After a sharp decline in Q1 2024, global ESG fund flows registered modest improvement in Q2, though U.S. ESG funds continue to experience outflows. As energy become a major national security theme for major economies, strong growth in clean energy investment is anticipated in 2024 and beyond, driven by national industrial policies such as the U.S. Inflation Act (IRA), the EU Green Deal and similar incentive schemes around the world.

The ESG debt universe topped $6.5 trillion in H1 2024, up from $5.4 trillion a year ago. ESG debt issuance was over $700 billion in H1 2024, broadly stable vs. H1 2023.

2024 is poised for strong growth in clean energy investment, with continued support from the U.S. Inflation Reduction Act (IRA), the EU Green Deal, and similar incentive schemes around the world.

The ESG debt universe topped $6.3 trillion in Q1, up from $5.1 trillion a year ago and is expected to surpass $6.5 trillion by mid-2024. While early Q2 has been slower, the first three months of 2024 saw a sharp rebound in ESG debt issuance, coming in at over $350 billion the majority in green bonds.

Global debt rose by some $1.3 trillion to a new record high of $315 trillion in Q1 2024. Moreover, after three consecutive quarters of decline, the global debt-to-GDP resumed its upward trajectory in Q1 2024.

On Thursday, April 18, the IIF submitted a comment letter in response to a European Banking Authority (EBA) Consultation Paper on Draft Guidelines on the management of ESG risks.

In 2023, frontier market (FM) accumulated some $20 billion of new debt, bringing the total to $3.5 trillion. For the first time since 2020, the FM debt-to-GDP ratio increased, as growth and inflation subsided.

Nature and biodiversity are emerging as critical areas of market focus, attracting increasing attention from corporates, financial institutions, and policymakers.

Global climate flows surpassed $2 trillion in 2023 up from $1.4 trillion in 2022. While still well short of the estimated $8.1 trillion annual pace needed to achieve net-zero emissions by 2050, the pickup reflects the strong growth in climate finance commitments in recent years.?.

Early 2024 saw a sharp surge in ESG fund flows, driven by a rally in tech shares (which are heavily weighted in ESG indices given their high ESG scores). In February, inflows to ESG fixed income funds reached their highest in over a year. Looking ahead, a synchronized series of rate cuts by major central banks could have a positive impact on ESG fund flows, particularly in the second half of 2024.

Over $15 trillion was added to the global debt mountain last year, bringing the total to a new record high of $313 trillion. The global debt-to-GDP ratio declined for a third consecutive year, largely driven by mature markets.

The ESG-labelled debt universe grew by 25% in 2023, nearing $6 trillion. However, this is still less than 2% of the global debt universe policy support, including from the G20 Brazil Presidency, could support substantial market expansion.

Global climate flows are on track to surpass $2 trillion in 2023 up from $1.4 trillion in 2022. While still well short of the estimated $8.6 trillion annual pace needed to achieve net-zero emissions by 2050, the pickup reflects the strong growth in climate finance commitments in recent years.

Global debt reached a staggering $307 trillion in Q3 2023, with a big increase across the board in both mature markets (U.S., Japan, France, and the UK) and emerging markets (China, India, Brazil, and Mexico).

The ESG debt universe has expanded by $1.1 trillion over the past four quarters, surpassing $5.6 trillion in Q3 2023.

Rising global tensions and political divides could hinder multilateral efforts to achieve sustainable development goals. Global economic performance remains subdued, with significant regional disparities; a contributing factor has been the prolonged stagnation in global capital flows over the past 15 years amid post-financial crisis regulatory initiatives.

After reaching an all-time high of $3.5 trillion in Q1 2023, total debt in frontier markets (FM) saw a slight decline in Q2 2023.

In a higher-rate environment, the global debt stock rose by $10 trillion to a new record high of $307 trillion in H1 2023.

Global climate flows surpassed $1.1 trillion in 2022 - up over 25% from $870 billion in 2021. However, this is still well short of what will be needed to achieve net-zero emissions. ESG stock and bond market performance improved in Q2 2023. Despite rapid growth, ESG integration in global debt markets is still at an early stage: just 6.1% of total debt issuance in Q2 2023 was ESG-linked.

The ESG debt universe (bonds and loans) hit a fresh record high of $5.4 trillion in H1 2023, up 30% from H1 2022. However new ESG debt issuance slowed to some $630 billion in H1 2023 over 15% lower than in H1 2022.

