,2023, https://www.esrb.europa.eu/pub/pdf/reports/esrb.ecb.climate_report202207~622b791878.en.pdf

European Securities and Markets Authority, 2022, “ESAs Launch Joint Call for
Evidence on Greenwashing,” Press Release, November 15, 2022, https://www.
esma.europa.eu/press-news/esma-news/esas-launch-joint-call-evidencegreenwashingEMERGING MARKET GREEN BONDS

Federal Register, 2022, “The Enhancement and Standardization of ClimateRelated Disclosures for Investors,” Proposed Rule by the SEC, https://www.
federalregister.gov/documents/2022/04/11/2022-06342/the-enhancementand-standardization-of-climate-related-disclosures-for-investors

Financial Times, January 2, 2023, “Green bonds: the disappearing greenium
is a welcome development,” accessed June 21, 2023, https://www.ft.com/
content/915d12e7-1ff4-48c3-87c2-76b2904d03ce

Future of Sustainable Finance Alliance, 2022, “Taxomania! International
Overview Update 2022,” accessed February 26, 2023, https://futureofsustainabledata.com/Taxomania-international-overviewupdate-2022/

Government of India, 2022, “Framework for Sovereign Green Bonds,” https://dea.gov.in/sites/default/files/Framework%20for%20Sovereign%20Green%20
Bonds.pdf

Hofmann, B., Shim, I., & Song Shin, H., 2020, “Emerging Market Economy
Exchange Rates and Local Currency Bond Markets Amid the Covid-19
Pandemic,” (BIS Bulletin No. 5). Bank for International Settlements, https://www.bis.org/publ/bisbull05.htm

IFRS, 2022, “ISSB Delivers Proposals That Create Comprehensive Global
Baseline of Sustainability Disclosures,” Press Release, March 31, 2022,
https://www.ifrs.org/news-and-events/news/2022/03/issb-deliversproposals-that-create-comprehensive-global-baseline-of-sustainabilitydisclosures/#:~:text=IFRS%20Sustainability%20Disclosure%20Standards%20
are,meet%20broader%20stakeholder%20information%20needs

Inter-American Development Bank, 2022, “BME, BBVA, and IDB Issue Spain’sFirst Blockchain-Based Regulated Bonds,” Press Release, July 26, 2022, https://www.iadb.org/en/news/bme-bbva-and-idb-issue-spains-first-blockchainbased-regulated-bonds

International Energy Agency, 2021, “The Cost of Capital in Clean Energy
Transitions Report,” December 17, 2021, https://www.iea.org/articles/the-costof-capital-in-clean-energy-transitions

International Energy Agency, 2021, “Financing Clean Energy Transitions in
Emerging and Developing Economies Report,” June, 2021, accessed June 21,2023, https://www.iea.org/reports/financing-clean-energy-transitions-inemerging-and-developing-economies

International Energy Agency, 2022, “World Energy Investment 2022,” accessed
June 21, 2023, https://www.iea.org/reports/world-energy-investment-2022/
overview-and-key-findingsInternational Energy Agency, January 2023 “Cost of Capital Observatory
Report,” accessed June 21, 2023. https://www.iea.org/reports/cost-of-capitalobservatory

Page 74

International Energy Agency, 2022, “Cost of Capital Observatory: Tools andAnalysis,” accessed June 21, 2023. https://www.iea.org/reports/cost-of-capitalobservatory/tools-and-analysis

International Energy Agency, May 2023, “World Energy Investment Report,”
accessed June 21, 2023. https://iea.blob.core.windows.net/assets/8834d3afaf60-4df0-9643-72e2684f7221/WorldEnergyInvestment2023.pdf

International Monetary Fund, 2022, “Philippines, Financial Sector Assessment
Program: Technical Note on Bank Stress Test for Climate Change Risks,”
accessed June 21, 2023, https://www.imf.org/en/Publications/CR/
Issues/2022/06/02/Philippines-Financial-Sector-Assessment-ProgramTechnical-Note-on-Bank-Stress-Test-for-518566

International Monetary Fund, 2022, “Scaling Up Private Climate Finance in
Emerging Market and Developing Economies: Challenges and Opportunities,”
Chapter 2 of the Global Financial Stability Report (GFSR), October 2022,
https://www.imf.org/en/Publications/GFSR/Issues/2022/10/11/globalfinancial-stability-report-october-2022

