Global Finance: Against a backdrop of rising debt, geopolitical and economic instability, how is the role of Islamic finance evolving to address emerging global challenges?

Yousef Khalawi: Despite its centuries-old heritage, Islamic finance is still a comparatively young industry. In its modern iteration, it is really just a half century old. Sukuk, for example, is less than 20 years old, making it relatively new compared with Western bonds.

The challenges you refer to are not merely domestic or regional—they are truly global in nature, and we see huge potential for the creativity of Islamic finance to address many of these. Take climate change, for example. Last year’s floods in Pakistan were not a result of local, or even regional actions; this is a global problem that can affect any part of the world.

Islamic finance has enormous capacity to develop new solutions to these sorts of challenges, and this is precisely the focus of the AlBaraka Forum, as it seeks to extend Sharia principles beyond the Muslim community.

GF: Where are the greatest growth opportunities?

Khalawi: Beyond the major global centers for Islamic finance of Malaysia and the GCC, Egypt, Pakistan, Indonesia, and Nigeria in particular represent huge growth opportunities for Islamic finance.

Financial inclusion is one way of unlocking that potential. In the case of Nigeria, Pakistan and Indonesia, these Muslim-majority countries each has a population far exceeding 200 million. If you consider the rate of financial inclusion in these countries, the potential for Islamic finance becomes evident.

Turkey also has great promise. Islamic finance penetration there is less than 10%, so raising that to just 20% is doubling the current penetration rates – underscoring the considerable potential for Islamic banking there.

GF: What role can Islamic finance play in advancing a more sustainable global economy?

Khalawi: The non-profit area of Islamic finance represents a huge range of opportunities for sustainability and ESG. If we were to transform the practice of zakat from an individual practice to an institutional practice, for instance, the sky is the limit. This would help institutions to focus on issues of inequality – just one of many of the 2030 Sustainable Development Goals that we are still some way off achieving, with just six years to go. Adapting the concepts of waqf and zakat at an institutional level could effect a great deal of change, especially in the world’s least developed countries.

The wider concepts and standards of Sharia-compliant investment by their nature lend themselves well to the sustainability agenda. Investments in alcohol, tobacco or military activities are prohibited anyway because these activities go against the well-being of individuals.

The fundamentals of Islamic finance have a lot to offer the whole investment industry. Even one of the largest funds in the world, Norway’s $1.6 trillion sovereign wealth fund, is moving closer to Islamic fundamentals. There is huge potential to explore this much more at a global level. So many CEOs in Islamic finance are focused only on the needs of Muslims seeking Sharia principles, but the potential is so much greater.

We need to consider these factors when communicating with Gen Z. We need to understand that they are looking for a digital economy, that ethical issues are important to them, and that they are guided more by values than by brands. A lot of research has been carried out on this topic, and it’s a great development that we need to take into account.

One of the Forum’s upcoming initiatives, scheduled for launch in 2025, is the first dedicated hub for communication strategy frameworks for Islamic finance. The new microsite will offer downloadable assets for anyone interested in exploring opportunities in Islamic finance.

Bonds with earlier maturity dates are more popular for resale by bondholders. The platform, provided by JPMorgan Chase, is a debt-for-nature swap of significant proportions.

“This debt conversion represents the most ambitious and impactful environmental action in El Salvador’s history,” President Nayib Bukele said. “With support from international parties, we are executing the largest debt conversion transaction of its kind to date.”

This is the fourth debt buyback offer El Salvador has made since 2022, which began with a liquidity crisis. S&P rated the nation’s outlook at B- with a stable outlook and called the debt swap “opportunisticaction.”

In September, corporations looked to secure finance ahead of possible market turbulence, and over 1,225 issuances saw $600 billion of bonds traded during the month. The move took many market analysts by surprise, with many blaming the November US election and recession fears that surfaced in August.

According to the El Salvadoran government, the refinancing will provide savings of $352 million in debt service costs. The US International Development Finance Corporation provided $1billion in political risk insurance and the Development Bank of Latin America and Caribbean added $200 million as a standby letter of credit.

Robert Cozzari, co-head of Latin American markets at JPMorgan, told Bloomberg that El Salvador brought “all parties together” for a capital market initiative that will achieve execution certainty and cost savings.

The costs saved by the buyback will go toward the conservation and restoration of the Lempa River basin, which is the largest in the country and provides water security for El Salvador, Guatemala, and Honduras. Under the agreement, the El Salvadoran government will establish an entity to oversee the conservation, create a water resources data monitoring service and declare 75,000 hectares of protected aquifer recharge zones by 2044.  

Ilham Aliyev, the 62-year-old president of Azerbaijan, should be feeling pretty content. Being chosen to head the COP29 Summit in Baku, attended by over 190 countries, is a big honor.

It is also controversial; Azerbaijan is the second petrostate in a row to host COP following Dubai in the United Arab Emirates last year, and the summit president will be Aliyev’s natural resources minister, Mukhtar Babayev, who has spent 26 years of his career at the State Oil Company of the Republic of Azerbaijan (SOCAR). The event nevertheless gives this country of 10.3 million—the world’s first major energy producer, whose iconic Flame Towers in Baku symbolize the “Land of Fire’s” huge natural gas wealth—an impressive 12 days in the international spotlight.

COP29 follows a spell of good economic news for Azerbaijan. GDP growth has been picking up from 2023’s sluggish 1.1% pace thanks to a boost in demand for energy exports among consuming countries keen to diversify away from Russia and a stronger than expected non-oil economy. Growth increased by 4.3% year-on-year in the first half, leading forecasters to raise their full-year projections. 

“We are currently expecting 3.2% for 2024, but with the likelihood of an upside,” says Erich Arispe, senior director and the head of Emerging Europe Sovereigns at Fitch Ratings. “Growth is taking place against a background of falling average inflation—from 2022’s 13.9% and 2023’s 9% to around 3.5% this year—and a strengthening external balance sheet.”

Azerbaijan’s net sovereign asset position, at 71% of GDP in 2024, puts it among the highest of its BBB-rated and A-rated peers, as does government debt, at just 21.5% of GDP in 2024. Fitch upgraded the country’s sovereign rating to investment grade in July, to BBB- from BB+, with a stable outlook, and upgraded several Azeri commercial and banking entities, including SOCAR and ABB, the International Bank of Azerbaijan.

Aliyev is hosting COP29 at a time when most world leaders see his country as “relevant and useful,” says Tinatin Japaridze, South Caucasus analyst with the Eurasia Group: an alternative energy source to Russia, a possible bringer of stability in the notoriously unstable Caucasus, and an attractive destination for foreign direct investment not only in oil and gas but in the non-oil economy, given Aliyev’s promise to diversify.

Azerbaijan has, in fact, long been committed to boosting its non-oil economy and diversifying away from fossil fuels, which account for almost 48% of GDP and 92.5% of export earnings. The government aims to lure foreign direct investment (FDI) into such sectors as tourism, information and communication technology, logistics and transport, and agribusiness.

But progress has been slow. Poor corporate governance, corruption, high levels of state capture, and lack of transparency are all problems, according to Transparency International, which ranks Azerbaijan 154 out of 180 countries, alongside Tajikistan and Turkmenistan, in its Corruption Perceptions Index (CPI).

“All these sectors have potential,” says Fitch’s Arispe, “but because of domestic business environment factors have seen little in the way of FDI, while domestic investment has been partly held back due to constraints on access to financing. If Azerbaijan is to boost long-term growth away from the 2%-to-3% a year long-term trend, development of the non-oil economy is essential.”

Investment zones may be part of the answer; the Alat Free Zone south of Baku offers a range of incentives, including independent dispute resolution procedures in accordance with international standards.

An area receiving special attention—despite Azerbaijan’s image as an oil-dependent economy—is renewables and sustainable projects. The government is committed to reducing greenhouse gas emissions by 40% by 2050 and increasing renewable power capacity to 30% from today’s 7%—mainly accounted for by three hydro projects—by 2030. Boosting green energy is seen as not only good for the environment but, with much of it to be used domestically, a way to free up gas that can then be exported to Europe via various pipelines.

The multinational development banks are encouraging the shift. The European Bank for Reconstruction and Development has allocated €3.7 billion ($4 billion) to various projects, including, in April, Azerbaijan’s first renewables auction, for a 100-megawatt solar power development in Garadakh, and has been working closely with the Ministry for Energy to develop a new legal and regulatory framework for renewables, including a new Renewables Energy Law.

A series of major private-sector initiatives are underway as well, including Masdar, a huge solar energy project with UAE participation, and ACWA Power, a wind power project signed with Saudi Arabia that, when completed, will generate one billion kilowatt-hours, enough to power 300,000 homes.

Azerbaijan will be keen to use its role as COP29 chair to initiate more renewable and sustainable projects and speed existing ones, even as it maintains its lucrative role as a fossil-fuel exporter.

“Azerbaijan is in the active phase of green transition,” Aliyev said in a TV interview earlier this year, “but at the same time, no one can ignore the fact that without fossil fuel, the world cannot develop, at least in the foreseeable future.” Gas exports will remain a key source of foreign earnings, underscored by the European Commission’s agreement to double energy imports from Azerbaijan by 2027 in order to further reduce its dependence on Russian gas.

Renewables investments are expected to contribute to the $10 billion that Aliyev plans to invest in Nagorno-Karabakh, the mountainous region that Azerbaijan wrested control from Armenia last year, alongside major infrastructure investments.

“The government’s fiscal consolidation strategy has been adjusted to enable the government to meet its reconstruction and development commitments in Karabakh, but it will be also keen to attract foreign investment,” says Arispe.

Turkish and Russian companies will probably be among the more active investors, but Azerbaijan will be eager to lure Western companies, their presence further conferring international recognition of the region as a part of Azerbaijan. But some observers warn that improving the investment environment and tackling corruption and poor governance will be critical, both in Karabakh and more widely in the non-oil economy.

“Sustainable partnerships in green energy will be key going forward,” says Japaridze. “Although it may be increasing gas exports now, Azerbaijan must be realistic about how long this can be maintained, especially with the economy probably underperforming over the longer term.”

Surveys suggest production is poised to decline in another five to eight years, she notes. “Like every other country, it really has no real alternative to looking seriously towards a greener, more sustainable future.”

At last year’s COP28 conference in Dubai, the participating governments—197 countries plus the European Union—committed to a tripling of renewables targets and a doubling of energy efficiency. When they check on their progress at COP29, officially known as the Conference of Parties, which opens on November 11 in Baku, the capital of Azerbaijan, their agenda will be, if anything, more ambitious. It will range from protecting biodiversity to capacity-building for carbon markets to climate education and youth action to inclusiveness for Indigenous people and other marginalized groups.

Added to that should be grid and storage targets ensuring that countries have the capacity to store renewable-generated energy, says Dave Jones, Global Insights program director at Ember, a UK-based energy think tank. COP29 has already called for a sixfold increase in global energy storage by 2030, to 1,500 gigawatts of capacity. “To reach this goal,” Michael Bloomberg, the UN’s special envoy on climate ambition and solutions, has said, “it’s critical that we increase collaboration among private, public, and nonprofit leaders.”

Key to all these goals is climate finance, which is expected to be a central focus of this year’s gathering.

“This year is known as the finance COP,” says Natalia Alayza, manager in the Sustainable Finance Center of the World Resources Institute (WRI). This year’s participants are expected to adopt a new target for the collective investment they pledge to make each year toward climate action. That target was set at $100 billion in 2009, a goal they only met in 2022.

“Adopting the new collective quantified goal (NCQG) which will replace the $100 billion goal will be the key priority,” says Alazya, “not only because it will bring trust into the international climate finance negotiations but also because it will be crucial to supporting developing countries’ climate ambition commitments.” At a minimum, she urges, the participants should pair the new target with a clear delineation of what it will fund—adaptation, mitigation, loss and damage, for example—who the providers and recipients will be, and the timeframe for delivery.

