The Global Green Bond Market Already Shows Signs of Surviving U.S. Pullback

The climate and energy policies of U.S. President Donald Trump has a ripple effect around the globe. A key impact is a significant shrinkage in green bond activity aimed at helping emerging markets meet their climate goals. But one sign that progress will continue is how other stakeholders are stepping into the financial gap left by the U.S. government when it pulled back on its climate commitments.

Emerging markets and green bonds

The term “emerging markets” refers to a group of about two dozen rapidly-growing nations. Also called emerging economies, the group includes parts of Latin America and Eastern Europe as well as Africa, the Middle East, Indonesia and the Asia-Pacific region.

Though China, Saudi Arabia and several other emerging markets have considerable financial resources, the majority are low- to middle-income but growing — and the International Finance Corporation emphasizes the importance for investors to continue supporting green bonds in these markets. “There is an urgent need to grow green bonds and other debt instruments that promote sustainability to give emerging economies the financing they need to meet climate targets,” according to the financial institution.

Green bonds allow investors to steer their funds into specific projects that benefit communities and the environment, helping to grow their profile in accordance with ESG (environmental, social and governance) principles. In a 2021 analysis, the financial services company Fidelity also indicated that green bonds reflect a growing consensus on the importance of achieving socially and environmentally beneficial goals.

A resurgence for the anti-ESG movement 

By the time Fidelity issued its report, state and federal Republican lawmakers in the U.S. were already mounting vigorous challenges to ESG investing principles and DEI (diversity, equity and inclusion) programs. By 2021, some leading ESG supporters were deploying alternative language to describe their ESG and DEI goals in response.

After President Trump took office this year, a simple change of wording was not enough to deflect the pressure to drop both ESG investing and DEI goals.

Bloomberg recently took stock of the impact on the green bond market, reporting that “backlash in the U.S. on climate issues is hitting the ability of many emerging markets to raise funds for environmental projects.”

Sales of green bonds in emerging markets fell by approximately 30 percent so far this year, according to data tracked by Bloomberg. The current total of $8 billion, which does not include China, marks “the slowest start to a year since 2022,” Bloomberg reported. “Since Trump returned to the White House, U.S. companies have all but abandoned green bonds, once touted as a way for corporations to help fix the planet.”

Other nations pick up the green bond ball

With the U.S. sidelined, some emerging markets are issuing their own green bonds. In February, for example, Saudi Arabia issued its first tranche of green bonds, valued at about US$1.6 billion. The green bonds are part of a larger issuance totaling US$2.36 billion.

China is another emerging market entering the global green bond market for the first time. The country is planning a total of up to US$829 million to be listed on the London Stock Exchange, as the first in a series of issuances in the United Kingdom, Reuters reports. 

“China is willing to work with the U.K. to deepen cooperation in green and low-carbon development,” Reuters reported, citing comments by China's vice premier, Ding Xuexiang, to British energy minister Ed Miliband during a meeting in Beijing last month.

Stakeholders in developed economies also maintain a strong interest in green bonds. In March, for example, the leading U.K. financial services group Legal & General announced its Nature and Social Outcomes strategy. The new initiative adds $235 million to the firm’s existing ESG investments in emerging markets, bringing the total to more than $1 billion.

Legal & General launched its Nature and Social Outcomes transaction in December in support of a first-of-its-kind partnership between Ecuador and the nonprofit Nature Conservancy aimed at supporting freshwater conservation. “The partnership should provide significant gross savings over the life of the transaction, unlocking around $460 million to facilitate the Biocorridor Amazónico program, which aims to protect 4.6 million hectares of forest and 18,000 kilometers of freshwater,” according to the financial services group.

Though the announcement does not specifically reference ESG investing or green bonds, the firm does list support for education, healthcare, and access to clean water alongside its habitat and biodiversity conservation goals for emerging markets.

As for the bottom line, emerging markets have the potential to “offer attractive returns for investors whilst aiming to support communities and ecosystems which play an indispensable role in upholding economies across the globe,” Jake Harper, senior investment manager at Legal & General, said in a statement.

President Trump made a show of exercising his authority earlier this year when he pulled the U.S. out of the 2015 Paris Agreement on climate change for the second time, but the U.S. is just one nation among many. Other powerful stakeholders around the world are already coalescing around the mutually beneficial goals of green bonds, regardless of pronouncements from the U.S. Oval Office.