In Charts: MDBs to support emerging markets climate finance push, predicts Fitch
Green finance issuance for emerging markets has plateaued, says Fitch
Multilateral development banks are expected to play a major role in expanding climate finance for emerging markets, says ESG data and analytics provider Sustainable Fitch.
The issuance of green, social, sustainability and sustainability-linked bonds by sovereign governments and supranational organisations, including MDBs, has increased this year, says a Fitch report. Issuance levels at the end of the first quarter of 2024 were 30 per cent higher than those recorded over the same period in 2023.
But sluggish global economic growth, punitively high interest rates, and geopolitical instability have limited the issuance of GSSS bonds for emerging markets, compared with the levels of finance available for developed economies.
Efforts are under way to unlock more MDB climate financing for emerging economies. “MDBs and other supranationals are likely to play a significant role in scaling up climate financing” for emerging markets, Fitch says, acknowledging these organisations as some of the largest GSSS bond issuers.
The World Bank, the largest MDB, recently altered its equity/loan ratio to boost its lending capacity by an additional $40bn over the next decade. At the end of 2023, it had pledged to channel 45 per cent of its lending towards climate projects by 2025, up from 35 per cent, Fitch notes.
April’s spring meetings between the World Bank and the International Monetary Fund, meanwhile, emphasised the need for MDBs to offer climate finance to emerging markets, including through blended finance.
Fitch highlights a commitment by leading economies including the US and Japan to contribute $11bn towards a new World Bank hybrid capital instrument and a portfolio guarantee scheme, the latter of which will help to reduce the cost of capital for projects in emerging economies, it claims.
However, even with reforms to MDBs and support from governments, their backing “will never be sufficient to address the sheer scale of climate-related challenges faced” by emerging markets, Fitch suggests.
You can find the full report here.