Bridging the often-considerable gap between ambition and accomplishment has been one of the biggest hurdles to meaningful implementation of climate change goals. The Climate Bonds Initiative’s Partnership Program is just one of many attempts to boost the use of climate bonds, particularly in the areas of GSS (green, social, and sustainability) markets. This year’s Climate Finance Summit, held in Kuala Lumpur in August, and the Climate Investment Summit held in London in June, underscored the importance of governments and the private sector working closely together, particularly as climate mitigation becomes a priority.

With dramatic storms and floods in many places becoming more common, some observers argue that countries will have to be ready for a once-in-100-years storm pretty much every year—which raises the urgency of securing financing now.

“One of the most important needs in Central Asia is sustainable infrastructure,” says Ludger Schuknecht, vice president of the Asian Infrastructure Investment Bank (AIIB), “everything from dealing with effluent water from the Aral Sea to the enhanced connectivity of transport infrastructure between the five countries of the region.” The AIIB held its annual general meeting this year in Samarkand, Uzbekistan, focusing closely on meeting climate goals.

“Private capital mobilization is one of the main priorities for doing so,” says Schuknecht, adding that the AIIB has already exceeded its 2023 climate finance goal of 55% of total investment, typically $10 billion a year, with 60% of total invested funds going toward green infrastructure, connectivity and regional cooperation, private capital mobilization, and technology-enabled infrastructure.

“There is now almost no project that we sign or initiate that doesn’t have a climate change dimension,” he notes.

Mobilizing private capital is the only realistic way to bridge the “trillions of dollars wide” climate finance gap, argues Dimitri Gvindadze, director of Climate Strategy, Regional Delivery at the European Bank for Reconstruction and Development (EBRD). Last year, the bank’s annual green finance investment totalled close to €7 billion ($7.3 billion), nearly half its total outlay.

“Through our investment, we mobilized a total of $27 billion in private sector finance toward climate-related projects,” he notes, “meaning that for every $1 billion of our own investment, we mobilized over $3 billion in the private sector.” 

Aside from boosting climate finance generally, Gvindadze would like to see COP29 prioritize Article 6—carbon trading—as well as areas that align with the EBRD’s activities. The bank is working on a new strategic and capital framework, to be published next year, that will focus on three priorities: green, inclusion, and governance.

But he sees a green dimension in just about every sector, including finance, transport, agribusiness, municipal, industrial and energy. Scaling up private investment in renewables often requires additional investment in public infrastructure such as electrical grids, he notes, which generally means major involvement by the state. Going forward, a faster-paced green transition will depend on politics, the business climate, macroeconomic stability, land rights, various regulations and licenses, budgetary and financial constraints, and concerns about energy security. These must be tackled as and when they arise.

“In terms of country ambition, our view is that where there’s a will, there’s a window,” Gvindadze argues. “Yes, there is a correlation between projects and geopolitical risk aversion, but our view is that the green transition is about enhancing the long-term competitiveness of your economy,” adding that COP29’s aims should be seen in these terms.

Another key priority, says the WRI’s Alayza, should be to find ways to boost public-private cooperation.

One option, Alayza says, could be to “explore or increase the use of financial instruments that mitigate the risks of private investments, such as guarantees, which still have space to grow when looking at, for example, the multilateral development banks’ climate finance portfolio.”

While many critics complain that the COP process is moving too slowly, Ember’s Jones is broadly positive. He points to the recent decision by the UK—the world’s first industrial nation, whose prosperity was built on coal—to phase out its last coal-fired power station by next year. Since the Paris Climate Change Agreement of 2015, he notes, 27 of the 38 OECD countries have committed to becoming coal-free by 2030, and since then, coal generation has dropped by 52%.

“We’ve seen action where you’d maybe least expect it,” Jones says, “with Saudi Arabia committing to having half of its electricity generated by renewables by 2030 while two-thirds each of the wind turbines and solar energy plants now installed worldwide are in China.”

With COP29 only weeks away, the world is not sitting still, however. The US presidential election will have already been held by then; with one of the two candidates highly skeptical of the realities of climate change, the outcome could significantly undermine US involvement and commitment to COP goals. On the other hand, the meeting of the G20 Rio de Janeiro Summit on November 18-19 will overlap with COP29. That, and the fact that Brazil is scheduled to host COP30 next year and is committed to serious action to mitigate climate, could bring more intensity to the proceedings.

“COPs are inherently complex, because they represent a platform for multiple stakeholders,” says EBRD’s Gvindadadze. “But they are useful for drumming up a sense of urgency.”

After a year of unprecedented climactic volatility—ranging from heat waves and drought to high-intensity storms, hur- ricanes, and major flooding—the urgency is already there.

The year 2023 cost Latin American economies an estimated $20 billion in destruction from natural calamities: the highest total since Hurricane Maria hit Puerto Rico in 2017.

Numbers-wise, the regional impact and cost are in line with such events elsewhere on the planet. According to the World Economic Forum, globally reported economic losses attributed to climate and water extremes reached $1.48 trillion in the decade ending in 2019: a 47.9% increase over the previous decade. However, compared to other regions, Latin America is uniquely positioned to leverage its natural riches to become a focal point of economic opportunity through green solutions at comparatively lower transition costs—if it manages to accelerate locally as well as regionally coordinated efforts.

The region is grappling with the economic impact of rising temperatures, shifting weather patterns and an increased frequency of natural disasters. Slow-to-act governments and a lack of coordinated proactiveness are the main hurdles preventing several Latin countries from catapulting to the forefront of the global ESG agenda.

“Without a decision to coordinate on following a specific path, we risk letting the single biggest economic opportunity for Latin America this century slip through our fingers,” says Marina Cançado, head of Converge Capital, who has worked for 15 years connecting investors, corporations and ESG/green economy solutions in the region.

Ana Luci Grizzi, partner at EY and Latin America deputy-lead for Sustainability and Climate Change, underscores the need for the public authorities to step up.

“We still need decisions that become state policies instead of the policies of a government,” she says. “There’s gigantic regional opportunity in the transition to a low-carbon economy, the bioeconomy, and the circular economy. We have natural capital available here both in quantity and in quality and this could give us a leadership position.”

According to Boston Consulting Group (BCG), if the world implements the Paris Accords by 2030, limiting temperature rise to no more than 1.5°C by 2100, the world will suffer less than an 8% loss of GDP to disasters and climate change. But at current levels, temperatures will rise 2.9°C by then, causing losses estimated at 24% of the global economy.

Latin America is already impacted in many ways.

“If we look at Colombia, loss of arable and forest land is one of the greatest risks,” says Bogotá-based economist Jorge Farfan, a partner at Brazilian venture capital firm KPTL. “We lose an average of 300,000 hectares of land annually, especially in the Amazon and in woodland, to nature degradation. We are also highly impacted by the stronger and more frequent Caribbean tropical storms and hurricanes reaching points farther south in the region. Chile and Mexico are already suffering extreme droughts, converting large tracts of land into barren deserts unusable for anything at an alarming rate.”

Research by the World Resources Institute places both Chile and Mexico, two of the most important Latin American economies, in the top 30 countries impacted by baseline water risks, the highest in the Western Hemisphere, while Peru is at 32nd place.

Flooding in the southernmost Brazilian state of Rio Grande do Sul in April and May vividly illustrates the challenge.

In just five days, cities and towns across the state saw rainfall equaling one-third of the annual average. The results were catastrophic. A study by EY showed 90% of the municipalities in the state were adversely affected; 30% declared a public emergency. Civilian authorities put the death toll at 183. Damage to public and private infrastructure was so extensive that the Brazilian Confederation of National Insurance Companies classified the disaster as the single largest claim-generating event in Brazil’s history.

Much of the blame, according to Cançado, lies with the expansion of single-crop agriculture over the years in Rio Grande do Sul, especially soybeans, which has adversely impacted the soil and exacerbated the potential for flooding.

“The effects of this incident go beyond the immediate tragedy,” she says. “Accounting for the potential of another event like this now impacts and alters the market value of assets, the feasibility and price of insurance, how public infrastructure concession bids need to be drafted and valued and what municipal spending priorities need to be.”

Climate and nature risks involve physical impacts that must be measured through risk-analysis methodologies, EY’s Grizzi points out, and these need to be revised to include forward-looking capabilities.

“Risks associated with shifting weather and nature can be dealt with either through mitigation or adaptation,” she notes. “The impacts filter down through the entire economic system, and that’s why financial institutions are also concerned about the systemic risks associated with contagion or holding assets and investments in places and companies that do not comply with transition goals.”

The good news is that Latin America has the potential to become a global leader in green solutions; according to BCG, Brazil is already the brightest star in the region, with the potential to double its yearly foreign direct investment and attract up to $3 trillion by 2050. It has the capability to generate excess green energy through renewables and increase sustainable regenerative agricultural output at scale while protecting and restoring biomes: distinct geographical regions with specific climate, vegetation, and animal life. And it could become a key player in providing cost-competitive green industrial products and services.

Brazil will host the COP30 climate summit next year, Grizzi notes; its own record has been mixed, but she remains hopeful.

“We have many good projects still in Congress,” she says, “such as the Brazilian System for Emissions Trade, which will be functional by them. But Brazil still lags behind the global north; they had more time to adapt while facing many more natural-resources restrictions. While Brazil is still catching up with the European CBAM [Carbon Border Adjustment Mechanism] or the American Inflation Reduction Act, the end results will still be positive and can place the country among the global players.”

BCG ranks Brazil as the world’s leader in profiting from regenerative agriculture at scale; first as a carbon-offset supplier through nature-based solutions, forecast to create up to $50 billion in revenue locally by 2030; and as a protagonist in wind, solar and green hydrogen generation. Brazil is expected to become a leader in biomass fuel development and a worldwide hub for low-carbon industrial products, which benefit from clean energy, ample natural resources and circularity.

“Brazil has 40% of the world’s biodiversity and one-third of the global biomes, but we don’t yet have a single global product tapping those resources directly,” says Danilo Zelinski, head of KPTL’s Forest and Climate Fund.

KPTL just concluded a round of investment in a company that taps molecules only available in the Amazon to create new products aimed at extending longevity and guaranteeing health in old age. “The opportunity to explore this biome in a sustainable way, protecting the forest, is tremendous,” Zelinski says, “and the economic incentive for this is there, too. It is much more lucrative to have such products and science coming out of the Amazon than to simply clear it for cattle pasture.”

Brazil could also see increased international investment in the relocation or construction of major data centers in its northeast, according to research from Santander, much of it built on advances in generative artificial intelligence. A simple query on ChatGPT requires 10 to 15 times more electricity than a query made through regular search engines. Brazil could capture a significant share of the $440 billion market simply because it can offer what most other countries cannot: cheap, clean, renewable energy and water to cool data centers at scale. Additionally, it has geographic proximity to Chile, a global supplier of the copper needed for the critical electrical applications required for servers.

“We have all the sectorial assets in place in Latin America in general,” says Cançado, “and in Brazil specifically: mining, energy, food, agriculture. We are the only region able to sustainably develop all of these assets while transitioning to net-zero carbon emissions. And we are able to do this propelling development, spawning economic growth, creating jobs, and generating income.”

Her conclusion couldn’t be more poignant.

“At this point, we are only missing one thing: a shared vision and a regional call-to-action,” she says. “We need to decide if we want to be the global power and global hub of climate solutions for the planet. This decision needs to be shared across governments, the private sector and societies throughout our countries. But we need coordination. The risk, if we don’t do that, is we’ll once again only be the region that could have been, but never was.”   

Finding solutions to an ever-expanding climate crisis is a global dilemma, but especially in Africa.

Despite contributing just 4% to global greenhouse gas emissions, the continent is disproportionately impacted by global warming. To cope, Africa is expected to need close to $3 trillion in investment by 2030. Yet, current commitments stand at only about $300 billion, leaving a vast gap.

Since the majority of African countries are already cash-strapped and heavily indebted, most of the existing funds come from abroad through development banks or multilateral mechanisms like the UN Green Climate Fund and the Loss and Damage Fund established last year at COP28. Local and regional commercial banks, too, are gradually increasing their participation in green finance.

