Amundi and IFC Launch $2bn Emerging Market Sustainable Bond Strategy

Amundi and the International Finance Corporation (IFC) will launch a fund to invest in Emerging Market sustainable bonds in 2022 which intends to mobilise up to $2 billion in private investment.

The Build-Back-Better Emerging Markets Sustainable Transaction (BEST) strategy will invest in labelled sustainable bond issuances from corporates and financial institutions in developing countries. The closed-ended fund will be managed by Amundi and will have an anticipated life of 10 years.

Amundi emerging market corporate and high yield debt co-head Maxim Vydrine – who is lead portfolio manager for the BEST fund – told Environmental Finance the fund will invest in social, sustainability and sustainability-linked bonds as well as green bonds and ‘transition’ bonds as long as they comply with the relevant principles or guidelines published by the International Capital Market Association (ICMA). Total exposure to green projects across the whole portfolio, however, will not exceed 15%.

The launch of BEST follows Amundi and the IFC partnering in 2018 on the $1.4 billion Amundi Planet Emerging Green One (EGO) fund which invests in EM green bonds.

The strategy will also be supported by the IFC-managed Technical Assistance Facility (TAF) which is intended to increase the quality and quantity of sustainable bonds issued in emerging markets.

Environmental Finance was told that the TAF would work in a similar way to the IFC-managed Green Bond Technical Assistance Programme (GB-TAP) which was launched in 2018 alongside the EGO fund to support the growth of the green bond market in emerging markets. The TAF will focus on supporting the social, sustainability and sustainability-linked bond market in emerging markets.

Vydrine – who also manages the EGO fund – told Environmental Finance the BEST fund was innovative for several reasons.

“We are excited to offer an innovative investment solution whereby private investors can partner with public institutions and governments to directly address the challenges of climate change and social inequalities,” he said.

“Although the market for social, sustainability and sustainability-linked bonds in emerging markets and developing economies (EMDEs) is still relatively nascent compared to green bonds, we expect a rapid deepening of the market in the midst of a Covid-19 recovery,” he added. “Emerging markets were among the hardest hit by the pandemic; sustainable bonds that can support the economic recovery in a resilient and inclusive way will thus be crucial, especially from the perspective of emerging economics which lack the fiscal strength to sustain such financing.

“We believe that the fund is also innovative in its mandate to help create the supply of sustainable bonds, through training programmes which help educate potential issuers on best industry practices for sustainable bond issuance,” he said. “This should eventually benefit the wider community of investors while supporting society.”

Amundi and the IFC said private investment in emerging markets sustainable bonds will support Covid-19 recovery efforts in these countries and promote a “green, resilient, and inclusive recovery” from the pandemic.

“The Covid-19 pandemic and climate change pose dire – and interrelated – threats to developing countries,” said IFC managing director Makhtar Diop. “Urgent action is needed to prevent millions more from sinking into poverty, to protect jobs, and to ensure a greener future.

“Innovative capital markets initiatives can play a vital role in the world’s response to these emergencies – by spurring private investment, igniting fresh interest in sustainable assets, and supporting economic revival,” he added.

In March, another IFC emerging markets green bond fund which is managed by HSBC reported it had raised more than $530 million from investors. The HSBC Real Economy Green Investment Opportunity Global Emerging Market Bond Fund (REGIO) is focused on ‘real economy’ issuers in developing countries – as opposed to financial institutions targeted by the Amundi EGO fund.

A spokesperson for Amundi told Environmental Finance that “informal discussions” with private investors has already revealed an “appetite” for the BEST strategy ahead of its formal launch later in 2022.

Ahren Lester