Investor appetite and environmental policies from governments will drive emerging market green bond issuance to $100bn by 2023, a report has predicted.
The third edition of the Emerging Market (EM) Green Bond Report 2020, published by Amundi and IFC, a member of the World Bank Group, said policy and regulatory changes will drive issuance in emerging regions following a robust 2020.
Last year 174 new green bonds came to the market, amounting to $40bn in issuance from 101 issuers, the report said, with seven emerging markets issuing green bonds for the first time. This was amid the total issuance of $280bn for the global green bond market despite the economic challenges prompted by the Covid-19 pandemic.
The report added as countries outline recovery plans from the global crisis, emerging markets are expected to incorporate green objectives into their next steps with efforts not only to mitigate climate risks and environmental challenges, but also to increase resilience against future shocks.
Jean Pierre Lacombe, director of global macro & market research at IFC, commented: “Robust investor appetite and increasingly supportive policy environments will continue to support the growth of green bond markets in emerging markets. This is now critically important, with investment for sustainable development urgently needed to lessen the pandemic’s profoundly negative social and economic consequences. This is especially true as regards the damage done to efforts to reduce global poverty, where several additional years will now be needed to regain ground lost due to Covid-19.”
East Asia and the Pacific accounted for the largest share of green bond issuance in emerging markets in 2020, at 76%, and China remained the largest green bond issuer despite a fall in issuance from over $30bn in previous years to $18bn. This was due to a government push to issue pandemic-related bonds.
Outside China, emerging market green bond issuance rose 21% in 2020 to $22bn, representing faster growth than the 17% increase in global green bond issuance. The largest emerging issuers include Chile, Brazil, and Indonesia, with seven debut issues from countries including Egypt, Kazakhstan and Saudi Arabia, the report said.
It also highlighted there was a more diverse pool of issuers in 2020 – financial institutions make up 50% of cumulative green bond issuance by volume in emerging markets, which contrasts with 19% in developed markets, and 300 million in issuance came from non-financial corporates. Nearly half the non-financial corporate green bond issuance in EMs were in the power and utilities sector, while issuance in the construction and real estate sectors also steadily increased.