“There has been a noticeable shift in the mindset of stakeholders across the African banking sector,” says Rachael Antwi, group head, Sustainability & ESG, Climate Finance at Ecobank, one of the main pan-African lenders. “Initially, there was a tendency to view climate action as a secondary concern, often overshadowed by more immediate economic challenges. However, this is rapidly changing as the impact of climate change becomes more apparent with extreme weather events, resource scarcity, and food insecurity.”

Nonetheless, lenders remain cautious about backing climate projects they often perceive as expensive, high-risk and low return.

“The largest funding gap is in adaptation, which refers to ensuring resilience against the impacts of climate,” says Kenny Fihla, deputy chief executive of Standard Bank Group. “Most often, projects are not seen as commercially bankable or feasible and require innovative solutions.” Standard Bank, Africa’s largest lender, aims to mobilize $14 billion in sustainable finance by the end of 2026.

A European Investment Bank (EIB) study found that while 66% of sub-Saharan African banks view green finance as a growth opportunity, only 15% have tailored products to tap into the market. Combining public and private capital is therefore emerging as a key factor in addressing the challenges ahead.

“To scale further, we need more collaboration between development finance and private finance,” argues Johan Malan, principal of Sustainable Finance Solutions at Nedbank, Africa’s fourth-largest bank, noting that blended finance offers advantages in risk mitigation and pricing.

Collaboration also bolsters the expertise needed to better structure and develop large-scale projects.

“Development finance institutions or donor funding may be catalytic in getting projects to a bankable phase,” notes Fihla. “Guarantees or insurance wraps may render projects commercially bankable or reduce costs of funding such that private sector appetite can be crowded in.”

Several types of blended finance are currently being used to support climate initiatives across the continent, including concessional loans, green bonds, technical assistance grants, intermediated lending and equity investment.

“A lot of funds are popping up across Africa to invest in climate transition, particularly renewable energies,” says Aliou Maiga, regional industry director for the Financial Industries Group at the International Finance Corporation (IFC). “The demand is growing fast. Why? Because it’s often easier for a small team of experienced people to get together and do this business than to convert a large bank.”

The IFC is actively involved in several funds, including a $20 million investment in IHS Kenya for green housing, $15 million in BIX Capital for production and distribution of climate-smart home appliances and $45 million in a green bond Sima Solar, which invests in off-grid solar projects.

The EIB, too, is active; last year, it invested over $350 million in Africa-based green funds including Mirova Gigaton and Acre Export Finance. In August, Helios Investment Partners, a London-based leader in private equity for Africa, raised $200 million from institutional investors to set up CLEAR, Africa’s largest climate fund with a $400 million target to support local startups and companies specializing in climate action.

The one sector investors all have eyes on is renewable energy. On a continent where over 600 million people lack access to electricity, the hope is that new technologies can help users leapfrog from zero power to solar energy without connecting to a national grid: a transition similar to the one that millions of Africans have made from cash-based economies to digital money, skipping traditional banks. 

Amid geopolitical insecurity and the collapse of traditional energy companies, economies in the Sahel are naturals fits for adopting renewable energies, Maiga argues, noting the rapidly expanding number of solar panels and batteries.

“Two years back, maybe I would have said Africa was not ready,” he observes, “but now I see an opportunity for the continent to leapfrog in the energy sector the same way it did in the mobile sector. Every country has its own context, but generally everyone is moving in that direction.”

Other promising areas for nimble startups include sustainable agriculture and irrigation, transport, recycling and smart construction. Last year, Africa-based climate tech enterprises raised $1.1 billion, according to regional network Africa: The Big Deal. In the first half of this year, it captured 45% of all funding raised by African startups, outpacing fintech.

Notable deals over the past few months included solar energy provider d.light, raising $176 million in July; electric vehicle maker Spiro, securing $50 million; agricultural insurance firm Pula, with $30 million in May; and SunCulture, a manufacturer of solar-powered water pumps, with $27.5 million in April.  

While other players are looking to assume a role in African climate finance, largely undefined regulatory frameworks, rules and criteria force them to improvise.

“Today in the business of green economy and climate finance, every institution, commercial banks included, is trying to find out where it fits and the traditional way of banking is not going to cut it,” says Ibrahima Cheikh Diong, UN assistant secretary general and director general of the African Union’s African Risk Capacity (ARC) Group. “One has to think outside the box.” 

Most jurisdictions have no specific guidelines or regulations for climate finance, leaving it up to the banks to follow international best practices, such as the International Capital Market Association’s principles for green bond issuance. Mandatory rules may be in store, however.

“Like elsewhere in the world, there is a trend of regulations starting as voluntary and then becoming mandatory,” Malan observes.

The continent’s largest economies, which also have the most developed banking sectors, are leading the way. In April, the Bank of Morocco and the World Bank released a report assessing the impact of climate change on the financial sector. A third of Moroccan banks, it found, are exposed through loans to sectors like agriculture and households in high-risk areas. It also offered recommendations on how to integrate climate risks into institutions’ strategies and policies.

Early this year, South Africa passed a first climate change bill, setting out a road map for climate action. In 2022, Africa’s largest economy had already issued a green taxonomy; since then, the South African Reserve Bank has published guidance on disclosure and climate-related risk management.

“That’s quite a big move and it also sets the tone for what is happening in other African countries,” says Malan.

“The African banking sector is increasingly acknowledging the significant challenges posed by climate change, recognizing both the economic and financial risks it entails,” notes Ecobank’s Antwi. “Moreover, by pricing in climate risks, banks are better positioned to protect their portfolios from potential losses, ensuring greater financial stability.”

These steps are crucial to creating a regulatory environment that builds investor confidence and supports growth, but they need to be sustained.

“Banks have to be very strategic in making sure that climate finance and investment are embedded in their strategies and are not just ad hoc interventions,” warns Diong.

Despite the urgency, only about 3% of global climate finance currently reaches Africa.

“There is still a long way to go, but we’ve also achieved a lot,” Malan concludes. Looking ahead, he sees potential for further growth in sustainable finance, climate debt swaps, and nature-related instruments.

“Through continued engagement, we know that many sustainability-focused clients are seeking to balance environmental and social impact alongside financial returns. As such, they are looking for ways to tie their treasury management to their organizational sustainability objectives,” states Sandrine Jourdainne, global head of Deposits and Liquidity Management for Standard Chartered. “Recognizing this, we introduced the ESG-Linked Cash Account so that corporates no longer have to compromise on financial returns or ESG outcomes. With this account, the interest rate on the cash account will be linked to the organization’s ESG-related performance. We are initially launching to clients in Hong Kong and Singapore, with the intention to scale to further markets over the coming months.”

In collaboration with clients, Standard Chartered works to set ESG-related key performance indicators (KPIs) and sustainability performance targets (SPTs) that align closely with their goals. “This targeted approach leads to meaningful change and lays a solid foundation for broader sustainability efforts in the future. The question isn’t whether they should engage in ESG initiatives, but rather how they can weave these into the fabric of their business strategy,” Jourdainne says.

A KPI example, according to Jourdainne, could be Scope 1 and 2 greenhouse-gas emission reduction, say, an SPT for an annual 5% cut. “Should the client achieve the agreed-to ESG-related targets, a preagreed payment of bonus interest will be made within an agreed timeframe.”

The KPIs and SPTs associated with ESG-Linked Cash Accounts will be subject to internal approval and verification, and Jourdainne says clients will be required to provide audited evidence of KPIs being met via a sustainability compliance certificate. The approach to setting the KPIs and associated targets will follow the principles applied to other sustainability-linked products with regard to assessment of the materiality and relevance of the KPIs and level of ambition of associated targets when compared with past performance, peer performance and industry/science-based benchmarks. KPIs and targets will be approved by select individuals within Standard Chartered who have expertise to appropriately assess these milestones.   

But one corner of the market isn’t riding the boom: Sustainability-linked bonds (SLBs). According to Dealogic, there were only three transactions of such kind in the US year-to-date as of mid-March. Globally, the trend is similar, with SLBs in 2023 down 51% YoY. This contrasts with corporate green bonds, which had surged by 48% this year as of March 12, reaching a total of $52.6 billion.

Syed Hasan Jafar, associate dean of graduate programs at Woxsen University in Hyderabad, blames the subpar performance of SLBs on their complex nature and the lack of standardization as to key performance indicators. “Due to uncertainties regarding the legitimacy and significance of these instruments, many investors are still reluctant to adopt SLBs fully,” he says. Some hope that the SEC’s new climate disclosure guidelines will lead to a more mature market for sustainability-linked products. (related story in Trends p. 80)

Meanwhile, in the US, at least, among the corporate bond market’s many flourishing corners, convertible debt is getting attention, particularly for high-flying mid-cap tech companies like Super Micro Computer, MicroStrategy, and Lyft. “The favorable landscape allows firms to borrow under more-advantageous conditions, securing lower spreads above risk-free rates, indicative of cheaper capital compared to periods of market stress,” explains Gaël Fichan, head of fixed income at Swiss private bank Syz Group.

Hasan Jafar warns these issuances carry significant risk: “Convertible debt can lead to dilution of ownership if the company’s stock price rises significantly.” Syz’s Fichan agrees: “Those [convertible bonds] issued by smaller tech companies could face increased vulnerability due to potential tight funding scenarios or abrupt market corrections.”    

The future path of ESG though, may well depend on choices made by the rest of the world, and particularly Asia. Why Asia? Although its per capita emissions are below those of the US and EU, the populous Asia-Pacific region (APAC) is currently a massive carbon producer. Asia is also rapidly becoming a pivotal player in the search for solutions to the climate crisis, and has the resources to achieve it.

“China and India produce one third of the world’s carbon emissions; the former makes over 60% of the solar panel supply and owns the bulk of the rare earth minerals required to manufacture EV batteries,” notes Drew Bernstein, co-chairman of accounting firm Marcum Asia. “Moreover, the region feels the effects of global heating more than anywhere else.”

Africa is certainly pinched between its huge burgeoning energy needs and massive financing gap. Latin America, grounded in agriculture, is investing in sustainable transition, but is a relatively small part of the world economy. By contrast, APAC is the behemoth, anchored by the mature economies of Japan and Australia and primed for future turbocharged growth by the Association of Southeast Asian Nations (ASEAN), which is forecast to be the world’s fourth-richest economic bloc by 2030.

Although its per capita emissions are below the US and EU, populous Asia is currently a massive carbon emitter, generating 17.2 billion metric tons of carbon dioxide via energy production in 2021 (51.2% of the global total), versus 4.5 billion from the US (13.6%) and 3.7 billion in Europe (11.1%), according to the International Energy Agency.

Asia’s wide range of economic development—from frontier markets such as Vietnam to the highly developed economies of Singapore and Japan—means that while the region’s energy and growth needs are significant, it also commands the wealth needed to finance change. Furthermore, cultural expectations in most Asian countries lean toward a strong role for governments in corporate affairs—and for stakeholder-capitalism approaches that seek long-term stability through balance among the needs of employers, employees, customers, citizens and even nature.

“We’re keenly aware of the growing importance that regulators, customers and stakeholders—including banks—place on ESG, climate change, and carbon emissions, in both managing risks and identifying opportunities,” says Gopul Shah, director of corporate treasury and structured trade finance at Singapore-based Golden Agri-Resources, (GAR) a regional agricultural giant specializing in palm oil. “There’s now a clear expectation for companies like GAR to disclose, comply, or explain what we’re doing in critical areas such as sustainable sourcing practices, investments in traceability or mapping and mitigating our carbon emissions.”

Together, these factors are making themselves felt on three fronts: a wave of new and more aggressive environmental reporting regimes across the region, a lively fintech business facilitating reporting connected to the new regulations, and a growing and innovative market in sustainable finance.

