Despite market uncertainties and economic dislocations, the global market for green bonds exceeded most forecasts. Issuance of green bonds in emerging markets and developing economies (EMDEs) more than doubled to a record US$95 billion last year, from US$41 billion in 2020, a new study finds. 

An additional US$64 billion of social, sustainability, and sustainability-linked bonds brought the total emerging market issuance of these bonds to US$159 billion in 2021, nearly triple the volume in the previous year, according to the Emerging Market Green Bonds Report 2021, published by Amundi and International Finance Corporation.

China maintained its role as the largest green bond issuer among EMDEs, with issuance of US$59 billion in 2021, or 63% of the total. Non-financial corporate issuers in China overtook financial institutions for the first time. Green bond issuances in EMDEs outside China surged 58% to US$35.2 billion.

While rising interest rates affected total returns in the global green bond market, emerging market green bonds were relatively more resilient in 2021, outperforming the broader emerging market bond index by 77 basis points. Secondary market data indicate that the average “green premium” for emerging market issuers stands at about 3.4 basis points.

Thirty-five EMDEs issued green bonds in 2021, including seven new entrants to the market: Bangladesh, Côte d’Ivoire, the Dominican Republic, Guatemala, Pakistan, Serbia, and the Slovak Republic.

“Green bonds and other nascent financial instruments earmarked for social and sustainability projects are becoming an increasingly significant source of funding for many emerging economies. The momentum of issuance rebounded very strongly after a difficult year in 2020 and investor interest, both domestic and international, remains strong,” says Susan Lund, vice-president, economics and private sector development, at IFC.

Considerable investment is necessary for emerging markets to meet development goals and transition to low-carbon economies. Maintaining the growth momentum achieved in 2021 in the year ahead could be challenging, with existing inflation pressures and supply chain disruptions exacerbated by the war in Ukraine.

“While we see new challenges emerging after the pandemic, we still expect continued growth,” says Yerlan Syzdykov, global head of emerging markets at Amundi. “Annual issuance in EM green bonds could rise to US$150 billion by 2023, with Chinese issuers potentially contributing more than half the total.”

Proceeds from green bonds are typically designated for specific projects that would contribute to environmental objectives. Cumulatively, the largest share of the use of proceeds has been designated for renewable energy, accounting for 45% in 2021.

Along with green bonds, other types of bonds issued in EMDEs whose proceeds are earmarked for specific social and sustainability projects have also seen rising issuance and investor interest, as have sustainability-linked bonds.