Green bonds become real in emerging markets

The COVID-19 pandemic has changed the way we live and work, throwing so much about the future into doubt. Amid the crisis, governments, financial institutions and investors are focused on the immediate challenges of saving lives and businesses and minimizing long-term market disruption. 

But as we battle the pandemic, we cannot lose sight of other threats, in particular the climate crisis which remains as urgent as ever. 

That’s why the Real Economy Green Investment Opportunity (REGIO) Fund, a pioneering green bond investment fund aimed at mitigating risks from climate change in emerging markets, is so critical. 

The fund, anchored by HSBC and the International Finance Corporation (IFC), a member of the World Bank Group, uses public and private capital to help businesses in developing countries transition to cleaner, more efficient energy use and invest in other climate-friendly solutions. REGIO has already raised nearly $500 million, proving that even in a time of a global pandemic and unprecedented capital outflows, investors are keenly aware of the threat of climate change – and are investing in solutions. 

"For over a decade, green bonds have helped investors fund projects that are environment-friendly and climate-responsible, but the REGIO fund is a different type of financial tool."

For over a decade, green bonds have helped investors fund projects that are environment-friendly and climate-responsible, but the REGIO fund is a different type of financial tool. Here’s why:

REGIO is the first global green bond fund targeting “real economy” issuers. That means companies that produce goods and services, representing a previously untapped opportunity for green bonds.  The fund will provide an additional – and essential – source of financing for these businesses. 

Before REGIO, the green bond market in developing countries was focused mostly on banks and financial institutions. But mainstream companies – utilities, agribusiness providers, manufacturers – need to climate-proof their business models too. Green bonds allow these businesses to finance new climate-smart opportunities and protect themselves against climate risks. 

REGIO is different in one more critical way: it targets emerging markets – in Asia, Africa, Latin America, and emerging Europe – places that many green bond investors have avoided. IFC analysis shows that 21 emerging market economies alone hold $23 trillion in climate-smart investment opportunities through 2030.  Trillions more could be triggered by creating the right business conditions in these markets. Green bond funds like REGIO hold the ability to play a greater role in mobilizing a good portion of those opportunities. 

The REGIO fund follows on the success of the Amundi Planet Emerging Green One (EGO), the world’s largest targeted green bond fund focused on emerging market banks. This fund, in which IFC is a cornerstone investor, provided a tiered risk structure to entice investors into emerging markets. When the idea for REGIO was born, the strong market standards implemented by EGO created the appetite of investors to fund a real economy bond fund in developing countries. 

"Against the challenges of the COVID-19 pandemic, the case for climate business has never been stronger and private investors hold the key."

Against the challenges of the COVID-19 pandemic, the case for climate business has never been stronger and private investors hold the key.  REGIO will help developing country businesses gain access to the funding that they need to grow in a sustainable manner. 

It’s a signal that the world is ready to fund a green recovery and reconstruction from this crisis. It makes clear business sense.