Emerging market green bond issuance doubles

Amundi and IFC report predicts issuance will hit $150bn by 2023

Issuance of green bonds in emerging markets (EMs) and developing economies more than doubled in 2021 to a record $95bn, up from $41bn the previous year, a report from Amundi and IFC has found.

This year’s Emerging Market Green Bonds report found increased demand from both domestic and international investors, coupled with expanded issuance by new and existing issuers.

Of the 35 issuers from these markets, the report from Amundi and IFC identified seven new entrants: Bangladesh, Côte d’Ivoire, the Dominican Republic, Guatemala, Pakistan, Serbia, and the Slovak Republic. China was the largest issuer, accounting for nearly two-thirds of the total.

An additional $64bn of social, sustainability and sustainability-linked bonds (SLBs) in 2021 brought the total EM issuance of these bonds to $159bn for the year – nearly triple the 2020 volume.

“Green bonds and other nascent financial instruments earmarked for social and sustainability projects are becoming an increasingly significant source of funding for many emerging economies,” said Susan Lund, vice-president, economics and private sector development at IFC.

Last year’s report predicted the market would hit $100bn by 2023. This year, “annual issuance in EM green bonds could rise to $150bn by 2023, with Chinese issuers potentially contributing more than half the total”, said Yerlan Syzdykov, global head of EM at Amundi.

A green future awaits

While rising interest rates affected total returns in the global green bond market, the report showed EM green bonds as relatively more resilient in 2021, outperforming the broader EM bond index by 77 basis points.

Secondary market data indicate that the average “green premium” for EM issuers stands at about 3.4 basis points.

China maintained its dominance as the largest green bond issuer among this group. Its issuance reached $59bn, or 63% of the total, with non-financial corporate issuers overtaking financial institutions for the first time.

India, Chile, the Czech Republic, Poland, and Brazil were the next largest on the list.

“The momentum of issuance rebounded very strongly after a difficult year in 2020 and investor interest, both domestic and international, remains strong,” added Lund.

The outlook is bright given that considerable investment is necessary for EM to meet development goals and transition to low-carbon economies.

However, hurdles going forward include existing inflation pressures and supply chain disruptions exacerbated by the war in Ukraine.

“While we see new challenges emerging after the pandemic, we still expect continued growth,” explained Syzdykov.

Clearly defined goals

The use of proceeds from green bonds is typically designated for specific projects that would contribute to environmental objectives.

Cumulatively, the largest share of the use of proceeds from EM green bonds in 2021 has been designated for renewable energy, at 45% of the total, said the report.

Along with green bonds, other types of bonds issued in EM and developing economies whose proceeds are earmarked for specific social and sustainability projects have also seen rising issuance and investor interest, as have SLBs.

A version of this article was first published by ESG Clarity sister title Fund Selector Asia.