How the World’s Largest Green Bond is Making Waves in Emerging Markets
Few nations escaped the sweeping and persistent casualties of COVID-19 and the rise in global inflation across 2020 and 2021. The International Monetary Fund (IMF) predicted a slowdown in global growth from 3.4 percent in 2022 to 2.9 percent in 2023. Concurrently, our planet’s rising temperatures significantly compound the vulnerability of developing nations to floods and lower agricultural yields. Amidst the cost-of-living-crisis, sustainable disinflation remains an international prerogative: without delivering on the financial needs of those most vulnerable in the clean energy transition, there is no hope of reaching the sustainable development goals outlined by the United Nations General Assembly in 2015.
However, investors often lack the tools necessary to finance green growth initiatives in emerging markets.
Enter the Amundi Planet Emerging Green One (the AP EGO or the Fund). Established by Amundi, Europe’s largest asset manager, in partnership with the International Financial Corporation (IFC), the green fund is rooted in the belief that institutional investors possess both the desire and the funds to invest significant capital into emerging markets (EM)—yet are often left without the means to do so. Amundi’s EGO was established to bridge that disparity.
In March of 2018, the Fund successfully closed at $1.42 billion, and is set to deploy around $2 billion into emerging green markets such as China, Brazil, and India over the next seven years as funds are reinvested over its lifetime. Populated by a large and diverse base of investors, the fund is also backed by a $256 million cornerstone commitment from IFC themselves. This
means that investors have committed in advance to investing that $256 million through the Fund’s shares—a direct sign of increased confidence in green emerging markets and a successful leveraging of private capital to the EM scale.
While the EGO is the largest green bond fund targeting EM to date, it is far from the only climate-conscious initiative institutions like the IFC have pushed for in years prior. The growing awareness of companies and investors about climate-friendly assets and the high liquidity of the system has spurred a rapid increase in the issuance of green bonds over the past decade. Between 2017 and 2022, the issuances of green bonds has nearly quadrupled, clocking in at a staggering $443.72 billion with no signs of slowing growth.
Outside of simply the size of the fund, the AP EGO’s selective focus on target emerging markets projects makes it a unique frontrunner in this effort. The Fund’s investment strategy is relatively rigorous, incorporating selective criteria such as creditworthiness of the bond issuers, the quality of the projects being financed, and potential environmental implications. The Fund is also the first ever comprehensive sustainable capital markets program that combines a supply and demand mechanism, which means that the Fund’s supply of units fluctuates alongside investor demand for the fund, ensuring that the Fund’s net asset value (NAV) remains stable.
These unique attributes have established the EGO as a landmark feature for the future of green finance. The Fund firstly offers a rapidly expanding asset class with attractive potential returns. The global market for green bonds has obviously expanded, but the market in developing countries remains stagnant. That’s why the Fund is so crucial in the clean energy transition: it stimulates issuances of green bonds in developing countries where the private sector is at the heart of the climate change movement.
The EGO also widens an often-narrow bridge between the EM market and outside investors, as emerging markets regularly tote young and growing populations, rapid industrialization, and abundant natural resources. The opportunity for an investor to diversify their portfolio while deepening the economic stability of a developing nation is second to none.
So, has the Fund been successful? Short answer: yes, so far.
As of 2022, the Amundi Planet Emerging Green One portfolio has expanded to include 34 green bonds, financed green projects in 14 emerging markets, and avoided roughly 397,133 tons of CO2e/year. With an investment portfolio ESG rating of D, the fund notably supports enhanced data availability and sharing of ESG risk analysis, another potential benefit for investors.
There is no doubt energy security concerns will endure. That’s why strong multilateral cooperation, showcased through Amundi’s EGO fund, is crucial to preserving the gains from international fiscal movements. The Fund’s unique size and focus coupled with its innovative public-private partnership offers a new platform through which capital from developed markets’ institutional investors can flow into emerging markets, with many subscribers investing through the fund for the first time in emerging market debt. Mitigating climate change is impossible without raising green investment in sustainable technologies that are less vulnerable to supply chain disruptions and uncertainty. One thing is clear: climate finance is the path to a low-carbon energy system.
This insight is a part of our Undergraduate Seminar Fellows’ Student Blog Series. Learn more about the Undergraduate Climate and Energy Seminar.