Innovative instruments for green capital market development in emerging markets


Achieving the global climate goals set out in the Paris Agreement and the Sustainable Development Goals (SDGs) requires large capital flows towards sustainable economic activities. The mobilisation of private capital, and hence the promotion of Green Capital Markets (GCM), plays an important part in this. Especially green bonds have established themselves as a viable financial instrument in this regard, experiencing large market growth and rising investor appetite since the first issuance in 2007. KfW has substantially contributed to the development of a green financial market over the last years, now being one of the largest GCM players worldwide. It now seeks to explore new ways of fostering GCM development also in developing and emerging markets through innovative financial cooperation (FC) instruments.

Against this background, KfW Development Bank commissioned adelphi with a study to assess possible FC instruments for GCM development in emerging markets, including direct anchor investment in green bonds, partial green bond guarantees, and performance-based bonus systems. The research identifies the needs of investors and issuers, suggests potential FC instrument designs, and presents an analysis of impacts generated by the new instruments, among other aspects in alignment with the EU Taxonomy of green finance. Market knowledge from emerging markets and, where applicable, especially for two predefined pilot countries (Mexico and Indonesia) is referenced to local players, investors, issuers and other relevant actors.