Entries for 'ESG'

Country-level ESG scores offer a practical starting point to compare ESG performance across investment destinations; While not a substitute for comprehensive ESG due diligence, ESG scores also help monitor trends over time; Chile, Brazil, and Poland have the top aggregate ESG scores in our sample of emerging markets, reflecting their strong environmental performance, though Poland has more scope to reduce carbon intensity; South Africa, Vietnam, Russia, and India score in the lower range on the ESG factors that we track in our scoring.

Amid rising global rates and market volatility, global issuance of sustainable debt fell to $285 billion in Q1 2022, nearly 20% lower than in Q1 2021. Some $55 billion of issuance came from EMs in Q1-up from $45 billion in Q1 2021.

Against a challenging market backdrop, flows to ESG funds fell to just $75 billion in Q1 2022-a sharp slowdown from their recent pace. Inflows in March ($15 billion) were at their weakest since March 2020; Sustainable debt issuance dropped to $285 billion in Q1, down 30% from Q4 2021; However, investor demand will remain underpinned by the continued acceleration in corporate net-zero pledges.

Despite rapidly growing use of renewables, many EU countries still rely heavily on fossil fuel energy; Russia currently provides the lion’s share of EU energy: 38%, 23%, and 46% of imported gas, oil, and coal respectively; High and volatile fossil fuel prices should accelerate Europe’s transition to clean energy over the medium term…; …but greater demand and higher prices for non-Russian gas sources could push Asia towards cheaper coal; Change could come quickly: the REPowerEU plan aims to cut EU reliance on Russian gas by two-thirds in 2022.

Global climate finance flows hit a record $810 billion in 2021—still well short of estimated needs; To bridge the massive climate financing gaps in emerging markets, international private capital needs to be mobilized—requiring appropriate incentives and hospitable investment environments; While still niche, blended finance—using development finance to catalyze private capital—has great potential; To date, blended finance has mobilized some $70 billion of international private capital to support climate mitigation and adaptation in emerging markets.

Global sukuk issuance surged to a record $250 billion in 2021, up from $180 billion in 2020; Only $5 billion (2% of the total) was linked to environmental, social and governance (ESG) factors-still a niche market; Indonesia has the largest green sukuk market, followed by Malaysia and Saudi Arabia; A coherent, widely-accepted taxonomy and classification framework would support further ESG sukuk market development.

Some $10 trillion was added to the global debt mountain last year, bringing the total to a new record high of $303 trillion.

Debt investors seek more ESG issuance from emerging markets as the financial materiality of ESG becomes increasingly clear; Sovereign ESG scoring is no easy task—dozens of indicators and differing approaches across providers cloud the picture; Ingrained income bias: sovereign ESG scores are highly correlated with income per capita, which could deter flows to EMDEs; Solutions to income bias include “inclusive wealth accounting" and adjusting ESG scores for a country’s level of development.

Investors poured over $580 billion into ESG funds in 2021-up from $320 billion in 2020; Sustainable debt issuance nearly doubled to more than $1.4 trillion in 2021, vs. $720 billion in 2020; Strong demand for voluntary carbon offsets has brought total offset issuance to over 350 MtCO2e.

As pandemic strains eased, EM sovereign Eurobond issuance subsided to pre-COVID levels in 2021 ($145 billion), with Chile, Mexico, and UAE the top issuers. With global rates set to rise in 2022, and still-high funding needs, EM sovereign issuance is expected to remain broadly stable at $150-$160 billion this year.

Nuclear power has reduced carbon emissions by an estimated 60Gt over the past 50 years (nearly 2 years’ worth), but faces a potential decline in capacity by over two-thirds by 2040, as nuclear fleets age in mature markets. If no new nuclear capacity is built, this could add 4Gt of cumulative CO2 emissions by 2040—a step in the wrong direction.

ESG and sustainable finance themes were in focus at last week’s IIF Annual Membership Meeting; Tackling climate change requires a major surge in green R&D investment to reduce reliance on carbon-intensive activities; A broadly-agreed mechanism for carbon pricing would help decision-makers better assess both climate risks and opportunities; International financial institutions could play an even larger role in promoting ESG market development in emerging markets

ESG funds saw net inflows of $110 billion in Q3 2021—the slowest pace of inflows of the past four quarters—of this total, emerging market securities attracted a sub-par $4.8 billion of ESG fund flows—less than 5% of the total; LatAm received the largest share of ESG fixed-income flows, while EM Asia attracted the most ESG equity flows; Substantial divergence in ESG fund classifications highlights the lack of commonly accepted disclosure standards; Around 20% of the EU fund universe is classified as ESG under the EU Sustainable Finance Disclosure Regulation (SFDR).

The IIF Sustainable Finance Monitor covers key developments in the global sustainable finance agenda. In the September 2021 issue, we discuss official-sector approaches to mandatory TCFD implementation, share updates on policy and regulation, latest developments on frameworks, tools, initiatives, and key research insights.

Agriculture employs over one billion people globally and comprises a large share of GDP in many developing economies…; …and, while representing only 3.5% of global GDP, agriculture is responsible for 12% of global greenhouse gas emissions; Greening agriculture production is key for reaching net zero--while also ensuring food security and physical risk mitigation…; …which will require adopting much more efficient agricultural production and consumption practices.

Global sustainability-linked debt issuance (loans and bonds) is on track to surpass $320bn in 2021 – triple 2020’s totals; With ambitious climate/ESG finance targets, financial firms are the biggest issuers of sustainability-linked loans this year.

Returns on green bond indices tend to be more volatile than for conventional bond benchmarks, with significant differences across sectors.  Overall, green bonds exhibit similar volatility-adjusted returns as conventional bonds.