Amid tighter monetary and financial market conditions, ESG fund flows remain subdued and volatile. After large outflows in March, April saw a slight recovery in investor appetite for ESG funds. However, outflows from emerging market ESG funds accelerated in April.

The ESG debt universe hit $5.1 trillion in Q1 2023, up from $3.8 trillion a year ago and $2.3 trillion in Q1 2021. Amid the recent banking sector turmoil, ESG loan issuance fell sharply in Q1 2023, coming in at $40 billion over 65% lower than in Q4 2022. In contrast, ESG bond issuance reached its highest level in five quarters.

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.

Some $120 billion was added to the debt pile of frontier markets in 2022, bringing it to an all-time high of $3.6 trillion.

The nominal USD value of global debt declined by some $4 trillion to slightly below $300 trillion in 2022. Helped by stronger growth and inflation, global debt/GDP fell again in 2022 but is still above pre-pandemic levels.

ESG fund flows have picked up, amid easier financial conditions and growing demand. Global climate flows surpassed $1.1 billion in 2022 - up over 25% from $870 billion in 2021. On average, ESG stocks and bonds are up by some 5% in 2023 ytd. Global sustainable/ESG debt issuance was down over 15% to $1.3 trillion in 2022, from $1.5 trillion in 2021. We project global ESG debt issuance to climb to $1.7 trillion in 2023 and near $2 trillion in 2024.

The ESG debt universe is fast approaching the $5 trillion mark, up from $3.4 trillion in 2021. While rising global rates weighed on total issuance in 2022, issuance in emerging markets remained strong, reaching an all-time high of $260 billion mostly driven by China.

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

We are pleased to share the latest edition of our new quarterly chartbook, designed to monitor sustainable flows (to ESG funds, climate finance flows, and climate finance to emerging markets), ESG market development, the electric vehicle industry, and the evolution of the voluntary carbon market. The chartbook also includes our regular ESG Country Scorecard a useful indicator of progress in areas including carbon efficiency as well as broader environmental and social issues in emerging and frontier markets. We welcome your comments!.

With higher interest rates weighing on issuance, global debt edged lower again in Q3 2022, to some $290 trillion.

The ESG debt universe has grown rapidly, to near $4.5tr in Q322, up from $3tr in Q321 and $1.5tr in Q320. However, overall ESG debt issuance has slowed sharply this year amid broader debt market disruption.

Climate finance and ESG investing were top themes at our IIF Annual Membership Meeting and the IMF/WB Annuals; Energy security concerns, inflationary pressures and budget strains are jeopardizing timetables for climate goals.

At around $1.3 trillion, ESG loans account for over 30% of the total ESG debt universe. Global ESG loan issuance has soared from less than $40 billion in 2013 to $265 billion by Aug. 2022, mostly due to increased interest in sustainability-linked loans. ESG loan markets offer great potential for mobilizing climate finance--including for emerging and developing economies.

Following four quarters of consecutive decline, the global debt-to-GDP ratio is edging back up, approaching 350% of GDP in Q2 2022. We expect the global debt ratio to reach 352% of GDP by end-2022.

We extend coverage of our emerging market (EM) ESG scorecard to more vulnerable frontier markets (FMs); While EMs have a higher average ESG score than FMs, the top 3 in FM score better than EM s highest scorer.

Global sustainable/ESG debt issuance exceeded $645 billion in H1 2022; while some 15% below year-ago levels, this was double the pace of H1 2020. Sustainability-linked bond and loan markets also saw robust issuance in H1 2022.

While flows to ESG funds fell for the second consecutive quarter in Q2 2022, they remain in positive territory year to date in sharp contrast to large outflows from conventional funds; Moreover, recent weeks have seen indications of a robust pickup in investor appetite for ESG-aligned debt and equity; ESG debt issuance reached $330 billion in Q2 2022, up from $315 billion in Q1, helped by surging issuance in China; In contrast, total issuance in voluntary carbon offset markets continued to decline in Q2 2022, with most of the volume coming from India, the U.S. and China.

Total global debt rose by $3.3 trillion in Q1 2022 to a new record of over $305 trillion-mostly due to China and the U.S.

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.

Net zero: 50% of emissions reductions needed over 2030-2050 will rely on technologies currently still under development; R&D is urgently needed to reduce green premiums, but there is a clean energy R&D annual shortfall of $225bn; Policy action is key: government incentives and risk mitigation can galvanize private investment into clean energy R&D.

