Weaker global economic growth, recent regulatory changes in Europe and a downward sentiment among investors on ESG could affect near-term issuance of green, social, sustainability and sustainability-linked bonds (GSSS) in emerging markets, despite the long-term outlook remaining robust, according to the latest research from Amundi.
The global economy faces heightened levels of uncertainty, but underlying market drivers are apparent, such as a likely pickup in new issuance to refinance an estimated $330bn in bonds that are approaching maturity over the next three years, the report said.
Meanwhile, over the longer term, annual investments in clean energy that deliver greater efficiency and supply security are likely to double in the coming years, supported by an increasingly competitive renewable energy sector and ambitious commitments by multilateral institutions.
Cumulative global GSSS bond issuance between 2018 and 2024 reached approximately $5.1trn. Over this period, emerging market issuers contributed around $800bn or 16%, Amundi’s report stated.
A key driver behind this growth was clean energy investment, which has surged over 70% in emerging markets since 2018, with China alone experiencing a 170% increase. Investor appetite has also intensified markedly. Sustainable funds have reached $3.6trn of assets under management in 2024 — up from $1.4trn in 2018 — with fixed income allocations within investment portfolios rising to 22%. Additionally, multilateral institutions have channeled $238bn of climate finance to emerging markets since 2016 and 2022, according to the OECD.
However, since the end of the Covid 19 pandemic, demand for healthcare funding has subsequently contracted, resulting in a stabilisation in social bond sales. This asset class represents 6% of overall GSSS bond issuance in emerging markets between 2022 and 2024. In contrast, sustainability-linked bonds experienced a sharp decline. This may reflect mounting criticism of their design shortcomings and weak penalty structures, which do not effectively incentivise issuers to meet the sustainability targets set out in the assets’ terms.
Yerlan Syzdykov, global head of emerging markets at Amundi, said: “The GSSS bond market is experiencing significant diversification. Although green bonds have long dominated GSSS emerging market bond issuance, there is a growing shift toward sustainability bonds. This trend is pronounced among multilateral institutions and, more generally, among issuers outside China that are seeking the flexibility of sustainability bonds to finance both environmental and social projects.”
