Full Title: Thematic Bonds: Financing Net-Zero Transition in Emerging Market and Developing Economies
Author(s): Dr. Gautam Jain
Publisher(s): Columbia SIPA Center on Global Energy Policy
Publication Date: December 12, 2022
Full Text: Download Resource
Description (excerpt):
A significant gap exists globally between the financing needed and the current level of spending to meet net-zero goals. The problem is particularly acute for emerging market and developing economies (EMDE), as they face higher spending on the energy transition as a percentage of gross domestic product (GDP) and are likely to be affected more severely by climate change than advanced economies. Thematic bonds that target specific investment themes, including climate change mitigation, can help narrow the financing gap, but EMDE’s share of the global thematic bond market remains small.
This report explains the urgency of raising financing for EMDE to address climate change and discusses the evolution of thematic bonds. It finds that the asset class has the potential to achieve significant further growth. As part of Columbia University’s Financing the Energy Transition initiative, it offers policy recommendations to governments and development banks interested in increasing thematic bond issuances from these countries. Options to consider include addressing local currency risk using structured finance, adapting institutional frameworks such as Green Bond Principles (GBP) to national contexts, addressing accessibility issues in domestic markets, and providing tax incentives.