A greater understanding of the perceived risks in emerging markets will likely help pave the way for more investment in transition finance in the coming years, an Environmental Finance webinar heard.
The webinar, ‘Unlocking Capital: Powering transition finance in emerging markets’, moderated by the International Finance Corporation (IFC) and hosted by Environmental Finance highlighted several solutions for delivering transition finance in emerging markets.
Nazmeera Moola, chief sustainability officer at global asset manager Ninety One, said the “average asset owner” in developed markets has a low level of familiarity with debt in emerging markets, and, as such, has “high” perception of risk in these markets.
She said educating asset owners about the emerging market transition debt space has been “missionary work, at times”.
Chris Kaminker, head of sustainable investment research & analytics and deputy head of sustainable and transition solutions at BlackRock, said the investor’s latest research showed investment needs for transition finance in emerging markets were about 17-24 times higher than published financial commitments.
“Without a meaningful reduction in the ‘green premium’ – the cost of capital differential between developed and emerging markets – its going to be challenging to finance more capital-intensive green infrastructure in those countries,” he said, adding this will likely focus on more blended finance solutions to help de-risk projects for investors.
Giulia Pellegrini, portfolio manager for emerging market debt & ESG at Allianz Global Investors, said 2025 would be a “pretty important year” for issuance led by corporate issuers.
Sovereign issuance may be more subdued but there were “green shoots … in terms of policy support, particularly in Asia, around the issue of transition”, she added.
“[There is] lots of good stuff coming out of there in terms of regulation to support transition finance more broadly, but there is also real pragmatism around it, recognising the challenges that come with that, such as interoperability,” said Pellegrini.
“Something we need to grapple with as we support transition finance, and I'm thinking of big emerging markets like South Africa, where 90% of electricity production comes from coal, or India with 75%, they are increasingly placing their attention on renewables and having a transition path.
“But they need tangible help. We need to have an honest conversation as to how much we want to get involved and try to support a transition from things that may not be green yet but may have all the qualities and tools necessary to become greener.”
Veronica Nyhan Jones, global head of the IFC’s Climate Capacity & Inclusion Accelerator, said there needs to be a consistent and general understanding “of what transition finance actually means … particularly in emerging markets, where you have a lot of countries working towards different timelines to balance their development needs”.
She said: “How do we raise that awareness among all actors, and support some more agility and creativity in internalising those different time frames as we design these investments?
“We talk a lot about the money flowing, [but] I genuinely believe that the money will come when we address some of these other issues.”
Michael Kashani, head of sustainable credit & platforms at Apollo Global Management, said the transition will be “extremely complex” particularly in emerging markets where more bridging technologies and fuels will be needed.
He said: “I always say the best climate transition deals are the ones that don't have to go in a ‘climate and transition’ fund. It is those that are a fantastic investment and a very strong risk-to-return investment.”
BlackRock will be speaking at a conference on blended finance on 4 and 5 February in Paris. It is being hosted by the OECD in partnership with Environmental Finance. See the agenda here. CoP-PF4SD Conference 2025: Mobilising private finance towards 2030 and beyond
To register email events@fieldgibsonmedia.com