Demand for green bonds in emerging markets rose by 21% to $52bn (€54bn) in 2019, with renewables making up the largest sector for use of proceeds, according to a new report co-authored by the World Bank.
The Emerging Market Green Bond 2019 report, produced by the bank’s International Finance Corporation and European asset manager Amundi, found the global green bond market as a whole outperformed in 2019, with a record issuance volume of $240bn.
China continues to lead emerging market green bond growth, while east Asia and the Pacific region is responsible for 81% of the market, said the report.
Outside China, leading emerging market issuers are India, Chile, Poland, the Philippines, the United Arab Emirates and Brazil.
The size of emerging market green bond issues ranged from $1.5m to $2.9bn in 2019. Benchmark-sized bonds of at least $300m numbered more than 60 in 2019, marking a year-on-year increase of 25%, found the study.
After renewable energy, transport, followed by green buildings, waste, water, biodiversity conservation, and adaptation, comprise other areas for proceeds.
Financial institutions remain the largest issuing sector in emerging markets, making up 59% of issuances, compared with 19% in developed markets, followed by non-financial corporates at 35%, sovereigns at 12%, government agencies at 5% and municipals at 0.1%.
Non-financial corporates and sovereigns both increased their market share in the green bond space, said the report.
Issuances have been driven by greater recognition among both issuers and investors of the benefits they provide including stable and predictable returns, and a greater awareness of environmental, social and governance (ESG) products and strategies, found the report.
The report said responsible investors with long-term allocations to emerging markets can collaborate with issuers through green bonds and ESG funds to unlock long-term capital and help issuers become more resilient.
Investment flows since the start of the COVID-19 crisis have proven more resilient towards green investments when compared to their traditional counterparts, the study highlighted.
Financing countries’ climate and sustainable development commitments will require global investment on an “unprecedented scale”, the report stated.
IFC estimates cumulative climate investment potential of $29.4tn in emerging market cities through 2030. Sustainable finance policies and products, like debt capital instruments, are already helping to plug this gap, by financing projects with environmental and social benefits.
Amundi emerging markets global head Yerlan Syzdykov said: “Although it is hard to assess the long-term impacts of the current crisis and there are still many challenges to scaling green bonds, momentum is building with more investors seeking to align their investment strategies with environmental considerations.
“Our research indicates that the green bond phenomenon, especially in emerging markets, shows potential signs of resilience during these unprecedented times.”