Global sustainable debt issuance is on track to surpass $1 trillion in 2021 – up 30% from 2020’s totals. However, emerging markets still represent less than 15% of the sustainable debt universe, highlighting strong growth potential; China, Chile, Turkey, and Mexico are the top issuers. The outstanding green bond market is now over $1 trillion, as the non-financial corporate issuer base broadens. Updated voluntary market principles and guidelines are supportive for market growth and harmonization. 

We update our estimates of FX pass-through to inflation for EM and FM. Median EM pass-through lies below 0.1 and has only changed marginally. For FM, it is closer to 0.3 and has increased, but results for countries vary. Pass-through is still elevated in Argentina, Russia, Turkey, and Ukraine. Higher ERPT and weak FX in 2021 will keep their central banks cautious.

Inflation has picked up amid high commodity prices, supply disruptions, and uneven growth recovery. Scope to postpone monetary policy normalization has rapidly narrowed, and we see most countries hiking this year. Persistent fiscal fragility could complicate orderly unwinding of monetary stimulus.

The July U.S. Regulatory Update covers Fed announcements on climate-related financial risk, market structure reform, Hill hearings on prudential regulation, and more.

Global sustainability-linked debt issuance (loans and bonds) is on track to surpass $320bn in 2021 – triple 2020’s totals; With ambitious climate/ESG finance targets, financial firms are the biggest issuers of sustainability-linked loans this year.

The relaunch of an active and ambitious G20 Sustainable Finance Working Group has raised hopes for greater alignment in sustainable finance policy and regulation. A well- targeted approach—focused on taxonomies, climate risk and disclosure—and close coordination with global standard setting bodies would have maximum impact, supporting the over-arching goal of sustainable market development.  

Nigeria’s multiple exchange rate regime continues to give reasons for concern. We estimate the Naira to be overvalued by ~14% despite the recent devaluation. A weaker exchange rate could pass through to already high headline inflation. However, monetary policy tightening moderated the impact during past episodes. Thus, the transition to a market-determined exchange rate appears manageable.

The European Union and the U.S. recently introduced new sanctions on Belarus. We look at precedents for sovereign debt sanctions to assess the potential impact. Primary market restrictions did not have a strong effect when imposed on Russia. But the Venezuela case shows secondary market restrictions to be consequential. For Belarus, Russian support should help limit external financing stress for now.

The IIF Sustainable Finance Monitor covers key developments in the global sustainable finance agenda. In the April 2021 issue, we examine climate liability and shareholder activism as well as policy and regulatory updates and a market snapshot of tech, infrastructure, R&D, and real estate. 

Returns on green bond indices tend to be more volatile than for conventional bond benchmarks, with significant differences across sectors.  Overall, green bonds exhibit similar volatility-adjusted returns as conventional bonds.