Sustainable Finance in Emerging Markets is Enjoying Rapid Growth, But May Bring Risks by Deepali Gautam, Rohit Goel and Fabio Natalucci published by IMFBlog (3/2022).
“Financial stability concerns include potentially higher sensitivity to global financial conditions.
Most of the activity in the rapidly growing world of sustainable finance has been previously concentrated in advanced economies, but emerging markets, while still a small share of the total, saw a surge last year.
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, but this growing opportunity also poses new risks.
ESG’s rising prominence
Sustainable finance incorporates ESG principles into business decisions and investment strategies, covering issues from climate change to labor practices. It 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.
ESG-linked debt issuance more than tripled last year to $190 billion. Sustainability-related equity fund flows also rose, to $25 billion, bringing total assets under management to nearly $150 billion…”