EM green, sustainability bonds face ongoing headwinds

Patrick Buncsi

10 June 2025

Emerging market (EM) green, social, sustainability, and sustainability-linked (GSSS) bond sales face an ongoing growth slump, as softening global economic growth, regulatory changes in Europe, and increasingly downcast sentiment on ESG, challenge prospects for this emerging asset class, according to Europe’s largest asset management firm Amundi.

Between 2018 and 2024, emerging market GSSS bond issuance has contributed around one-sixth of the cumulative global GSSS bond market, which totals $5.1 trillion.

While global GSSS bond issuance accelerated in 2024, hitting an all-time high of more than $1 trillion on a gross basis (up 3% year over year), EM green bonds fared considerably worse, with issuance falling 14% year over year.

Amundi attributed much of the decline to green tech power-player China, one of the key markets for GSSS bonds, where local borrowers made a shift to conventional bonds in the onshore market.

Another factor behind the market retreat was a 23% contraction in overall fixed income issuance in emerging markets outside China, amid weaker economic growth in Asia and Europe.

Despite this, GSSS bond penetration amounted to more than 5% in emerging markets outside China – a new record – and ahead of the rates seen in China and in developed markets.

On pricing, green premium or “greenium” (a yield discount for issuers of GSSS bonds) more than halved to an estimated 1.2 basis points in 2024 from 2.5 bp in 2023, Amundi calculates.

For emerging markets, meanwhile, the greenium effectively disappeared in 2024 as supply caught up with demand for this type of asset.

Looking longer-term, however, Amundi takes a more positive view on GSSS EM bonds’ growth prospects.

“Annual investments in clean energy that deliver greater efficiency, and supply security are likely to double in the coming years.”

“This growth will likely be supported by an increasingly competitive renewable energy sector and ambitious commitments by multilateral institutions.”

Citing projected figures from the S&P, Amundi notes that emerging markets are estimated to see around $5 trillion in clean energy investments.

This includes the development of 5,800 GW of clean energy projects, made up overwhelmingly of solar photovoltaics and wind assets, which represent about 60% and 30%, respectively.

Noting the dominance of materials and manufacturing sectors in EM economies, Amundi foresees significant opportunities to strike clean energy deals.

Indeed, a key driver of the growth in EM GSSS bonds, which have increased from just over $600 billion in 2020 to more than $1.04 trillion in 2024, has been the transition from carbon-based power generation to cleaner alternative energy forms.

Clean energy investments in emerging markets have surged over 70% since 2018, with China alone experiencing a 170% increase, Amundi noted.

As well, investor appetite has grown markedly, with sustainable funds hitting $3.6 trillion of assets under management in 2024, up from $1.4 trillion in 2018. Fixed income allocations within investment portfolios have risen to 22% in this time.

Yerlan Syzdykov, global head of emerging markets at Amundi recognised a decisive shift within GSSS bonds, with green bonds – which have long dominated the GSSS EM bond market – giving way to sustainability bonds.

“This trend is pronounced among multilateral institutions and, more generally, among issuers outside China that are seeking the flexibility of sustainability bonds to finance both environmental and social projects,” Syzdykov wrote.