Thus far, the approach that Asian governments and corporates are taking to the business of sustainability resembles the European model more than the American. Consider Singapore and Hong Kong. Five years ago, lax environmental regulation and disclosure were among the attractions of these economies. Now, ESG regulation in both is tightening to meet international guidelines. Yet, the two jurisdictions continue to attract corporate interest as bases of operation and corporate treasuries, both from multinationals outside the region and from within APAC.

In fact, these two are effectively leading the ESG regulatory wave that is beginning to sweep the region. In North Asia, Japan is slated to adopt new sustainability disclosure rules by March 2025 consistent with criteria set by the International Sustainability Standards Board (ISSB). China’s three main stock exchanges—Beijing, Shanghai, and Shenzhen—recently unveiled new sustainability reporting guidelines that will require hundreds of large and dual-listed companies to disclose ESG-related information, including energy use, climate change, ecosystem and biodiversity protection, and supply chain security, starting in 2026.

“Mandatory reporting is expected to significantly impact Chinese companies, pushing them to prioritize and transparently report on their sustainability efforts,” says Polly Milne, project director at the Sustainability Group consultancy, based in London. This amounts to “a significant step towards increased corporate transparency and environmental responsibility that will align China with ESG disclosure rules in other countries, including the UK, Australia and Singapore.”

To be sure, not every jurisdiction is proceeding at the same pace. South Korea’s Financial Services Commission announced late last year that it was postponing mandatory ESG disclosure rules for listed companies until 2026 or later, citing delays in the US and other countries and requests from the Korean business community for more time. But new rules are coming nonetheless, initially for companies listed on the Korea Composite Stock Index that have more than 2 trillion South Korean won (about $1.5 billion) in assets.

But the US, where legislation under consideration excludes Scope 3 (supply chain) emissions, is looking more like a global outlier. “The international standard for ESG reporting is the ISSB, which includes Scope 3 emissions reporting as mandatory,” explains Benjamin Soh, co-founder and CEO of regional ESG-focused fintech Stacs. “In Asia, regulatory reporting will be adopted according to this standard for all listed companies.”

In measuring progress and meeting such goals, Asia benefits from a leading edge in technology—environmental as well as financial technology. Hong Kong-based Intensel, for example, uses satellite imagery and big climate and asset databases to provide real-time portfolio analysis.

Another entrant is ESGpedia, a digital platform developed by Stacs, a Singapore-based data and technology company that aims to bolster several green and sustainable-finance efforts, including ASEAN’s Single Access Point for ESG Data, a digital one-stop shop for corporate sustainability information; and the Monetary Authority of Singapore’s Greenprint ESG Registry, a blockchain-based network that is part of a wider effort “to harness technology and create a data-centric ecosystem to support the financial sector’s sustainability agenda.” As sustainability-focused regulations roll out across Asia, tools created by companies like Intensel and Stacs are expected to play a key role facilitating compliance.

As this suggests, APAC is also expected to drive the next stage of growth in sustainable finance, which has surged from less than $100 billion in 2015 to $4.6 trillion worldwide in 2022, according to Precedence Research, which predicts 20% annual growth for the market through 2032, when it could reach $29.1 trillion. “Much of that growth will come in [APAC] as it catches up with Europe and North America and, in some areas, overtakes them,” Societe Generale predicted in a January research note.

Investment bankers and institutional investors in the region expect the new environmental reporting regimes to reinforce North Asia’s existing preeminence in green and impact bond issuance and spawn a new boom in sustainable issuance in East and Southeast Asia. For Asia’s CFOs, challenges and opportunities abound: The former involve meeting a rising level of government regulation aligned with ever-converging regional green taxonomies; the latter involve an increasingly deep and sophisticated sustainable loan, bond and derivatives market.

Cross-border issuance within Asia gives corporate treasurers the opportunity to diversify their investor base while tapping a growing sustainable-funding market. In March, CapitaLand Investment (CLI), a Singapore real estate firm, issued its inaugural sustainability-linked Panda bond, with a three-year tenor at 3.5% per annum, raising one billion renminbi (about $138.7 million), the first such from a company based in the city-state. The deal was 1.65 times oversubscribed, indicating a strong underlying demand for sustainability-linked debt from Chinese investors.

Meeting key performance indicators (KPIs) linked to the interest rate on a loan or bond can deliver substantial bottomline benefits, the discount depending on the market, the bank and the corporate making the deal. “In Asia’s emerging markets, the discount could be as high as 25 basis points per annum,” says Stacs CEO Soh. “You’re saving a lot of money down the road.”

Another advantage of sustainability-linked issuance is that funds can be used for refinancing purposes. In the CLI deal, coupon payments are linked to a reduction of CLI’s energy consumption intensity at its properties in China, targeting a 6% decline.

These benefits are key for RGE, a Singapore-based, privately held multinational with global assets valued at more than $30 billion. RGE has business segments in palm oil, pulp and paper, viscose fiber, and energy provision. “To drive real sustainability impact and ensure that all our businesses have skin in the game,” says Patrick Tan, RGE’s head of banking, “we have committed 100% of our financing to sustainability-linked loans (SLLs).” Proceeds will support the growth of the company’s core businesses as well as its expansion into new initiatives such as sustainable aviation fuel. “SLLs are ideal for us as they are aligned to our DNA as well as our businesses’ sustainability goals,” Tan adds. “In 2023, we issued around $1.14 billion in SLLs and we expect to seek a similar or bigger funding amount this year to support our growth.”

From an issuer’s point of view, sustainability-linked bonds (SLBs) carry another attraction: callability. According to an International Finance Corporation February 2023 report, 65% of the outstanding global corporate SLB market is likely to be called, versus 23% of green bonds—with 69% tied to reduction of greenhouse gas emissions, followed by increased use of renewable energy—and step-ups for missing ESG-linked KPIs are relatively low, at a 25 basis point average.

“Issuers recognize the need to establish green credentials or risk being locked out of capital markets. However, not every issuer has eligible green assets that can be tagged to use-of-proceed instruments like green bonds,” says Clifford Lee, global head of Investment Banking at DBS. “SLBs play a critical role in bridging that gap by supporting companies as they undergo the green transition.”

The lack of standards for ESG factors in business remains a point of contention. GAR illustrates why: The company has been an early adopter of standards set in Singapore and has started implementing international Taskforce on Climate-related Financial Disclosures (TCFD) recommendations and reporting Scope 3, land use and forestry emissions. Do those efforts earn it high marks? Depends whom you ask. A- from Refinitiv, BB from MSCI and High Risk from Sustainalytics.

Elsa Pau, founder and CEO of Hong Kong-based BlueOnion, a fintech company that promotes responsible investing, argues that the diversity of views is healthy: “Different ESG ratings agencies look at companies from fundamentally different perspectives.”

Others, like Karl Schmedders, professor of finance at IMD business school in Lausanne, complain that inconsistency masks the compromises in the business model: “Why do the agencies that provide those ratings get involved? They in essence want to make money, and the enterprise enables greenwashing.”

Here, banks may be able to lend help to corporate clients as arbiters and assessors. “For commercial banks, ESG ratings serve more as a point of reference,” says RGE’s Tan. “For corporates that are transitioning to a greener future, banks may be better equipped than a standard set of ratings to dissect and identify factors that move the needle.”

As DBS’ Lee notes, ESG ratings can be useful in demonstrating a company’s adherence to ESG principles and exposure to ESG risks. However, as ESG ratings remain in an evolving stage of development, many companies continue to rely on their respective ESG financing frameworks to showcase ESG plans to investors.

“While banks expect sufficient ESG transparency from their clients to ensure they can address climate change or transition risks and opportunities, this is still one among many factors that lenders consider,” says GAR’s Shah. “Corporate credit rating, business risk and management profiling, cash flow, industry risk, governance and relationship history continue to remain primary considerations for lenders.”

Issuance of “impact” bonds, sometimes referred to as GSS+ bonds—green, social, sustainability and sustainability-linked instruments—totaled $939 billion in 2023, a slight 3% improvement over 2022, according to Bloomberg data. The sector has yet to match the record heights of 2021.

Green bonds have dominated the impact bond category from the beginning, and 2024 is unlikely to be different. Credit Agricole analysts expect green bonds to account for almost two-thirds (64%) of GSS+ issuance this year. Other label types will be much further behind; sustainability bonds, which have attributes of both green and social bonds, are projected to make up 16% percent of the total, and social bonds 12%.

Why does sustainable finance remain so deeply green?

“There’s a sense of purpose about global climate change” that seems to transcend other impact bonds, says Vulturius. “Social bonds have always played second fiddle to green bonds.” Social bonds seized public attention during the Covid-19 pandemic, when so many people required unemployment support and social interventions, but since then interest has waned, he notes.

As for sustainability-linked bonds (SLBs), which seemed poised for a breakout in early 2022, they could now be at a crossroads. SLBs suffered “another setback” last year, “with almost $20 billion less in new issuance compared to 2022,” according to SEB Group. But “the market has now mostly learned its lesson about the importance of integrity, and how to mitigate greenwashing risk.”

That being the case, “SLBs should record a modest progression” this year, predicts Credit Agricole, while Scandinavia’s Nordea Bank, a leader in SLBs, also expects these “transition finance” instruments to gain momentum.

“It’s important to recognize that we are heading into the fifth year of SLBs versus the 15th for green bonds,” notes Petra Mellor, head of Bank Debt at Nordea Bank. “True, we have some structural aspects still to be fine-tuned for SLBs, but the market relevance is more important than ever.”

Among other trends to watch for in 2024, Vulturius cites decarbonization, blended products, and a strong pickup in North American green bond activity, especially as the IRA’s impact begins to kick in. The US presidential election in November could derail progress, but that is more a topic for 2025, he argues.

And the longer term?

It can be difficult to factor big-issue political discussions—like the recent COP28 meeting—into short-term decision-making, Mellor observes, “but one key takeaway [from COP28] was the increased recognition of transition finance” as an important financial category. That isn’t going away, she says.

Which is another reason to expect that institutions focusing on sustainable finance in its various forms will be have plenty to keep them busy in 2024. With that in mind, Global Finance here presents its fourth annual Sustainable Finance Awards, the winners spanning seven regions and 53 countries, territories and districts, as well as global honorees in 13 categories.      —Andrew Singer

Global and regional awards require submissions detailing hard measures of ESG activity, such as year-over-year growth in sustainable finance transactions or sustainable financial instruments as a percent of total portfolio, as well as softer metrics that include goal alignment with leading ESG norms or innovative product development. Entries were not required for country awards, which were judged by the editorial team’s independent research. Evaluation criteria for both cases include governance policies and goals, achievements in environmental and social sustainability financing, industry leadership and third-party assessments. This awards program covers the activities from January 2023 to December 2023. There was no fee to enter.

Societe Generale (SocGen) bolstered its reputation for sustainable finance innovation in November by serving as sole manager for the first digital green bond issued on a public blockchain and by SocGen. The €10 million senior preferred unsecured bond was tokenized and directly registered by SG-Forge on the Ethereum public blockchain. Blockchain, says SocGen, can potentially increase the traceability and transparency of ESG-related bonds for both issuers and investors.

SocGen also stands out for its reach and versatility. Last year, it was active in ESG projects on all six inhabited continents, including many parts of Africa, and it remains one of the few commercial banks that has ever issued green, social and sustainable bonds, according to Natixis.

 In the project finance sphere, the bank was active on many fronts in 2023, including in October as sole debt financial adviser and mandated lead arranger on Automotive Energy Supply Corporation’s €873 million battery storage factory in France’s Battery Valley. Elsewhere, it helped finance offshore wind projects in Poland and South Korea; onshore renewables in Japan, Australia, Egypt, and Vietnam; and critical materials projects in Mongolia and Africa.           —Andrew Singer

Since Scotiabank announced a goal of mobilizing C$350 billion by 2030 to reduce the impact of climate change, it has chalked up a series of groundbreaking transactions in Latin America’s emerging markets. Notably, the bank supported Inversiones CMPC as it brought the first green sustainability-linked bond issue in the Americas to market in June. The C$500 million in bond proceeds are allocated to designated green projects, and the coupon increases if emission targets are not met.

