Sustainability Bonds Remain Strong in Emerging Markets

Issuance of green, social, sustainability, and sustainability-linked (GSSS) bonds in emerging markets totaled $34 billion in the first quarter of 2022, up 22% from the fourth quarter last year and 13% from the first quarter of 2021, according to the report despite worldwide issuance of GSSS bonds being down by a steep 28% from the first quarter of 2021.

Emerging markets GSSS bonds also increased their global share to 17% from the earlier 15%. Green bonds are the most used in emerging markets, with $18 billion issued so far this year, and sustainability bonds followed at $10 billion. Green bonds accounted for 52% of the total GSSS issued in emerging markets over the first quarter, which is the lowest on record. This indicates a strong diversification. Sustainability-linked bonds saw their second-highest increase at $6 billion in the quarter.

The types of bonds being issued show that those in emerging markets are seeking to finance a range of environmental projects. The increased use of sustainability-linked bonds will likely continue because some emerging market issuers have had a more difficult time finding enough eligible projects to support the use of proceeds from sustainable bonds, the report finds.

Developing economies are generally hit due to the physical impacts of climate change and sustainable development needs. The International Energy Agency estimates that 70% of the investment needed to reach net-zero objectives should be diverted to emerging markets.

Emerging markets are also seen as a key piece of energy transitions, as well as a potential for ESG investment opportunities, but funding is lagging in those economies despite record investments overall.

Worldwide, sustainable debt surpassed a record $1.6 trillion in 2021, according to BloombergNEF. Moody says overall the market will be flat in 2022.