The International Finance Corporation (IFC) and Environmental Finance have published a report on emerging market 'real economy' sustainable bond issuance trends, providing a detailed snapshot of trends across three major sector and five African countries.
The Emerging Market Real Economy Sustainable Bonds – current and potential issuance report was prepared under the IFC-managed Technical Assistance Facility (TAF), which is funded by HSBC Global Asset Management and the Dutch Ministry of Foreign Affairs.
Utilising figures from Environmental Finance Data and other sources, the report provides in-depth analysis of sustainable bond issuance trends in the key 'real economy' sectors of power, transport and agribusiness.
The report also focuses on fixed income trends in five African countries – Egypt, Ghana, Morocco, Nigeria and South Africa – considered strong candidates for potentially issuing sustainable bonds in the near future. To date, however, these countries have only issued 20 sustainable bonds in aggregate – ranging from 11 issued by South Africa, and none from Ghana.
The report concludes that real economy issuers – those involved in the production of goods and services, rather than financial services – are becoming more active in the sustainable bond market, with around half of total sustainable bond issuance by value in 2021 from these issuers.
In addition, emerging market sustainable bond issuance more than doubled in 2021 to $136 billion – but still remains only a comparatively small share of total sustainable bond issuance volume.
Barriers to greater emerging market real economy sustainable bond issuance were also identified, including underdeveloped capital markets, knowledge and data gaps, and currency and market liquidity challenges.
On the demand side, risk-averse local and international institutional investors tend to shy away from emerging market real economy sustainable bond issuances due to a preference for lower-risk, larger-sized bonds from developed market issuers.
"The study shows that while there was significant growth in sustainable bond issuance globally in 2021, reaching $1 trillion, this growth predominantly occurred in developed markets," said IFC Financial Institutions Group (Climate) chief investment officer Peter Cashion. "Emerging market issuers make up approximately only one out of 10 sustainable bonds issued."
"However, emerging markets are arguably in most need of capital for sustainable development and many emerging market countries are vulnerable to the effects of climate change," he said. "There are challenges and opportunities in each of the five countries that we cover in this report, for future sustainable bond issuance."
"Potential emerging market real economy issuers could get in touch with the REGIO TAF team to learn more about sustainable bond issuance," Cashion added.
The report follows the IFC and HSBC launching a green bond fund which targets emerging market 'real economy' issuers in 2019. The HSBC Real Economy Green Investment Opportunity Global Emerging Markets Bond Fund (REGIO) eventually raised more than $530 million from ten investors, including Aviva, Cardif Assurance and Gothaer Asset Management.
The TAF was launched alongside the REGIO fund to support sustainable bond issuance, especially in Africa, Eastern Europe, Central Asia and the Middle East.
To read the full Emerging Market Real Economy Sustainable Bonds – current and potential issuance report, click here. Further IFC and Environmental Finance prepared webinars, reports and case studies, and training materials on green bonds can be found on the dedicated "Creating Green Bond Markets" resource page.