Also in June, Scotiabank assisted Chile on a sequence of US dollar- and euro-denominated debt issues that are helping the country meet its environmental and social objectives. The deal makes Chile the first sovereign to issue a sustainability-linked bond with a social KPI related to gender diversity.

The bank also supported Mexico’s Trust Fund for Rural Development (FIRA) in April when it placed Latin America’s first green resilience bond on the Mexican Stock Exchange. The US$154.89 million offering is intended to improve the resilience of producers and value chains in the agriculture sector. Proceeds are financing projects to reduce the impact of extreme climate events and strengthen systems against climate stress.          —Andrea Murad

The DBS team helps clients access Asian debt capital markets and raises bond financing for environmental, social and governance-related efforts on the continent. In February 2023, DBS Securities China issued a three-year, AAA-rated onshore panda bond for China Power International; funds were to be used for the development of green power projects. In September, DBS acted as joint lead manager and joint bookrunner on a $650 million, five-year social bond for Hong Kong Mortgage Corporation, the proceeds earmarked to help the company alleviate the financial burden on small to midsize local businesses affected by the Covid-19 pandemic. In 2023, the bank served as joint lead underwriter for the Asian Infrastructure Investment Bank’s ¥1.5 billion, five-year Chinese bond issue aimed at funding sustainable economic development, wealth creation, and improved infrastructure connectivity in Asia.           —Laura Spinale

Industrial Bank of Korea is at the forefront of South Korean’s sustainability field, having launched the nation’s first ESG-related loans in 2022. Offerings have included a KR₩200 billion fund for the RE100, a global initiative encouraging businesses to convert to100% renewable energy. The fund is to provide loans to energy providers that, in turn, will supply renewable energy to companies pursuing RE100-compliant strategies. In partnership with DS Asset Management, Industrial Bank of Korea also created an ESG fund totaling KR₩100 billion to support SMEs and other companies engaged in renewable energy production, eco-friendly power generation, and smart farm development. These and other initiatives boosted the bank’s sustainability financing engagement 15% from 2022 to 2023, to KR₩718.3 billion.           —LS

Canada’s CIBC acted as joint bookrunner on several corporate green and sustainable bond issues last year, including Ontario’s $1.5 billion green bond offering in February, earmarked to support clean transportation and energy efficiency. In November, CIBC was selected by the Canadian government as sole structuring adviser for updates to its Green Bond Framework.

The bank was also bookrunner for Canada’s largest corporate sustainable bond to date in 2023: Hydro-One’s inaugural $1.05 billion issue. Hydro-One will use the proceeds to finance both green and social projects, in keeping with the hybrid nature of sustainable bonds.            —AS

Spain’s CaixaBank takes a multipronged approach to supporting local communities. First, it is Europe’s largest bank provider of microcredits and other loans with a social impact; in the first nine months of 2023, it extended €991 billion of microcredits, an increase of 24% year-over-year.

Second, CaixaBank sustains communities as an issuer of social bonds such as its €1 billion issue last May funding loans to families, self-employed workers and SMEs in Spain. The offering that provides vulnerable people with access to education and healthcare was significantly oversubscribed.

Finally, the bank provides conceptional support, helping to expand the definition of sustainable finance to include deals with individuals and companies, and not just contributions to SDGs, as per its 2023 Guide of Identification of Sustainable Financing.      —AS

OTP’s extensive operations in 12 countries across CEE – Romania, Bulgaria, Croatia, Serbia and Montenegro, and, of course, its home market Hungary— and Uzbekistan and Moldova — have given it access to the growing opportunities for sustainable finance. As well as taking up these opportunities, the OTP Group has led the way in sustainability transparency, standardizing business practices, following a tough anti-corruption policy and prioritizing good corporate governance.

In 2022 the Green Loan Framework was rolled out across the OTP Group to ensure consistency and transparency in the way subsidiary banks manage ESG loans and projects.

Last year saw a further improvement in OTP’s overall ESG Risk Score, and today risk is negligible in business ethics and product governance and low in the areas of data privacy and security, ESG Integration, financials and human capital.   —Justin Keay

Financing for the €4.1 billion Baltic Power project, Poland’s first offshore wind farm, came in last September with the Netherlands’ ING acting as sole sustainability coordinator. The project is expected to supply clean electricity to more than 1.5 million Polish households.

ING’s infrastructure focus does not end in Europe, however. Last year, it closed a KR₩440 billion green loan with Digital Edge to support the first phase of the company’s 100-megawatt data center project in Seoul, South Korea. The Singapore-based firm aims to build sustainable, high-speed digital infrastructure throughout Asia. —AS

Sustainability-linked bonds encountered headwinds in 2023 as questions were raised about both their structure and the credibility of their performance targets, but Finland’s Nordea, an SLB pioneer, insists that they will remain “a key tool for the market.”

In August, Nordea issued a €1 billion sustainability-linked loan bond (SLLB) that employs use-of-proceeds bonds to fund a portfolio of sustainability-linked loans. SLLBs are a potential game changer in the view of some because their structure provides an additional layer of accountability and scrutiny for investors.           —AS

At COP28, the World Bank Group set an ambitious goal to devote 45% of its annual financing to climate by 2025, having committed and mobilized a record $14.4 billion in climate finance in 2023.

The International Finance Corporation (IFC) is scaling up financing to clients through its capital and mobilizing external resources with significant already agreed-upon and implemented measures, and more proposed, to leverage existing resources further while maintaining financial sustainability.

New initiatives include blue-themed bonds to support sustainable ocean economies, a $1.5 billion three-year social bond to help low-income communities in emerging markets and a $3.5 billion credit insurance policy with 13 global insurance companies to support economic activity and foster development in emerging markets.     —GW

The green agenda has been a priority for the African continent for some time, particularly for the private sector. Environmental, social and governance (ESG) initiatives can drive growth in GDP, per capita income and jobs, while fostering collaboration between countries, businesses and communities—and banks are an integral part of this process. Yet, a significant funding gap hinders the continent from achieving the United Nations Sustainable Development Goals (SDGs). While there’s rapid growth in ESG debt instruments, including green, social, sustainability and sustainability-linked bonds, according to Sustainable Fitch, the overall scale of sustainable finance in Africa is still small.

Even so, there are numerous success stories of green ventures in Africa, according to the UN Environment Programme (UNEP). For example, the transition to sustainable agriculture contributes about 17% of sub-Saharan Africa’s GDP and increases productivity while minimizing the impact on ecosystems and helping to reduce food insecurity. The blue economy and ecotourism can generate $576 billion and 127 million jobs over the next 40 years. Renewable energy solutions can contribute 6.4% to GDP over the next 30 years, as Africa has abundant solar, wind, geothermal, hydro, biomass and other natural resources that can be used for innovative solutions.

To meet these needs, the banking sector has continued to provide financial and nonfinancial support, funding projects across the continent. They have also continued to develop innovative products and to revitalize debt capital markets in countries across Africa.

Societe Generale (SocGen) continues to lead in Africa’s sustainable finance. The bank’s successful “Grow with Africa” campaign has continued to contribute to Africa’s sustainable development.

The bank’s infrastructure finance teams support projects to develop wind farms, solar farms and sustainable water and wastewater management projects, and to upgrade hospitals and modernize transport systems. SocGen supports the development of African small and midsize enterprises (SMEs) with expertise, advice and training, as well as an awareness of environmental and social issues.

SocGen strengthened its support in the agriculture sector by facilitating value chains, contributing to a virtuous ecosystem of nonfinancial support to help sector players scale, and by focusing on the blue economy and biodiversity with offerings related to monetizing carbon credits for the maritime sector.

The bank remains dedicated to financial inclusion initiatives and provides access to financial services to populations with limited banking services.

Societe Generale Madagasikara has contributed positively to Madagascar’s sustainable development and supported the country’s ecological transition by working with its customers and communities to follow a more sustainable investment strategy. The bank has changed how it conducts business in several ways, including the “one card equals one tree planted” product launch with the CSR consulting service Bondy, which is focused on reforestation and restoration of biodiversity that ultimately creates jobs. The bank remains committed to education and professional integration, providing funds to help build a better future for youths and structuring projects to build schools and transition some schools to solar energy. Also, the bank financed the rehabilitation of damaged public schools and provided computers.

The Pan-African financial services provider Absa embraces its ethos as an active force for good in its strategy and remains committed to driving tangible, meaningful change in its communities. The bank has worked on several sustainable bond issuances this past year.

Most notably, Absa Group served as joint lead transaction adviser on NMB Bank’s first sustainability-bond issuance, which was a first for Tanzania and East Africa and fostered sustainable finance across borders. The issuance was NMB’s inaugural listing on Tanzania’s Dar es Salaam Stock Exchange. The NMB Jamii Bond’s proceeds are to be used for green initiatives that will enrich the regional environment and finance impactful social projects empowering and uplifting Tanzanian communities socially and economically.

Standard Bank is committed to a strategy for driving sustainable and inclusive growth in Africa based on pillars of social, economic and environmental impact. The bank aims to drive positive impact in line with SDGs to ensure effective ESG-risk management and good practices.

The bank issued 45 billion South African rands (about $2.3 billion) in sustainable financing, including green loans that funded renewable energy projects and green buildings; social loans that delivered affordable housing, basic infrastructure, and essential services in health and education sectors across the continent; and the bank’s first transition finance loan in the thermal coal sector. The bank also participated in sustainability-linked funding across multiple industries that embedded material sustainability key performance indicator (KPI) themes addressing carbon emission reductions and renewable energy consumption, water and waste management, diversity and inclusion and micro- and small-business funding and support.

Standard Bank also mobilized 15.5 billion rands in green project finance and 1.2 billion in social project finance funding renewable energy, carbon projects, basic infrastructure and affordable housing in numerous African countries. These projects include assisting African power producer Red Rocket in developing, designing, constructing and operating wind farms with a combined installed capacity of 280 megawatts (MW) in the Western Cape and 84 MW in the Eastern Cape.

Based in Egypt, CIB (Commercial International Bank) drives change within African emerging markets through pioneering initiatives. The bank recently launched “Brain Trust,” an innovative model that addresses the gap in finance for adaptation projects and mobilizes private investments for pipeline projects in Africa’s agriculture, food and water systems.

CIB also expanded its sustainable finance offerings in 12 corporate and SME financing areas. These include energy efficiency, renewable energy, green building, waste and water management, water desalination, energy management systems, pollution prevention and control, and sustainable agriculture and transport. CIB’s expanded climate finance offerings enable the transition toward a low-carbon economy by addressing the environmental challenges carbon-intensive industries face.

Based in South Africa, Nedbank is a pioneer in green finance, being the first bank in the country to embrace many climate-related initiatives. The bank launched its Green Private Power Tier 2 Bond, with a notional value of 2.1 billion rands, in 2023. This on-balance-sheet transaction was used to finance a portfolio of private renewable power-generation projects in South Africa, including photovoltaic solar and wind projects. These projects help advance South Africa’s renewable energy capacity and accelerate the transition to a low-carbon economy. Nedbank also structured, arranged and invested in a 550 million-rand green bond facility for Burstone Group to finance and refinance a portfolio of green buildings.

IFC (International Finance Corporation) has a vision to create a world free of poverty on a livable planet. As such, it has been a leader in social bonds and sustainable finance in Africa. IFC provided an anchor investment in the West African Economic and Monetary Union’s first social bond in the energy sector that supports the Electricity for All Program (PEPT), a government-led program facilitating access to electricity for underserved populations in electrified localities. Bond proceeds help finance the connection of up to 800,000 low-income households to the national grid over the next four years. 

The strategy of Rand Merchant Bank (RMB) embraces the sound management of natural resources, a cornerstone of sustainable social and economic development.

