The International Finance Corporation (IFC) has partnered with European asset manager Amundi to create a US$2 billion green-bond fund for emerging markets to expand local capital markets for climate investments.
“This green-bond fund will lower the risk for the private sector and attract new investors, essentially creating a market where there was none,” said Philippe Le Houérou, CEO of IFC, at the World Bank’s Spring Meetings in Washington DC.
IFC will offer first-loss coverage to potential investors, which it says will help to lower risk and mobilise financing from the private sector.
Le Houérou added: “We’ve already identified dozens of banks in many developing countries around the world that could be interested in this fund. It’s a win-win – supporting the green economy and deepening access to international markets for emerging market issuers.”
The global green bond market is currently valued at US$100 billion as of 2016, though few lenders in developing countries have issued green bonds. The new fund, which is set to be fully invested in green funds within the next seven years, could give local financial institutions in emerging economies the green light to issue bonds by increasing demand while allowing local markets to thrive.
IFC and Amundi will use an investment support facility – known as the Green Cornerstone Bond Fund, in which the IFC has invested US$325 million – to strengthen financial institutions’ capacity to issue green bonds. This is also expected to be achieved by providing training and sharing international best practices with the institutions.
The Green Cornerstone Bond Fund will be able to purchase green bonds issued by banks in Africa, Asia, the Middle-East, Latin America, Eastern Europe, and Central Asia.
Amundi will be expected to raise the remainder of the US$2 billion by approaching global institutional investors, and managing the debt of their stakes in emerging markets.
Xavier Musca, chairman of Amundi, said: “I consider this project as a game changer: it is both an investment opportunity for institutional investors and it will have an impact on society by accelerating the shift of emerging markets toward a green economy.”