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Plugging emerging markets’ green funding gap

The global market for green bonds has expanded rapidly, however the involvement of the private sector in emerging markets remains limited, and this has curbed funding for climate-smart developments, according to Amundi.
Plugging emerging markets’ green funding gap

In recent years, a “new force” has emerged as funding for climate change shifted from policymakers and NGOs to include societies and institutional investors, says Frédéric Samama, Deputy Global Head of Institutional Sales at Amundi Asset Management.

While this growth has been significant, in part driven by the momentum of the Paris Climate agreement in December 2015 as well as the high rate of issuance from China-based banks and corporates, “a huge gap” persists.

Barring China, few banks in Africa, Asia, the Middle East, Latin America, Eastern Europe, and Central Asia have issued green bonds, according to Marie-Anne Allier, Head of Euro Fixed Income.

“Less than 20 percent of cities in developing countries have access to local capital markets, through for example issuing bonds to investors, and only 4 percent are deemed creditworthy enough to access international capital markets,” according to the Green Bonds for Cities report, funded by Climate-KIC, Europe’s largest public-private partnership focused on climate change.

As much as 94 percent of the flows to emerging cities to finance environmentally-friendly projects are in the form of green bonds issued by development finance institutions such as the World Bank and the Asian Development Bank.

Based on the Global Climate Risk Index 2017 less developed countries are generally more affected than industrialised countries by extreme weather conditions.

With the lack of funding in developing countries to mitigate climate risks, the World Bank Group’s private investment arm, International Finance Corporation (IFC), in April announced its partnership with Amundi to create the largest green bond fund for emerging markets.

IFC will invest up to $325 million in the new Green Cornerstone Bond Fund1, which will buy green bonds issued by banks in Africa, Asia, the Middle East, Latin America, Eastern Europe, and Central Asia. Amundi will raise the rest of the $2 billion from institutional investors worldwide and will provide its services in managing emerging-market debt. The fund aims to be fully invested in green bonds within seven years.

“This green-bond fund will lower the risk for the private sector and attract new investors – essentially creating a market where there was none,” said IFC CEO Philippe Le Houérou in a statement.

Initially, the fund will focus on countries and banks that have a high potential to issue green bonds— before spreading into other markets. IFC will also provide first-loss coverage, helping to lower the risk and mobilizing financing from the private sector. This will help ensure that the fund can operate in more challenging markets, including the poorest countries and conflict-affected areas.

The fund will contribute significantly to the World Bank Group’s climate targets and IFC’s goal of increasing its climate investments to 28 percent of investments made from its own account while mobilizing an additional $13 billion a year in private financing by 2020, according to Amundi.

1 The fund does not guarantee performance and poses a risk of capital loss.

This document is not intended for citizens or residents of the United States of America or to any «U.S. Person» , as this term is defined in SEC Regulation S under the U.S. Securities Act of 1933. 

Amundi accepts no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. Amundi can in no way be held responsible for any decision or investment made on the basis of information contained in this material. The information contained in this document is disclosed to you on a confidential basis and shall not be copied, reproduced, modified, translated or distributed without the prior written approval of Amundi, to any third person or entity in any country or jurisdiction which would subject Amundi or any of “the Funds”, to any registration requirements within these jurisdictions or where it might be considered as unlawful. Accordingly, this material is for distribution solely in jurisdictions where permitted and to persons who may receive it without breaching applicable legal or regulatory requirements. 

The information contained in this document is deemed accurate as at 31 May 2017. Data, opinions and estimates may be changed without notice. 

Document issued by Amundi Asset Management, a société anonyme with a share capital of 1 086 262 605 € - Portfolio manager regulated by the AMF under number GP 04000036 – Head office: 90 boulevard Pasteur – 75015 Paris – France – 437 574 452 RCS Paris - www.amundi.com

¬ Haymarket Media Limited. All rights reserved.
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