Menon, R. 2021, “What We Need to Do to Make Green Finance Work,” Keynote
speech at the Financial Times Investing for Good Asia Digital Conference,
Singapore, September 8, 2021

Miller, H., Dikau, S., Svartzman, R., and Dees, S., 2023, “The Stumbling Blockin the Race of Our Lives,” Centre for Climate Change Economics and Policy
Working Paper 417, London: London School of Economics and Political Science,https://www.lse.ac.uk/granthaminstitute/publication/the-stumbling-blockin-the-race-of-our-lives-transition-critical-materials-financial-risks-and-thengfs-climate-scenarios/

National Australia Bank, 2023, “NAB Helps Farmers Report on Sustainability ofAgri Green Loans Using Blockchain,” accessed June 21, 2023, https://news.nab.
com.au/news/nab-helps-farmers-report-on-sustainability-of-agri-greenloans-using-blockchain/

Network for Greening the Financial System, 2021, “Progress Report on the
Guide for Supervisors, Technical Document,” https://www.ngfs.net/sites/
default/files/progress_report_on_the_guide_for_supervisors_0.pdf

Network for Greening the Financial System, 2019, “A Call for Action:
Climate Change as a Source of Financial Risk, Report,” https://www.ngfs.
net/sites/default/files/medias/documents/ngfs_first_comprehensive_
report_-_17042019_0.pdf

NGFS, 2022, “Final Report on Bridging Data Gaps, July 2022,” https://www.ngfs.
net/sites/default/files/medias/documents/final_report_on_bridging_data_
gaps.pdf

Page 75

Nobre, C., Sampiao, G., and Borna, L., 2015, “Land Use and Climate Change
Risks in the Amazon and the Need of a Novel Sustainable Development
Paradigm,” PNAS, https://www.pnas.org/doi/10.1073/pnas.1605516113

OECD, 2016, “Green Bonds: Country Experiences, Barriers and Options,” insupport of the G20 Green Finance Study Group, June 2016, https://www.oecd.
org/environment/cc/Green_Bonds_Country_Experiences_Barriers_and_
Options.pdf

Pietsch, A., Salakhova, D., 2022, “Pricing of Green Bonds: Drivers and Dynamics
of the Greenium,” European Central Bank Working Paper No. 2728

Puschmann, T., Hoffmann, C. H., and Khmarskyi, V., 2020, “How Green
FinTech Can Alleviate the Impact of Climate Change—The Case of
Switzerland” Sustainability 12, no. 24: 10691

Rainforest Foundation US, 2022, “Brazil,” accessed January 31 2023, https://rainforestfoundation.org/our-work/where-we-work/brazil

Ramos, E., 2022, “Green Bond Behavior and Greenium During a shock,”
December 13, 2022, https://www.greenbondtransparency.com/support/
resources/green-bond-behavior-during-shocks-as-of-dec-12-2022.pdf

Schillebeeckx, G., 2021. “Digital Sustainability and its Implications for Financeand Climate Change,” MAS Special Feature A, April 2021, Macroeconomic
Review, https://www.mas.gov.sg/-/media/MAS/EPG/MR/2021/Apr/MRApr21_
SF_A.pdf

Schnabel, I., 2022, “A New Age of Energy Inflation, Climateflation, Fossilflation,
and Greenflation,” Speech to ECB panel on monetary policy and climatechange, ECB, Frankfurt, March 17, 2022, https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220317_2~dbb3582f0a.en.html

Schnabel, I., 2023, “Monetary policy tightening and the green transition,”
Speech to the international Symposium on Central Bank Independence,”
Speech to the international Symposium on Central Bank Independence,”
Sveriges Riksbank, Stockholm, January 10, 2023, https://www.ecb.europa.eu/
press/key/date/2023/html/ecb.sp230110~21c89bef1b.en.html

Reuters, 2023, “Brazil Says Plans Green Bond Sale This Year,” January 25, 2023,
accessed January 26, 2023, https://www.reuters.com/business/environment/
brazil-looks-forward-environmental-bond-sale-debt-head-2023-01-26/

Reuters, December 19, 2022, “Bank Floats $10 bln Brazilian Bond Plan to Halt
Amazon Deforestation,” accessed December 19, 2022, https://www.reuters.
com/markets/rates-bonds/bank-floats-10-bln-brazilian-bond-plan-haltamazon-deforestation-2022-12-19/

