As the world moves towards green capital investment, there has been a boom in sustainable debt products.
Traditional modes of financing are now coming with Environmental, Social, and Corporate Governance riders, and emerging markets such as India are increasingly tapping into such resources.
However, issuances have remained concentrated in high-income countries.
“Global sustainable debt issuance has experienced exponential growth, reaching a record $730 billion in 2020, with high-income countries accounting for 77 per cent of the decade’s headline figure,” according to a report by the Climate Finance Leadership Initiative (CFLI). The CFLI, formed by former New York Mayor Michael Bloomberg, has in its members Allianz Global Investors, AXA, Bloomberg, Enel, Goldman Sachs, Japan’s Government Pension Investment Fund, HSBC, and Macquarie.
According to the report, titled ‘Unlocking Private Climate Finance in Emerging Markets: Private Sector Considerations for Policymakers’, China leads the pack in emerging markets in raising such debt. It has raised $165 billion in green funds between 2011 and 2020. “However, the number of emerging economies tapping sustainable markets has more than doubled over the past decade, with issuers from India and Brazil raising $33 billion and $31 billion, respectively.”
In 2020, 32 emerging market countries issued sustainable debt products — twice as many as five years prior — even as the overall emerging market issues fell 17 per cent YoY.
Noteworthy markets with record-level issues included Chile, Thailand, Turkey, and Saudi Arabia, while Latin American and European emerging markets saw their highest volumes to date. Chile, for instance, used the issues of dollar- and euro-denominated sovereign green bonds to access international capital markets to help finance its Covid-19 stimulus package.
Green bonds have increasingly become the debt instrument of choice among emerging markets, accounting for 58 per cent of the volume in 2011-2020, at $195 billion. Green loans were the second most popular at $109 billion.
The report praised India for various initiatives taken in the green energy field.
China leads the world in its investment towards electric transport, but India is witnessing steady investment. Electrified transport accounted for 15 per cent of 2011-2020 green expenditure at $243 billion, nearly all by China.
India’s investment has been a cumulative $677 million so far, predominantly targeting electric buses and e-rickshaws. But India has a commitment to turn all its vehicles to electric by 2030, which would entail massive investment.
India has also made large-scale investments in hydrogen. In the case of decarbonising cooling, India “issued one of the world’s first cooling plans with mandatory codes for new buildings”.
Mature renewables markets such as China, India and Brazil largely shaped the clean energy investment narrative at the start of the decade, but activity has since spread to an ever more diverse group of emerging economies in the past few years, the report said.
“China and India have relatively small gaps to achieving their nearest approaching clean energy targets, as both have made quick progress in recent years on the back of subsidy schemes. India’s sector-specific target for solar and widespread use of auctions and tenders have been particularly important,” it said.