World Investment Forum 2023: International Sustainable Fund Conference

Investing in a green future in emerging markets

Your Excellency, Dr. Rania Al-Mashat, Minister of International Cooperation, Arab Republic of Egypt,

Dear CEOs,

Ladies and gentlemen,

It is my great pleasure to open this conference, focusing on the funds market and its potential to mobilise finance for investment in a green future, especially in emerging markets.

With the current pace of global warming, we have not much time left to secure funding for building a sustainable future. This year was the hottest year on record: In July, the average global air surface temperature was 1.5 degrees above the pre-industrial average for an entire month, and thus already at the point to which we committed to limit temperature increase in the Paris Agreement. The future is thus now.

No industry nor community can continue on the same path.

Financial markets are no exception.

Much has been written about the need to decarbonise public equity and debt markets and make sustainability performance a key metric of business processes and financial products. We now need to also look at private markets and bank lending.

This is still rather innovative work and UNCTAD has contributed to it through monitoring growth of the sustainable finance market, which includes bonds, funds and voluntary carbon markets. We are also monitoring sustainability integration efforts by asset owners and managers.

There are encouraging signs. The value of the global sustainable finance market reached 5.8 trillion US dollar in 2022; this is 12 per cent more than in the previous year. The increase was mainly driven by the cumulative value of sustainable bonds, such as green bonds. Although the market value of sustainable funds fell, sustainable funds saw positive net inflows to the market, in contrast to net outflows in traditional fund markets. This suggests that investors view sustainable finance as a longer-term strategy and believe in the business case for sustainable sectors, such as renewables.

Nevertheless, sustainable finance remains in its early stages. Sustainable funds represent only three per cent of global funds, and sustainable bonds only one per cent of global bond assets. Moreover, developing economies remain so far underserved by the sustainable finance market. These countries have a negligible market share in sustainable investment and limited availability of marketable products.

The credibility of sustainable finance has also been challenged. For instance, by a lack of comparability between markets and products; attempts to standardize disclosure; and labelling that has sometimes created confusion. As a result, there has been some push back against sustainable finance in some markets.

Moreover, with the current rise in oil and gas prices and consequent profits for fossil fuel assets, it is harder to make the case for investment in the energy transition and sell to investors the reorientation of portfolios.

However, there are positive developments. So far in 2023, investment in solar power capacity has overtaken investments in oil and gas production, and the rate of investment in renewables is increasing faster than for fossil fuels.

We are passing a tipping point as renewables become cheaper and the costs of capital for oil and gas exploration become more expensive, partly as a result of regulatory changes. Investors are quick to recognise the costs of potential stranded assets and the opportunities associated with the energy transition.

The sustainable finance market is also potentially an important source of capital for investment in sustainable development. Sustainable funds make a significant contribution to the Sustainable Development Goals. Among the more than 2,800 sustainable funds monitored by UNCTAD, more than half a trillion US dollars, or 30 per cent of their assets, were committed to eight SDG-relevant sectors. The largest recipients of funding included health, renewable energy, agrifood systems, and water and sanitation.

Ladies and gentlemen,

Sustainable finance offers increasing and immense opportunities. But we need to tackle three challenges to tap its real potential.

• One, reorient more capital to sustainable outcomes, such as green energy;
• Two, improve the credibility of sustainable investments to achieve real impact; and
• Three, ensure that the benefits of the market are spread to developing economies where the needs for capital are greatest and where significant opportunities could be harnessed.

I look forward to hearing your perspectives on these issues and wish you a successful session.

Thank you for your attention.