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September 26, 2022

Emerging markets like Ph fast catching up in ESG bond sales

Emerging market economies like the Philippines are fast catching up with their developed neighbors in selling so-called sustainable finance tools.

The Washington-based International Monetary Fund noted this development in blog, saying while earlier activities were from the advanced economies, more recent issuances were from emerging market issuers that even saw a surge in 2021.

“As a result, their market share has increased for the first time since 2016, underscoring the growing investor appetite for environmental, social, and governance (ESG) products,” the IMF said.

Just weeks earlier, Finance Secretary Carlos G. Dominguez bared a commitment to tap the global sustainable finance market with the sale of $500 million worth of bonds “within weeks.”

He said emerging markets can no longer wait for the wealthier economies to push ahead with their proposed $100 billion sale of bonds as a demonstration of their commitment to sustainable finance.

This has to do with countries deliberately incorporating environmental, social and governance (ESG) products in their financing programs for the purpose of limiting their adverse impact on the environment and on labor.

The IMF said ESG has become more mainstream in emerging markets “in part because of pandemic-related financing needs, such as healthcare, as well as Latin America’s surge in climate-related borrowing.”

It noted that emerging market share in sustainable finance tools increased for the first time since 2016 and highlights investor appetite for ESG products.

But the IMF warned the risks multiplies as well as ESG-linked debt more than tripled in 2021 to $190 billion even as sustainability-related equity fund flows also rose to $25 billion, bringing total assets under management to more or less $150 billion.

“ESG investments now make up almost 18 percent of foreign financing for emerging markets excluding China, quadruple the average for recent years. This raises questions about possible financial stability risks,” the IMF said.

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