At our IIF Sustainable Finance and Global Debt & Financial Stability Roundtables last week, key themes included net zero transition finance as well as the impact of higher funding costs for vulnerable sovereign and corporate borrowers.

Despite the urgency of fighting climate change, the exploration and development of new energy technologies to replace fossil fuels could take many generations. Strong policy support to incentivize front-loaded investment could significantly shorten the time that it takes to develop new green technologies—improving nuclear energy provision, green hydrogen, carbon capture and storage, biomass etc.

Just Energy Partnerships—launched at COP26 to help emerging economies shift to clean energy—aim to mobilize international public and private capital to accelerate electrification in emerging and developing economies. Most existing JETP funding commitments are from traditional development finance institutions, including multilateral development banks (MDBs). However, a key goal of JETPs is to leverage public funding to catalyze private capital.

The external debt burden of many emerging markets surged in 2022 as EM currencies fell against the USD. Given the high risk of cyclical depreciation and ensuing currency mismatch, sovereign debtors raising foreign currency funds should consider appropriate hedging or other risk mitigation tools.

The growing links between financial leverage and non-financial risks (e.g. climate) are complex and will require new data tools and metrics to monitor and address.

ESG backlash will continue to be a headwind for market development, but there are many reasons for optimism...