The bank participated in financing the Development Bank of Rwanda’s inaugural sustainability-linked bond (SLB). This SLB was the first globally issued by a national development bank and the first issued in East Africa. The issuance was structured to recognize the systemic change required for a development bank to meet its sustainability performance targets (SPTs) and to revitalize Rwanda’s debt capital markets.

RMB also established a sustainability-linked financing framework (SLFF) with chemical manufacturer AECI, designed to facilitate SLB and sustainability-linked loan (SLL) issuances. When opportunities arise, the SLFF more broadly overlays KPIs and SPTs on other financial instruments and services. AECI successfully used this framework to debut its 1 billion rand SLB with KPIs focused on effluent discharge, carbon emissions, and gender diversity.  —Andrea Murad

There is no denying that Asia has pollution problems. According to UNEP, roughly 6.5 million people die each year from exposure to poor air quality, and 70% of them live in the Asia-Pacific region. Water pollution and industrial waste also plague the region. However, thanks in no small part to the financing efforts of the following banks, there is hope. Funding for sustainable development projects, clean public transportation, offshore wind farms and other renewable energy efforts will help improve the local environment. And social financing geared toward supporting small farmers, microbusinesses and women-owned businesses will forge a brighter financial future for those living in a cleaner world.

With operations in Singapore, China, India, Indonesia and Taiwan—and strong efforts in transparency, support for emerging markets, ESG-related loans and bonds, and transition/sustainability-linked loans in those markets—DBS takes Asia’s regional award for the Best Bank for Sustainable Finance. Consider its operations in China as one example of its strength on the continent. By the end of 2023’s third quarter, the green loan balance in that country had increased 37% from the balance held in January of that year.

DBS touts itself as the bookrunner of choice for bond issues in Asia and a pioneer bank for ESG capital instruments. Notable ESG activities include working with the People’s Bank of China. This relationship enables DBS China to offer low-cost loans to fund sustainable development projects—including clean energy projects and projects geared toward reducing carbon emissions. Notable financing includes a 572.2 million Chinese yuan (about $79.5 million) green loan to Weifang Bohai Bay Photovoltaic Technology and Weifang Tianen Binhai New Energy to support a photovoltaic power plant project. The loan was issued in November.

Reporting on sustainability since 2015, DBS published its first stand-alone sustainability report in 2018. These reports are produced in accordance with Global Reporting Initiative standards. In 2021, the bank became the first bank in Singapore—and among the first 100 banks globally—to become a signatory to the Net-Zero Banking Alliance. In 2022, it outlined its progress toward the alliance’s goals in a report called Our Path to Net Zero: Supporting Asia’s Transition to a Low-Carbon Economy. That report describes in great detail how the bank selected decarbonization activities, and the science behind those decisions. Goals are set for 2050, with interim goals listed for 2030. The bank has also produced green credit guidelines, a sustainable- and transition-finance framework, responsible business-practice pillars, and community impact analyses—all available for public perusal. For all these activities, DBS earned our award as the Best Bank for Sustainability Transparency in Asia-Pacific.

Additionally, the bank has won our award as Best Bank for Sustainable Financing in Emerging Markets in Asia-Pacific, with strong work in China, India, Indonesia, Singapore, and Taiwan. As a leader in Asian emerging and local currency bond markets, it has funded various sustainability-related projects. DBS China completed the drawdown of a $297 million term loan for China Three Gorges’ acquisition of Alcazar Energy Partners’ solar and wind projects located in Jordan and Egypt, with a total capacity of 411 MW. DBS also partners with clients to facilitate Asia’s transition to clean energy as part of its effort to reduce and eventually eliminate coal-fired power. It has developed a climate analytics tool for net-zero banking, examining, at a portfolio level, the bank’s goals for existing and new customers in the power, oil, gas, real estate, steel and aviation sectors. It works with partners to decarbonize Asian supply chains for its clients, and it provides loans to accelerate decarbonization.

By providing sustainable financial solutions tailor-made for microbusinesses, farmers, fishermen and other traditionally unbanked citizens, BPI (Bank of the Philippine Islands) is doing much to help develop sustaining communities in that nation. One example of these solutions is the JFC Agri Loan Financing Program. This financing mechanism is specifically designed for small-scale farmers—particularly farmers who act as suppliers to BPI corporate client Jollibee Foods Corporation. This financing facility gives small farmers (working on average plot sizes of less than 1.5 acres) access to affordable financing in a region known for very high interest rates on microloans. Microfinance solutions are only one arm of BPI’s ESG work. 53% of its total loan portfolio supports the UN SDGs.

The Bank of China (BOC) won as Best Bank for Sustainable Infrastructure Finance in Asia-Pacific for its work on the nation’s first marine-ecology-oriented development project, the Dongtou Bays • Sea Garden project. The goal of this four-year project is to create needed environmental infrastructure. It also seeks to solve ecological maladies, such as the accumulation of sea garbage in the bay. The BOC funded the project via underwriting bonds for it, along with other infrastructure finance in Asia linked to carbon-emissions reduction.

The bank’s second win, as Best Bank for Sustainable Bonds in Asia, is due to its funding of a broad range of sustainable project categories across the globe. Projects funded promote renewable energy and green buildings and strive to prevent pollution.

These bonds are part of the $1.9 billion in green and sustainable bonds the BOC has floated in overseas markets and 30 billion yuan in sustainable and green bonds in China. The bank has also underwritten 286.2 billion yuan in domestic green bonds and sustainable bonds and $24.8 billion in green and sustainable bonds overseas.

Meanwhile, the bank also prides itself on an abundant and diversified portfolio of green products and services marketed under the BOC Green+ global brand. Among the dozens of loans, trade finance products, services, and deposit products offered are bonds linked to transition and sustainability. These cover efforts in clean transportation, renewable energy, green buildings, pollution prevention and control, and sustainable wastewater management. Recent offerings fund efforts to reduce carbon emissions by constructing new wind power facilities. Additional projects funded seek to improve the management of marine environments, earning BOC the Best Bank for Transition/Sustainability-Linked Bonds in Asia-Pacific award.

CTBC acted as the mandated lead arranger and bookrunner for the Hai Long offshore wind project, the largest such project—in terms of capacity and cost—in Taiwan. It will generate an estimated 1,022 MW of clean power. CTBC has also supported other similar projects, providing financing for 605 MW and 300 Mw offshore wind developments. The bank further acted as a structuring bank for a 17 MW waste-to-energy incinerator built by Cleanaway Energy. This incinerator is dedicated to processing solid recovered fuel. Once processed, this high yield recovered fuel will be used for power generation rather than being disposed of in a landfill. For these and other activities, CTBC has been named Asia-Pacific’s Best Bank for Sustainable Project Finance.

In 2023, the Thai ESG-bond market had an estimated value of 44.9 billion Thai baht (about $1.25 billion). Nearly 28.4 billion of that—63% of the total Thai ESG-bond market—was underwritten by Bangkok Bank. Among projects financed by these bonds was the Xayaburi Power Company’s 3.5 billion baht green bond to design, develop, construct and operate a hydroelectric power plant. Bangkok Bank also underwrote a 3.9 billion baht bond for Energy Absolute Public Company to modernize its buses—supplanting the current internal-combustion buses used for public transport in Bangkok with clean-running e-buses. Additional projects funded include biomass facilities, hydropower projects, solar power facilities and offshore wind power projects.

The Industrial Bank of Korea says it was responsible for 81% of the ESG bonds issued in South Korea in 2023, totaling 6.9 trillion South Korean won (about $5.2 billion). The bank continues to promote the acquisition, trading and issuance of ESG and social bonds. Many of its bonds, indirectly guaranteed by the South Korean government, support small and midsize industries. It has been involved in successful social bonds with organizations such as the Korea Credit Guarantee Fund, the Small and Medium Business Corporation, and the Korea Housing Finance Corporation. In late 2023, the bank issued a $600 million five-year gender-equality- themed social bond. Proceeds will be used to finance or refinance new or existing loans to SMEs and projects supporting gender equality. In further ESG efforts, the bank’s insurance arm invests in green bonds and other eco-friendly projects to promote the expansion of ESG finance and to support carbon neutrality.

The bank also launched that nation’s first ESG-related loans. It established a 200 billion won fund to finance renewable energy providers that, in turn, supply renewable energy to companies seeking to be powered entirely by renewable energy. This has earned it our Best Bank for ESG-Related Loans in Asia-Pacific award. (For more information on this and other initiatives, see the Industrial Bank of Korea’s entry in our Global Winners section.)

ING takes the regional award for Transition/Sustainability-Linked Loans for several efforts. These include its position as sole sustainability coordinator on Southeast Asia’s first private equity backed, leveraged SLL. This $790 million deal supports the activities of the Goodpack company. Based in Singapore, Goodpack is the world’s largest provider of reusable pallet-sized metal containers for road, rail and sea shipments. The funds will support Goodpack’s efforts to implement circular supply chains, or supply chains that reuse materials and goods as long as possible. A second, $403.8 million loan issued by ING supports a company called EdgeConneX in its efforts to build more environmentally sensitive data centers. —Laura Spinale

If 2023 was notable for anything, it was the growing awareness of the urgent need to tackle global climate change. This was compounded by the year becoming the hottest ever recorded, with weather events once considered freaky now increasingly commonplace in many countries, including those across Central and Eastern Europe (CEE). The region’s banks have put themselves at the forefront of this new awareness, operating more sustainably but also looking to take advantage of what will be major commercial opportunities going forward.

Last year, our Sustainable Finance Awards reported that CEE’s banks have moved away from greenwashing. This trend has become more pronounced, with institutions demonstrating awareness of the UN’s 17 SDGs and the Paris Agreement climate goals, and how the banks can meaningfully play their part in creating a greener future. Increasingly, banks are not just identifying opportunities but are working with clients to help them shift toward greater sustainability, which will be vital in driving the whole process forward over the long term.

Established 95 years ago and Poland’s second-largest bank, with around $9 billion of Tier 1 capital, Bank Pekao has long been committed to sustainable finance, which forms the cornerstone of its 2021-2024 business strategy: Responsible Bank, Modern Banking. It is dedicated to reducing the financing of energy-intensive projects, has its ESG strategy closely monitored by an ESG council, and has been making steady progress toward its goal—outlined in its business strategy—of financing 30 billion Polish zloty (about $7.6 billion) of sustainable projects by the end of 2024. (As of the third quarter of 2023 it had reached 22 billion zloty.) Green financing now accounts for 6.6% of all projects, actually above the aim of 4%, while some 30 different initiatives are underway to meet the above sustainable finance goal.

Bank Pekao has pursued a dynamic green bond and SLB issuance program. Through 2023, it was involved in leading, coordinating, financing and/or co-financing at least eight major projects, including a 3.9 billion zloty 1.2-gigawatt offshore wind farm, a 3.5 billion zloty green bond issue for a leading CEE media company, a 0.5 billion zloty contribution toward a new public-private financed tram line in Krakow. The bank also co-organized a 180 million zloty green bond issue for an international property group.

In the wake of the devastating earthquake on February 6 last year that struck Antakya and 11 towns in the surrounding region, Isbank secured $915 million from the Turkey: Disaster Response Framework of the European Bank of Reconstruction and Development (EBRD) to target recovery. It has financed and supported female entrepreneurs through numerous projects, including WeLead, which reached 3,500 women last year. It has also worked as part of a consortium to help refinance $574 million in renewable energy power plants. It has provided green loans to two companies to produce electric/hybrid tugboats.

Hungary’s largest bank, with an extensive network of branches across Hungary and 12 other CEE countries, OTP Bank has long put sustainability at the heart of its business model. By the end of 2023, it had reached 230 billion Hungarian forints (about $642.4 million) in green loans (both corporate and retail), laying out its policies clearly through careful internal monitoring and through its ESG Exclusion List, which has been incorporated into its green loan framework to ensure that no investment takes place in any of the prohibited sectors.

