Ashmore's approach to transforming EMDE public debt markets

Ashmore will launch its debut Impact Debt fund later this year, targeting EMDE hard currency fixed income, write Callum Thomas, Simon Cooke and Ben Underhill

Ever since the Rockefeller Foundation coined the term impact investing in 2007, investors have grappled with how best to deploy capital where it's needed most: emerging markets and developing economies (EMDEs).

Despite high growth potential, EMDEs face persistent challenges—1.2 billion people still live in multidimensional poverty, and developing countries now contribute 75% of global greenhouse gas emissions.

This is a critical juncture: many EMDE countries remain in early industrialisation phases, making them highly vulnerable to climate change impacts due to geographic exposure, underdeveloped infrastructure, and dependence on natural resources.

Yet, global asset allocators have reduced their exposure to EMDEs in recent years, citing perceived risks and limited scalable opportunities. As a result, the annual financing gap for the United Nations' Sustainable Development Goals (SDGs) in EMDEs has ballooned to over $4 trillion, up from $2.5 trillion in 2015².

Bridging this gap will require unlocking institutional and retail capital via scalable public market strategies³.

Recognising this opportunity, Ashmore — one of the leading EMDE asset managers with $49 billion in assets under management as of December 2024 — has integrated a dedicated Impact Debt team into its investment committee.

Leveraging Ashmore's 30 years of experience investing across EMDE asset classes and its global network of offices, the new Impact strategies aim to mobilise significant institutional and retail capital towards the SDGs.

As a first step, Ashmore will launch its debut Impact Debt fund later this year, targeting EMDE hard currency fixed income.

This fund aims to provide investors access to a broad impact opportunity set, channelling capital into activities that directly contribute to the SDGs in a transparent and measurable way, while offering attractive risk-adjusted returns.

The upcoming launch of Ashmore's new fund reflects a growing recognition that public markets, particularly EMDE hard currency debt, hold significant untapped potential for impact financing at scale.

This is underscored by the growing prevalence of green, social, and sustainable (GSS) bonds in EMDEs, whose proceeds are used directly for environmental and social projects.

Since 2020, the supply has ballooned from $75 billion to over $500 billion outstanding, and issuance shows no signs of slowing.

"Remarkably, 99% of these high-impact green bonds are based in EMDEs, reflecting the transformative potential of financing renewable energy in regions historically dependent on carbon-intensive grids¹"

The real-world impact is increasingly evident. For example, emissions avoided — a critical metric for environmental projects aligned with several SDG targets — has shown that the top 5% of global green bonds have avoided over 1,000 tCO2e per $1 million invested.

Remarkably, 99% of these high-impact green bonds are based in EMDEs, reflecting the transformative potential of financing renewable energy in regions historically dependent on carbon-intensive grids.

Ashmore's strategy will seek to target investment in these high-impact opportunities, maximising measurable SDG outcomes alongside financial performance.

GSS bond issuers in EMDEs are not reliant on concessional finance. Rather, the bonds are embedded within the broader emerging market hard currency debt universe, which has consistently outperformed developed market debt with higher Sharpe ratios.

EM corporate debt, for instance, has outperformed US and EU investment-grade debt in rolling five-year returns 80% of the time since December 2009, with volatility comparable to EU investment-grade (IG) debt and significantly lower than US IG.

Beyond GSS bonds, Ashmore's analysis shows that over $100 billion in debt is now outstanding from 'impact issuers,' whose core business models align with SDG targets. These could be renewable energy producers, or telecom companies expanding digital access in Sub-Saharan Africa.

Furthermore, a growing cohort of 'improving issuers' in EMDE, are poised to pivot towards SDG-aligned models if provided with the right capital.

This combined impact debt landscape spans over 400 issuers in more than 40 developing countries, offering investors diversified exposure while advancing all 17 SDGs.

Ashmore's impact debt strategy will seek to capture this entire opportunity set, providing the capital needed to accelerate transitions while maintaining rigorous impact measurement and accountability, reporting annually on outputs and impact outcomes associated with every security as well as on a portfolio level.

Except for hedging and liquidity purposes, a high hurdle rate is applied to all investments, which must pass Ashmore's impact investment framework to be included in the fund. This means that either 100% of the bond's proceeds, 50% of company revenue or 50% of the issuer's investment plan must contribute to one or more SDG target, without the issuer doing any significant harm to any of the other SDGs.

To close the SDG financing gap in EMDEs, cross-asset solutions across the risk spectrum are essential. With deep expertise in EMDE investing, Ashmore's launch of an impact debt fund seeks to capitalise on the growing impact opportunity set in EM public markets.

The strategy gives investors the chance to allocate significant capital into a liquid, publicly traded asset class that has potential to deliver both attractive returns and measurable impact outcomes.

As always, emerging market investments carry risks as well as rewards, but public market approaches such as this can unlock scale previously unheard of in EMDE impact investing.

Callum Thomas is Junior Policy Analyst at OECD.

Simon Cooke is Head of Impact Debt at Ashmore.

Ben Underhill is Research Analyst at Ashmore.

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