Greener emerging markets

Green bonds can help Emerging Markets make energy transition a reality

Emerging Markets spending on clean energy needs to expand by over seven times to help put the world on track for net zero by 2050¹.

Last year’s COP26 highlighted that emerging economies should play a pivotal role in the world’s transition to sustainable energy². As economies less able to finance the massive, necessary infrastructural projects, emerging countries face the biggest hurdle in the reach for a net-zero world.

Furthermore, the success of the energy transition at the global level is dependent on energy transition in emerging markets, according to a study by the International Energy Agency¹. 

The study was conducted in 2021 and found that annual capital spending on clean energy in these economies needs to expand by more than seven times, to above USD 1 trillion, in order to put the world on track to reach net zero emissions by 2050.²

A number of efforts have been made to help this become a reality. One example is that in 2009, developed nations pledged to provide $100bn per year until 2020 to help emerging markets with energy transition – a target that had not been met.³

COP26 was the first time that financial institutions mobilised at this scale. At COP26 last November, the Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of over 450 finance firms (of which Amundi is a member), announced it has commitments for over $130tn of private capital to be deployed in helping in the transformation of the global economy to net zero over the next three decades.⁴

With these commitments from governments and the private sector, green bonds can see favourable tailwinds, particularly in emerging economies, according to Maxim Vydrine, fund manager at Amundi⁵.

Green Bonds can provide a very strong framework when it comes to implementing transparency in ESG exposure.

Maxim Vydrine, Fund Manager at Amundi Asset Management

‘One of the biggest challenges for sustainable investors, particularly in emerging markets, has been the fact that you need to be able to measure the impact of your investments in order to allocate capital sustainably,’ he said. ‘Green bonds can help with this because they provide a very strong framework when it comes to implementing transparency in ESG exposure.’

This is because green bonds are governed by an independent body, the International Capital Markets Association, which developed the so-called ‘green bond principles’, which set out clear standards for what can be called green when it comes to using money raised by the bond.⁶

‘The principles set out a transparent framework that enables our clients to see the impact of their investments – for example in terms of reduction in Co2 emissions,’ Vydrine said.

But as things stand, total green bonds from emerging countries comprise only a fraction of the issuance from developed markets⁷

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Sources: 

¹ https://www.iea.org/reports/financing-clean-energy-transitions-in-emerging-and-developing-economies/executive-summary, as at June 2021
² https://www.iea.org/reports/financing-clean-energy-transitions-in-emerging-and-developing-economies/executive-summary, as at June 2021
³ https://www.cleanenergywire.org/news/wealthy-nations-100bn-climate-finance-pledge-delayed-2023, as at 25 October 2021
⁴ https://www.gfanzero.com/progress-report/, as at November 2021
⁵ CW interview with Maxim Vydrine, March 2022
⁶ https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-bond-principles-gbp/, as at June 2021
⁷ https://www.climatebonds.net/market/data/, as of end 2021

IMPORTANT INFORMATION

Unless otherwise stated, all information contained in this document is from Amundi Ireland Limited and is as of 17 October 2022. The views expressed in this page should not be relied upon as investment advice, a security or service recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Ireland Limited is authorized and regulated by the Central Bank of Ireland.

Date of first use: 17 October 2022

Doc ID: 2915703