A remarkable new trend is taking hold in the world of infrastructure finance. Sustainable Finance—investments structured with environmental, social, and governance criteria—saw unprecedented growth in 2021, reaching over $1.6 trillion in total annual issuance and more than doubling 2020 volumes. Why is the rise of Sustainable Finance a big deal? Because it offers tangible evidence that the interests of financiers, companies, people, and the environment can align. And it offers a path forward to leverage capital markets and supporting policies such as the European Union’s taxonomy for sustainable finance towards achieving a net-zero and inclusive global economy that leaves nobody behind.
Sustainable Finance is finance for the future. It helps fulfill the global commitments of the Sustainable Development Goals and the Paris Agreement. It offers companies a means to signal to the market—and make progress on—their environmental and social promises, even as they achieve their growth and profitability goals. Specific targets that companies link to their financing can include reductions in carbon emissions, more diverse hiring, and better access to economic opportunity for communities, among others.
One exciting development in the world of Sustainable Finance is the introduction of new instruments such as Sustainability-Linked Finance (SLF), which tie loan and bond pricing to the achievement of measurable climate or social targets. Issuing these instruments requires that selected targets be rigorous, ambitious, and meaningful. IFC is working with its clients to design green, social, and inclusive investment strategies in emerging markets, where only 5 percent of this financing is currently directed.
Such investments are already making a difference. For example, in Turkey, municipal water and sewerage provider IZSU has committed to improve the gender balance in its workforce in exchange for a decrease in the interest rate on its IFC loan. In Singapore, pan-Asian energy provider Sembcorp Industries recently raised $675 million to support its growing renewables portfolio with a sustainability-linked bond anchored by IFC. The bond rate is tied to achieving specific reductions in the company’s greenhouse gas emissions.
“Our sustainability performance targets are very aligned to our brown-to-green transformation plan. They are ambitious, meaningful, and material to us and our businesses,” says Gwendolyn Loh, Head, Group Sustainability at Sembcorp Industries.
These efforts need to be amplified globally. We need to ensure robust standards if these instruments are to contribute to a just energy transition and equitable and inclusive infrastructure development. How do we grow sustainability-linked investment in emerging markets? How do we ensure ambitious targets and avoid greenwashing? How can companies demonstrate their capability to deliver net-zero and social commitments through credible action plans? How can we support companies to ensure that these commitments are meaningful? What kinds of partnerships and disciplines are necessary to achieve tangible results?
While facing a changing investment environment and the growing global call for accelerated climate and social action, infrastructure companies can be at the forefront of sustainability, leading the evolution to a low carbon economy. And that means going beyond just saying the right words. It means showing that they are also doing the right things. These leaders are exploring critical environmental and social issues, confronting collective challenges, and identifying actionable strategies that produce clear positive impact.
Intrigued? We hope so! Come and engage with us as we explore the exciting future of Sustainable Finance and what it could mean for emerging markets at IFC’s annual Sustainability Exchangeon May 18, 2022. This eclectic, high-energy, all-virtual global happening will bring together climate visionaries; forward-thinking infratech leaders and committed government officials; impact investors and civil society champions; women change makers and youth influencers; plus musicians, artists, and cultural icons—all lending their unique perspectives to meet the Sustainable Development Goals and build a better world. Together, we will explore how financial incentives can encourage infrastructure companies to create positive climate and social impact. We invite you to what promises to be an exciting and energizing event.
Among our confirmed speakers: Mia Mottley, Prime Minister of Barbados; Idris and Sabrina Elba, UN Goodwill Ambassadors for the International Fund for Agricultural Development (IFAD); Katie Rae, founding CEO & Managing Partner, The Engine; Hassanein Hiridjee, CEO of Axian Group; Audrey Choi, Senior Advisor and CEO of the Morgan Stanley Institute for Sustainable Investing; Victor Vial, CFO, Panama Canal; Sima Sami Bahous, Executive Director, UN Women; and actor, producer, and UNEP National Goodwill Ambassador for Thailand Alex Rendell; in addition to Sembcorp Group’s Chief Financial Officer Eugene Cheng. Join us! REGISTER HERE