Sovereign Green, Social and Sustainability Bonds: Mobilizing Private Sector Capital for Emerging Markets

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Children playing outdoors by some trees, in front of a school in Benin. Children playing outdoors by some trees, in front of a school in Benin.

In Benin, close to a million schoolchildren will have access to food via school canteens by the end of 2022, funded by the proceeds of the Benin Social Development Goal (SDG) Eurobond. Benin’s SDG bond is a sustainability bond, one of the types of thematic bonds that earmark proceeds for projects and activities with positive environmental and social returns sought by investors.

UNCTAD estimates that emerging markets and developing countries need trillions of dollars to meet net-zero targets while continuing to grow and prosper. The USD 3.5 trillion thematic bond market (as of September 2022), which was initiated by the World Bank’s first labeled green bond in 2008,  demonstrates a significant opportunity to mobilize private sector capital from the capital markets – and emerging markets are increasingly tapping this market. With regulators, investors, and shareholders pushing for environmentally and socially positive change through incentives, disclosures, reporting, and regulations, the demand for thematic bonds is expected to accelerate.


Global Thematic Bond Market, Annual Issuance 2012-2022 (USD Billion)

Chart of the gllobal thematic bond market
Figure1: Global Thematic Bond Market


Checking the pulse of the market to gauge opportunities for World Bank clients

The World Bank conducted surveys of public debt management offices, international investors, and intermediary banks to better understand how to improve access to this market. The insights of both surveys, published in the report “Sovereign Green, Social and Sustainability Bonds: Unlocking the Potential for Emerging Markets and Developing Economies,” open a window to the intentions, opportunities, and barriers of sovereign issuers. 

Survey results reveal overwhelming interest from emerging market governments and investors. Green, social, and sustainability bonds allow governments to reach investors that would otherwise not buy their debt.  Investors use thematic bonds to reduce environmental, social, and governance (ESG) risks, diversify their portfolios and achieve environmental and social returns.

Governments are responsible for investments in public goods and have the single most important role in promoting green, resilient, and inclusive development. As of September 2022, 18 emerging market governments from Chile to Uzbekistan have issued sovereign thematic bonds to finance climate action, promote just transition, and deliver their Sustainable Development Goals  (Figure 2). Seven sovereigns have issued only green bonds (USD 7 billion), three have issued only social bonds (USD 2 billion), seven have issued only sustainability bonds (USD 22 billion), Indonesia has issued green and sustainability bonds (USD 6 billion), and Chile has issued all types of thematic bonds, including sustainability-linked bonds (USD 33 billion).


Emerging Market Sovereign Thematic Bond Issuers (USD Billion Year to Date)

Chart of thematic bond issuers
Figure 2: Emerging Market Sovereign Thematic Bond Issuers

Most emerging market sovereigns have issued thematic bonds in the international market in hard currency, such as Egypt with its USD 750 million green bond in September 2020. However, there is an increasing number of sovereigns issuing thematic bonds in local currency, such as Colombia’s green bonds issued in September and October 2021 in the local market for an amount of Colombia peso 1.5 trillion (equivalent to USD 368 million). Survey respondents reported interest in both markets, local and international, depending on debt management strategy and depth in local markets. 

Sovereigns and investors view sovereign thematic bond issuances as a positive signal, flagging a country’s commitment to sustainability and offering the opportunity to differentiate themselves from others. Both consider sovereign thematic bonds as critical to developing local sustainable bond markets and motivating private sector issuers.

"Sovereigns and investors view sovereign thematic bond issuances as a positive signal, flagging a country’s commitment to sustainability and offering the opportunity to differentiate themselves from others."



Institutional capacity is a challenge for many countries

What makes these bonds so attractive to investors is the transparency. Issuers put in place clear governance processes to identify and evaluate eligible projects, segregate, manage and track bond proceeds, and measure the impact. This allows investors to do their due diligence and ensure they are investing in bonds that will support investments aligned with their own priorities. Debt managers do not need to do this for conventional bond issuances. For many emerging market debt management offices, setting up the governance processes to ensure transparency is complicated. They lack the institutional capacity needed to carry through all the steps. They need to coordinate with line ministries that are responsible for implementing the projects, which can add more complexity. The quality and availability of data are often not on par with investor expectations. 


What will it take to unlock the potential for emerging markets?

Investors say that governance frameworks are not robust enough. They worry about the “greenness” of the projects that are being financed (how credible are they? How impactful are they?). Unlocking the potential of sovereign thematic bonds in emerging markets requires a better understanding of the market’s expectations,  which will increase the issuer’s ability to issue a credible green, social, or sustainability bond and boost investor confidence. In addition, sovereigns must carefully assess the feasibility of issuing thematic bonds in the context of their overall funding strategy and market conditions. 
Engagement between sovereign issuers and investors can ensure they meet each other’s expectations and maximize the benefits of thematic bonds. International financial institutions such as the World Bank can play a critical role in assisting sovereigns with capacity building and integrating thematic bonds into their overall funding strategy. 

The World Bank’s Sustainable Finance and ESG Advisory Services work with policymakers, ministries of finance, regulators, and central banks to build the capacity of emerging market governments for issuing green, social, and sustainability bonds. The advisory supported Malaysia in issuing the world’s first green Sukuk, Seychelles in the world’s first sovereign blue bond, Colombia in the first sovereign green bond in local currency in Latin America, Egypt in the first green bond in the Middle East, and North Africa among many other client countries. With the support of the advisory services, World Bank clients have mobilized a total of USD 7.7 billion of private sector capital through green, social, and sustainability bonds . The report captures the lessons learned from these as well as other successful transactions. These lessons should help to close the knowledge gap identified in the surveys and help the World Bank offer customized technical assistance to sovereign and sub-sovereign issuers. 

As the largest multilateral financier of climate action in developing countries, the World Bank is committed to helping member countries achieve sustainable growth, promote inclusion, and strengthen the resilience of their economies.


Farah Imrana Hussain

Senior Financial Officer, Treasury

Helena Dill

Consultant, World Bank Treasury

Banu Turhan Kayaalp

Knowledge Management Specialist, World Bank Treasury

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