The OTP Group has led the industry in sustainable project finance through its network of operations across CEE. In Romania, together with OTP Hungary, OTP Bank Romania participated in numerous syndicated loans to support sustainable real estate developments in Romania. The total exposure for these projects amounted to €115 million (about $124.9 million) by the end of 2022. OTP financed wind and solar energy production projects by more than €55 million, targeting a new generation capacity of over 1,250 MW from renewable sources.

The bank’s unique reach across CEE—in countries such as Romania, Bulgaria, Croatia, Serbia and Montenegro—has given it access to growing opportunities for sustainable finance, with standardization of business practices and products encouraging the growth of sustainable financing in these countries. By the end of the third quarter of 2023, the OTP Group reported 403 billion forints in sustainable financing business across the region.

OTP Bank’s ESG-related loans have been on a rising trend over the past few years. Sustainalytics judges that OTP’s overall ESG risk score improved from 17.8 to 14.6, putting it into the low-risk category, with risk negligible in business ethics and product governance, and low in the areas of data privacy and security, ESG integration, financials and human capital.

One of Turkey’s largest banks, Akbank provided loan support to the Turkish economy of 1.2 trillion Turkish lira (about $38.5 billion) over 2023, with a strong focus on sustainable investment. It has provided 174 billion lira in 2023 to support a sustainable future, reaching 87% of the 2030 target of 200 billion lira in sustainable loan financing.

The bank has been very active in social bonds and transition-linked loans, increasing issue volume by about 100% for the year as of the end of 2023’s third quarter. Social loans over the first three quarters of 2023 increased 34 times over 2022, with a large proportion of this assisting the areas affected by February’s earthquake. Separately, Akbank contributed 650 million lira to help redevelop these areas and a further 10 billion lira in support to its customers in the area. An agreement signed with the EBRD secured a loan agreement of $90 million to be distributed in the region.

Akbank has also launched Turkey’s first sustainable deposit product, aimed at commercial customers, to enable them to contribute actively to projects aligned with the UN’s SDGs. The bank has supported SMEs through its SME Eco Transformation Package in collaboration with IGE (a company facilitating exports through guaranteed practices for companies) and by launching the IGE-Akbank Green Transformation Guarantee Support Package in 2023, explicitly aimed at helping SMEs to reduce their carbon footprint and lower their energy costs.

As the second-largest bank in Austria, Raiffeisen Bank International (RBI) has expanded into 13 CEE markets and had total assets of €198 billion at the end of 2023. Amid a corporate strategy to “make sustainability happen,” RBI plays a leading role in sustainable bonds, for which it was the fourth-largest issuer in CEE in the first three quarters of 2023, according to Bloomberg data. Sustainable bonds come in several formats (linking with ESG ratings or sustainability targets or linking through proof of sustainable use of funds), and RBI included two corporate bonds (ESG volume of €755 million and ESG volume share of 17%) and seven bonds issued by sovereigns or financial institutions (ESG volume of €2.6 billion and an ESG volume share of 7%).

The Development and Investment Bank of Turkey was founded by the Turkish state in 1975 and was committed to environmentalism long before it became widespread. Its share of SDG-related loans has reached over 90% of its portfolio, while the share of climate and energy SDG loans is now 60%. The bank’s loans have had a marked impact on reducing Turkey’s carbon footprint—the bank has financed 388 projects, accounting for over 15% of the country’s installed renewable energy projects, while it has helped fund 156 projects aimed at boosting renewable energy, cleaning wastewater and reducing industrial emissions.   —Justin Keay

Over the past few years, most Latin American countries have updated their nationally determined reductions of greenhouse gases under the Paris Climate Agreement, with some joining the High Ambition Coalition’s 30×30 initiative to protect the world’s terrestrial and marine areas. Achieving net-zero by 2050 will push Latin American spending to about $20 trillion, with annual spending on physical assets increasing by about $700 billion, according to McKinsey & Company. Because of their geographies, natural resources and economies, Brazil and Mexico account for over half the investing needs in this region.

Latin American banks are vital to this transition to a more sustainable economy, as they have been integral in developing and financing innovative sustainable debt. According to Sustainable Fitch, debt financings from this region have diverged from global trends in that they’re more focused on social objectives. The region has also seen an increase in unique financial instruments, like SLBs, that have KPIs linked to gender diversity and are issued by sovereign nations.

There’s a strong focus on developing infrastructure for underserved communities in Latin America. Banks have financed significant deals in the region that provided, for example, sanitation and water services and renewable energy. Sustainable debt instruments also fund forest conservation and initiatives to preserve the environment, as agriculture is a top industry in this part of the world.

Based in Brazil, BTG Pactual incorporates ESG criteria into its decision-making processes to understand the risks and opportunities of each new relationship as it relates to the environment, society and climate. The bank is committed to assisting clients in their transition to a sustainable low-carbon economy. To date, it has exceeded over 74 billion Brazilian reais (about $14.9 billion) in ESG-labeled issuances, reaching its CFO Taskforce goal two years ahead of schedule.

The bank has participated in notable financings to promote its ESG goals. BTG Pactual contributed to sanitation programs in Brazil with sustainable, blue, and sustainability-linked bonds in local and offshore markets. The bank worked with mega-operations of water and sanitation firms Aegea and Iguá, and contributed about 15 billion reais in ESG bonds for sanitation—with over 10.6 billion reais having a blue label. As the bank was one of the first to issue blue bonds, it has consulted with companies to help them develop a blue framework or structure blue bonds, contributing to expanding private company funding and disseminating the blue label in local markets. BTG Pactual also contributed to Aegea’s issuance of a sustainable and sustainability-linked bond with KPIs related to social and environmental issues.

Banco do Brasil’s long-term commitment is to assist its clients in their transition to a more sustainable economy. The bank has provided transparency through its ESG Databook and quarterly Management Discussion and Analysis reports during this process. These detail Banco do Brasil’s activities and finances regarding its sustainable financing activities. The bank has also maintained top ratings from MSCI and Sustainalytics and has had external reviews from consultancies regarding its sustainable credit portfolio and sustainable finance framework. Banco do Brasil recently approved its proposals and corresponding action plan. The bank’s policies covering environmental, social and climate issues are included in business and administrative practices.

Itaú BBA is committed to sustainable development in the countries where it operates, and this commitment is part of its activities and strategy combining environmental, social and climate aspects. The bank worked with sanitation firm Aegea to finance the Águas do Rio 1 and 4 projects to strengthen water and sanitation services. This is the largest infrastructure debenture and ESG-labeled transaction in the Brazilian market, with 5.5 billion reais raised in sustainable and blue debentures. The project will benefit 27 municipalities and 124 neighborhoods in Rio de Janeiro by achieving 99% water coverage by 2032, 90% sewage coverage by 2033, and reducing water losses to 25% by 2033.

Based in Brazil, Bradesco BBI has achieved at least 86% of its goal of mobilizing 250 billion reais in sustainable finance by 2025. The bank also set goals for net-zero first-round commitments for the coal, electricity generation, agriculture and food sectors.

The bank participated in Eletrobras’ largest issuance, a seven billion reais sustainable debenture that funds renewable energies, transmission lines, green hydrogen, access to renewable energy for populations in isolated areas, forest conservation, and access to education for underprivileged populations.

Bradesco BBI helped to finance Cogna Educação’s 500 million reais social bond. A first of its kind in the Brazilian market, bond proceeds provided educational resources to socially vulnerable municipalities.

The bank was also the bookrunner and ESG coordinator of Comerc Energia’s 1 billion reais green debenture, the company’s first green debenture for renewable energy, energy efficiency, efficient lighting and green hydrogen. Bradesco BBI helped define initiatives and environmental benefits derived from this transaction, and these are included in a framework encompassing Comerc Energia’s future issuances.

Bradesco BBI served as bookrunner and ESG coordinator of 5.5 billion reais Águas do Rio 1 and 4 sustainability and blue debentures that fund water and sanitation services provided by Aegea. This issuance is one of the largest in the local market.

BBVA’s strategy is focused on increasing growth through sustainability, achieving neutrality of green gas emissions, and promoting integrity within stakeholder relationships. Green bonds have become a core part of the bank’s strategy as it helps its clients transition toward a sustainable future. According to Bloomberg, BBVA was ranked the most active bookrunner in Mexico in 2023 for sustainable bonds.

The bank served as joint bookrunner for Colombia’s inaugural social bond with a $2.5 billion notional amount. This bond is the country’s first ESG-labeled offering in international capital markets and leverages the republic’s green, social and sustainable sovereign bond framework.

Based in the Americas, Scotiabank has been working to advance climate transition and promote sustainable economic growth. In 2023, the bank underwrote 7.7 billion Canadian dollars (about $5.7 billion) in green loans and CA$4.7 billion in SLLs. Scotiabank was the sustainability structuring agent on Empresa de Telecomunicaciones de Bogotá’s SLL. The structure encourages replacing copper wiring with fiber optics in the metropolitan area of Bogotá and developing equity strategies by training women in issues related to information and communications technologies.          —AM

As a region, the Middle East highlights the tension between financing fossil fuels and achieving genuine sustainability.

The economies of many Middle Eastern nations, including the UAE, heavily rely on fossil fuel revenue. Banks play a crucial role in financing these industries, which directly contradicts the environmental pillar of sustainability.

A complete withdrawal from fossil fuels would be economically and socially disruptive in the Middle East and the global markets where it sells oil and gas, so the region’s banks are establishing a more transitional role, facilitating a gradual and managed transition towards cleaner energy sources, while still supporting current economic realities.

Green financing is increasing, with the region’s biggest banks actively increasing their investments in renewable energy and sustainable projects. In addition to adapting and transitioning their portfolios to keep pace with global and local ESG regulations, they are also taking steps to provide greater transparency and accountability by measuring and publicly disclosing the environmental impact of banks’ investments. Looking forward, banks in the Middle East are well-placed to help finance the global transition trend.

On its third iteration of its Sustainable Finance and Product Framework, QNB Group has developed a clear road map for integrating sustainability into its business practices and offerings. Green finance solutions include dedicated green, social (including SME financing), and sustainability-linked financing. Having issued the first green bond issued by a bank in Qatar in 2020, QNB executed the first interbank green deposit in the local market, completed green deposit placements with a large sovereign wealth fund, and in 2023, issued the first corporate green guarantee for renewable energy.

QNB’s eligible green loan portfolio in the geographies with established sustainable financing targets saw an increase of over 45% between December 2022 and November 2023, while QNB Group’s total sustainable financing portfolio of $8.5 billion is about 4% of the group’s total loan book.

A loan agreement with the EBRD will provide disaster relief in Turkey via QNB’s Turkish subsidiary, QNB Finansbank. A strong partnership with the EBRD since 2015 has resulted in more than $750 million of agreements. In March 2023, Egyptian subsidiary QNB Alahli launched the first green retail-financing program in cooperation with the EBRD to invest in green projects in Egypt.

Arab Bank has established a sustainability department responsible for systematically managing the goals and programs to improve the bank’s economic, social and environmental impacts. At the same time, a formal Sustainable Finance Framework outlines five focus areas: responsible financing, employee empowerment, transparent reporting, system optimization and community cooperation. Arab Bank actively invests in local communities through various programs, supporting education, health care and environmental initiatives.

The bank’s community investments totaled $20 million in 2022, with the Abdul Hameed Shoman Foundation and Arab Bank’s Corporate Social Responsibility program, “Together,” leading the charge. Arab Bank also offers a range of products including green loans, social impact bonds and climate-focused investments—helping clients meet sustainability goals.

Boursa Kuwait has a corporate sustainability strategy outlining its goals and initiatives across ESG’s three pillars: environmental, social and governance. It publishes annual Sustainability Reports detailing progress and performance on ESG metrics. Boursa Kuwait also offers a guide to help market participants integrate ESG reporting into their operations and provides workshops to advocate corporate and capital markets sustainability.

Eco-friendly practices within its office operations to reduce energy and water consumption while minimizing waste culminated in Boursa Kuwait being awarded a LEED (Leadership in Energy and Environmental Design) Gold certification by the Green Building Council in 2023. While admitting it has limited environmental impact as a stock exchange, the complete renovation of its main trading hall to include greener state-of-the-art technologies sends a powerful message to the entire region.