Bibliography

Reuters, 2023, “Saudi Wealth Fund to Raise $5.5 Billion With Second Green
Bond Sale,” accessed March 1, 2023 https://www.reuters.com/markets/
rates-bonds/saudi-arabias-pif-selling-three-tranche-dollar-greenbonds-2023-02-07/

Standard & Poor’s “Supranationals,” Special Edition, October 2022, https://www.ebrd.com/standard-poor-supranational-special-edition.html

Sustainable Finance Indonesia, 2022, “Indonesia Green Taxonomy Edition 1.0,”
accessed February 24, 2023, https://www.ojk.go.id/keuanganberkelanjutan/
en/publication/detailsflibrary/2352/taksonomi-hijau-indonesia-edisi-1-0-2022

Ul Haq, I., and Doumbia, D., 2022, “Structural Loopholes in SustainabilityLinked Bonds,” Policy Research Working Paper, No. 10200, October 2022,
https://documents1.worldbank.org/curated/en/099237410062223046/pdf/
IDU0e099a50307f86045a80b33201d0b7057cedf.pdf

UN News, December 19, 2022, “Guterres announces ‘no nonsense’ climate
action summit; calls for practical solutions,” accessed June 21, 2023, https://operationalsupport.un.org/en/guterres-announces-no-nonsense-climateaction-summit-calls-practical-solutions

World Bank, 2020, “Developing a National Green Taxonomy,” https://documents1.worldbank.org/curated/en/953011593410423487/pdf/Developinga-National-Green-Taxonomy-A-World-Bank-Guide.pdf

Zerbib, O., 2019, “The effect of Pro-Environmental Preferences on Bond
Prices: Evidence from Green Bonds,” Journal of Banking & Financevol. 98, issue C., https://econpapers.repec.org/article/eeejbfina/
v_3a98_3ay_3a2019_3ai_3ac_3ap_3a39-60.htm

Amundi Asset Management (Amundi) and International Finance Corporation (IFC) produced this report.
All trademarks and logos belong to their respective owners.
© 2023 Amundi Asset Management and International Finance Corporation. All rights reserved.
Amundi and IFC agree that the copyright and all related intellectual property rights in the materials in this Report are jointly owned by them. Copying and/ortransmitting portions or all of these materials without permission may be a violation of applicable law.
Amundi and IFC each encourages dissemination of its materials and will ordinarily grant permission to reproduce portions of the materials promptly for
non-commercial or educational uses without a fee, subject to such attributions and notices as may be required. Any other use of the materials shall require thejoint agreement of Amundi and IFC. Neither Amundi nor IFC guarantees the accuracy, reliability or completeness of the content included in the materials, or forthe conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including without limitation any typographical or technical errors) in the content whatsoever or for reliance thereon.
The contents of the materials herein are intended for general informational purposes only and are not intended to constitute legal or securities or investment
advice. Amundi and IFC and its affiliates may have an investment in, provide other advice or services to, or otherwise have a financial interest in certain of theentities referred to in these materials. The boundaries, colors, denominations and other information shown on any map in this document do not imply any
judgment on the part of IFC or the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.
All queries on rights and licenses, including subsidiary rights, should be addressed to IFC’s Corporate Relations Department at 2121 Pennsylvania Avenue, N.W.,
Washington, DC 20433, U.S.A.
IFC is an international organization established by Articles of Agreement among its member countries, and it is a member of the World Bank Group. All names,
logos and trademarks are the property of IFC, and you may not use any of such materials for any purpose without the express written consent of IFC. Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. Any queries on rights andlicenses, including subsidiary rights, pertaining to IFC should be addressed to IFC Communications, 2121 Pennsylvania Avenue, N.W., Washington, DC, 20433.
All other queries should be directed to Amundi. Amundi Asset Management, French “Société par Actions Simplifiée” – SAS with share capital of €1,086,262,605- Portfolio Management Company licensed by the AMF (French securities regulator) under no. GP 04000036 Registered office: 90 boulevard Pasteur - 75015
Paris - France - 437 574 452 RCS Paris. Website: www.amundi.com.

© Amundi Asset Management (Amundi) and International FinanceCorporation (IFC). July 2023.