Sustainable finance is a popular trend in the world of finance noted by Bahaa Abdul Hussein. With increased awareness of the impact of climate change, investments are now being done keeping sustainability in mind. It is not just in developed markets, but even the emerging markets where sustainable finance is being followed. Let’s look at the various opportunities for sustainable finance and the challenges involved.
Sustainable finance in emerging markets
Sustainable finance has been growing by leaps and bounds in the emerging markets. China has taken the lead here. Green bonds has been an important way in which sustainable finance has been practiced. Many Latin American countries have taken key steps in sustainable finance. Chile has led the way in 2021 with 12 billion dollars of green bonds issued as compared to 2 billion dollars of China.
ESG bonds have been another way in which emerging markets have practiced sustainable finance. More than 190 billion dollars of ESG bonds were issued in 2021. China dominates the field with 110 billion dollars of ESG bonds. Downturn in the stock market in 2022 has affected ESG bond returns, but it has not affected the overall growth story.
Challenges and opportunities
The challenges before sustainable finance in emerging markets include:
- Regulatory environment is an issue that impacts sustainable finance. Clearly defined and unambiguous regulations help in promoting sustainable finance. Regulations should not act as a barrier to sustainable finance but should encourage it. Governments in emerging market have a key role to play.
- Governments need to come out with incentives to encourage firms to invest in sustainable projects. A right mix of tax breaks, subsidies, and other such measures are needed.
- Governments need to create policies that help in market growth. The demand for sustainable products and services has to grow. If govt. policies can help in this, it would promote sustainable finance.
- While public sector needs to invest in sustainability, private sector firms also need to be encouraged. Too much of public sector investment may discourage private investors. It is importance to maintain a proper balance.
While there are challenges to be met, there are also many opportunities. There is greater awareness on sustainability today. It is a great opportunity that investment firms can capitalize on. Governments in emerging markets are also sensitive to the need for sustainability. They are creating policies and coming out with measures to promote sustainable investments. This presents a great opportunity for sustainable finance.
The article has been written by Bahaa Abdul Hussein and has been published by the editorial board of www.fintekdiary.com.