In line with the Kingdom of Saudi Arabia’s Vision 2030 to diversify the economy away from oil, SAB (Saudi Awwal Bank) is committed to achieving sustainable financing and investments of 34 billion Saudi riyals (about $9 billion). To this end, SAB is the lead arranger for the 14 billion riyal financing raised to support the Red Sea Project, which prioritizes renewable energy and regenerative tourism and played a significant role in the inaugural green bond issuance of the kingdom’s Public Investment Fund.

As of December 2023, SAB has allocated around $3 billion toward sustainable finance projects, while SAB doubled its funded assets toward sustainable finance year-on-year. Financed projects include the $8.5 billion NEOM Green Hydrogen Company—the world’s largest green hydrogen production facility—which will play a crucial role in producing clean energy.

First Abu Dhabi Bank (FAB) is the first bank in the Middle East and North Africa to target net-zero emissions by 2050, addressing the bank’s operations to supporting clients’ transitions. Committed to providing $135 billion in sustainable and transition financing by 2030, FAB is on target to achieve this. In 2022, FAB facilitated in excess of $23.6 billion of sustainable finance: $9.5 billion in SLLs and $10.6 billion in green and social loans. FAB’s Green Bond & Private Placement accounted for 17% of all FAB Bond & Private Placement in 2023, and 12% in 2021, with an annual increase of 42%.

FAB issued a $600 million five-year green bond last year and a three-year $353.9 million sukuk to fund green and social projects.

As the principal banking partner of COP28, the NBD Group, including Emirates NBD Capital (EmCap), pledged to mobilize more than 100 billion Emirati dirhams (about $27.2 billion) of sustainable finance by 2030. With EmCap’s support, clients mobilized more than $15 billion of sustainable finance in 2023 (67%) in the debt capital markets and 33% via labeled loans. EmCap successfully closed more than 20 green and sustainability bonds in 2023.

In 2023, EmCap ranked first in the Gulf Cooperation Council countries for bond issuances and was the highest-ranked regional bank in international sukuk. In 2024, EmCap hopes to take a global role in advising on labeled bonds and loans and structuring sustainability-linked tools. EmCap also plans to facilitate debt-for-nature swaps—involving developing debt being restructured, along with a promise that some funding is allocated for nature-related projects.

In late 2023, Abu Dhabi Islamic Bank (ADIB) raised $500 million by issuing Shariah-compliant green bonds, oversubscribed 5.2 times; this was the world’s first green dollar-denominated sukuk. ADIB aims to allocate an amount equal to the net proceeds of this issuance to fund green projects to accelerate climate transition. This may include financing or refinancing green projects, as well as financing customers for eligible green projects.

In launching its ESG strategy for the next three years, ADIB aims to take advantage of the overlap between the principles of Shariah law and ESG integration to maximize positive impacts. Financial instruments issued under ADIB’s sustainability framework include green, social and sustainability sukuk.

The number of green loans provided by the National Bank of Kuwait (NBK) increased by 14% in 2023, resulting in an increase of 10% in the total monetary value of green financing. This is in addition to a twofold increase in the number and monetary value of sustainability-linked facilities extended in 2023.

The total monetary value of social financing increased by 7% in 2023. Green mortgages to SLLs also increased in developed markets, including the US, France and Singapore. NBK has been expanding its retail business to offer consumers innovative financing solutions to adopt sustainable behaviors and lifestyles by providing electric vehicles and eco-friendly home loans.                        —Gilly Wright

According to SEB Group’s green bonds report, green bond issuance is expected to increase by up to 20% globally this year, and “North America and corporations will be the main drivers of growth in 2024.”

Why North America? Under the administration of US President Joe Biden, the Inflation Reduction Act was signed into law in August 2022, “but it came into force only last year,” Gregor Vulturius, SEB’s lead scientist and adviser on climate and sustainable finance, tells Global Finance. That is, the “shiny new factories” will be showing up only this year and next; and of course, they will need financing.

It’s not as if the region underperformed last year, either. North America was up 80% in 2023 green bond issuance, which was in “a suffering bond market,” Vulturius notes.

Canada’s Scotiabank has an ambitious goal: to mobilize $350 billion to reduce the impacts of climate change by 2030. It reached $130 billion by the fiscal end of 2023, up from $96 billion in 2022—not too bad, given a relatively flat year for sustainable finance globally. ESG bonds accounted for 13.6% of the bank’s overall bond volume, a big jump from only 3% in 2022.

Scotia doesn’t confine itself to North America, either. According to Bloomberg, it was Latin America’s second-leading bookrunner for green, social, sustainable and other labeled bonds in 2023, with a 21% market share. In May, Scotia acted as ESG distributor for the United Mexican States’ Sustainable Sovereign Bond issuance, where demand reached approximately $1 billion.

The bank is active with various impact bonds, including SLBs. It was a sustainability structuring agent for Bell Canada, Canada’s largest communications company, when it added sustainability-linked pricing to its securitization program in September 2023. In June, Scotia also advised the Republic of Chile on its dollar and euro SLB offerings.

Elsewhere, Scotia supported Mexico’s Comisión Federal de Electricidad as joint bookrunner in a June 2023 social bond issuance and played a similar role for Canadian real estate firm Ivanhoe Cambridge for that firm’s inaugural sustainability bond. On the loan side of the ledger, Scotia tallied 67 ESG-loan deals between January 1 and October 31, 2023, with a total volume of CA$7.7 billion.

Finally, Scotiabank has committed to clear, open and detailed sustainability reporting—and once again takes North American honors for transparency. It developed and abided by four transparency principles that guide its net-zero strategy, and the bank regularly publishes its numeric progress toward achieving long-term goals.

Canada’s CIBC figured prominently in sustainable and project infrastructure finance in 2023. In June 2023, the bank co-led a syndicate of underwriters for Northland Power’s CA$500 million fixed-to-fixed-rate green subordinated notes issuance. The power company will use the proceeds for green projects, including an offshore wind farm in Poland and an energy storage project in Ontario, Canada.

CIBC was also the lead arranger and administrative agent for the AES Clean Energy Master Indenture Structure warehouse upsizing. The $2.7 billion refinancing project, which happened in May 2023, included 25 banks and was the largest debt financing for a US renewables transaction.

The bank’s prowess for green and sustainable bond underwriting was already described in the global awards above, but the bank was also a standout in SLLs in 2023. It was Canada’s top bookrunner, with a 25% market share according to Bloomberg, and it acted as sole bookrunner, lead arranger and sustainability structuring agent for $700 million FortisBC Energy’s revolver financing—with a performance target for Scope 3 emissions as well as a social target aimed at protecting Canada’s indigenous population.

Additionally, CIBC was a joint bookrunner for Enbridge’s $900 million sustainability-linked notes, OMERS Realty Corporation’s $600 million green debentures, and Sun Life Financial’s $500 million sustainable subordinated debentures offerings over the past year.           —Andrew Singer

Green bonds dominate sustainable finance, and Western Europe dominates green bonds. The world’s top three banks in green bonds and loans in 2023 were Western European—BNP Paribas, Credit Agricole and HSBC, according to Bloomberg data—while year-end green bond issuance in Europe outclassed its closest regional rival, Asia-Pacific, $243.75 billion to $174.2 billion, according to Climate Bonds Initiative data.

Looking ahead, falling EU interest rates and new standards for green bond issuances bode well for 2024 and beyond. On the punitive side, European banks could encounter new fines and higher capital requirements if they delay implementing green transition plans too long. More European banks, too, are imposing internal restrictions on their fossil-fuel sector financing.

For CaixaBank, sustainable finance is about more than reducing greenhouse gas emissions. It also entails a strong social commitment, such as boosting financial inclusion through its microfinance bank, Europe’s largest; or issuing social bonds, a bond type that some other banks abandoned after the Covid-19 crisis.

Indeed, when CaixaBank closed on its fifth social bond, in May 2023, that €1 billion debt instrument focused on education and health care was oversubscribed by €750 million.

CaixaBank is also a leader on ESG-related loans. It ranked third globally, according to Refinitiv, and was first in Europe in the first half of 2023, providing $11.65 billion in financing through 57 transactions.

The bank also brings some resourcefulness to its deals. As sustainability coordinator for Acciona Energía’s €750 million green financing in November 2023, the bank incorporated a local impact indicator in which participating companies committed to planting 26,000 trees per year (collectively) during the financing’s term.

LGT Group, Liechtenstein’s royal family-owned private banking and asset management group, began to embed sustainability-oriented clauses in its investment programs decades ago. It makes a point of publishing the extent to which its investments meet sustainability criteria.

As of June 30, 2023, the group had invested 54.5 billion Swiss francs (about $62 billion) in sustainable investment solutions globally, representing 36% of LGT’s total assets under management. That was up from 34.8% at year-end 2022. Moreover, 80% of LGT’s discretionary mandates in Europe, the Middle East, Africa and Asia now meet the EU’s Article 8 sustainability requirements, which qualify as “light-green” funds that “promote investments or projects with positive environmental or social qualities, or a combination of such characteristics, as long as the investments are made in enterprises that adhere to sound governance practices.”

The Netherlands’ ING was 12th globally among green bond bookrunners in 2023, according to cbonds.com, and many of those issuances were in Western Europe. In June 2023, for instance, ING acted as sole structurer and joint active bookrunner on Anglian Water’s £860 million (about $1.1 billion) dual-tranche green bond issuance to help meet that water and sewerage company’s capital expenditures.

In infrastructure finance, ING played multiple roles, including sole underwriter and mandated lead arranger, in AtlasEdge’s plans to expand sustainable data centers across Europe. The company raised €525 million in committed debt financing and a further €200 million uncommitted accordion facility. The 2023 sustainability-linked financing includes KPIs to ensure the new data centers use renewable energy.

ING is a veteran of sustainable project finance, too. As sustainability coordinator for Baltic Power’s offshore wind farm project and its €4.1 billion multibank credit facility, for instance, ING helped ensure that financing aligned with the Loan Syndications and Trading Association’s Green Loan Principles and the International Capital Market Association’s Green Bond Principles. Baltic Power will be the world’s first to use low-emission steel produced almost entirely from recycled raw material.

Societe Generale (SocGen) SLBs lost momentum in 2023, but SocGen stayed the course, acting as structuring adviser and joint bookrunner for the Republic of Chile’s €750 million SLB issuance in June. SocGen was also the sole structuring adviser in the UK’s Heathrow Airport €650 million SLB, with its separate performance targets for slashing carbon emissions “in the air” and “on the ground.”

As noted in the Global Winners section, according to Natixis, SocGen is one of the only commercial (i.e., nondevelopmental) banks that has ever issued green, social and sustainable bonds. In September 2023, SocGen was the global coordinator for French real estate development and investment company Praemia Healthcare’s €500 million sustainability bond. Proceeds will finance green and social assets—including medical and eldercare facilities.

SocGen has been a perennial supporter of sustainable finance projects in the emerging world, and 2023 was no different. In Central and West Africa, it partnered with Afrigreen, a debt investment fund, to support the decarbonization of local companies, raising €87.5 million. In contrast, in Kazakhstan, the bank supported the development of green mobility as global coordinator and mandated lead arranger for the €627 million financing of 105 electric locomotives to be used in that Central Asian nation, among other projects.

Finland’s Nordea kept its innovative skills sharp in 2023, introducing its second sustainability-linked loan bond, or SLLB, at the end of August. The €1 billion issuance followed the first-ever SLLB (€370 million) launch in late 2022. This hybrid instrument uses standard use-of-proceeds bonds to fund a portfolio of SLLs, though with no coupon adjustment for investors. The bank absorbs any performance shortfall.

Overall, SLLs at Nordea were up 30% in the first three quarters of 2023 compared to 2022, and the bank ranked top in SLLs in the Nordic region, according to Bloomberg.        —AS