Deeper "green" real estate markets are needed to accelerate ESG integration in global financial markets; As the world’s largest asset class, real estate is responsible for nearly 40% of global carbon emissions; Amid growing populations and housing demand, sustainable design practices are crucial for keeping a lid on emissions; Sustainability-linked real estate securities markets are still small, despite significant climate hazards and potential damage.

Using well-established metrics, we review a number of ESG rankings to encompass social factors-health, education etc.; Unsurprisingly, mature markets tend to score better on social performance. Emerging markets have scope to boost social performance, notably on issues related to gender equality.

While climate change is now top of the policy agenda in the U.S., broader environmental issues are also in the global spotlight; Developed markets score higher on environmental protection: France, Germany and Denmark lead the way; Emerging markets tend to fare less well on environmental protection: India, China, and Turkey score lowest. That said…; …mature markets can "export" environmental threats by importing goods and services that harm the environment elsewhere.

How carbon-reliant are emerging markets? More so than developed markets, but with a lot of variation; Brazil, Turkey, and Chile are most carbon-efficient, with less reliance on energy consumption per unit of GDP; In contrast, the UAE, Saudi Arabia, Singapore, South Africa, and Russia score low on carbon efficiency.

The IIF Sustainable Finance Monitor covers key developments in the global sustainable finance agenda. In the February 2021 issue, we discuss how climate policy is taking DC by storm, updates on policy and regulatory developments, and the latest news on market initiatives, frameworks, tools, and research insights. Our Market Snapshot this issue focuses on impact measurement and ESG performance, and we conclude with a summary of key SFWG activities and events.

Lack of alignment among ESG disclosure frameworks poses challenges for financial firms on what information to report; Signs of progress: ESG disclosure initiatives propose a common approach to rationalizing differing materiality concepts; Emissions disclosures on the rise; an impact accounting database of 1800+ firms highlights intensity of environmental losses.

Global ESG fund assets top $1.3 trillion in 2020-up by more than 50% from 2019 levels; Flows into ESG-dedicated equity ETFs have surged in recent weeks, anticipating a more active climate and ESG agenda in the Biden Administration; Voluntary carbon offset issuance reached record highs in 2020, largely driven by India, China, and the U.S.

With increasing focus on the "S" in ESG this year, we spotlight gender pay gaps, a key topic for investors and for ESG scoring; Countries with fewer women in labor markets often have smaller gaps, since many of those women tend to be high earners; Trifecta of small gaps, high female participation, and access to leadership – Sweden, Norway, and New Zealand stand out; Men mostly work in higher-paid sectors, partly explaining the gap; while in some countries women should outearn, but don’t.

Climate transition risk assessment tools cover a growing range of scenarios, sectors and asset classes; However, modeling approaches and climate scenario assumptions are not always transparent-making comparisons difficult; Standardizing the output of these tools and models should help the interpretation of results and comparability; "Temperature alignment" metrics have become common in recent years, though skepticism about their usefulness persists.

Voluntary carbon markets have picked up in recent years, with offset issuances reaching record highs in 2019; Sharp rise in "offset retirement" volumes since 2016 highlights increased demand for voluntary carbon offset markets; India, China, Indonesia, Peru and Brazil are the largest suppliers of voluntary carbon offsets; Verified Carbon Standard is the largest voluntary carbon offset registry with a market share of some 75% among the four major registries.

Amid rampant investor demand, the market for ESG data is set to top $750 million in 2020-over triple 2015 sales; ESG data providers cover a wide range of regions, sectors, and asset classes, and use differing methodologies and definitions; We note three overlapping categories of ESG data providers: market, ESG-exclusive, and specialized (e.g. climate); In the absence of mandatory disclosure, reported ESG data points vary substantially across countries and firms; Given still-patchy data availability, there is little correlation among ESG scores from different providers.

U.S.-China tariff tantrum highlights risks for corporate earnings; Global IPO activity slowing as debt financing prevails-except in the U.S. where tech offerings steam ahead; At around 15% of GDP, the USD debt of non-bank borrowers is now as high in mature markets (ex-U.S.) as for emerging markets-and a risk in both cases; Innovative sustainability-linked loans gain traction; ESG bond/loan issuance set to surpass $300bn in 2019.

Environmental, social and governance (ESG) considerations front and center for EM infrastructure.

Sharp improvement in risk appetite reflects improved valuations as well as more supportive Fed policy; As new U.S. sanctions take hold, holders of Venezuelan bonds contemplate next steps; Wobbles in the leveraged loan market; millennials give a boost to U.S. commercial real estate; ESG index performance-doing good doesn’t mean giving up returns, especially in emerging markets!.