The trillions of dollars circulating in the bond markets could be targeted to help scale sustainable finance flows to emerging markets, BNP Paribas has argued.
Capital has failed to flow to emerging markets at sufficient scale to meet the UN's Sustainable Development Goals (SDGs), but there is potential for the bond market to be tapped to help "industrialise" blended finance, argued Constance Chalchat, chief sustainability officer at BNP Paribas CIB.
"We need to industrialise [blended finance], not by doing trophy deals, but with deals which enable the scalability of this segment," she said.
The bond market is a deep pool of capital that offers "redistribution capacity" and cost efficiencies for transactions, she said.
She pointed to the example of the Climate Investment Funds Capital Markets Mechanism (CCMM), which this week issued a $500 million bond that will help Climate Investment Funds' developing economies-focused Clean Technology Fund (CTF) invest more capital for investments in emerging markets.
"Most of the impact or development funds do not refinance through bond issuances," Chalchat said. "This will help it replenish its capital and scale it up. It is the only way to ensure the scalability of climate finance in emerging markets. It is the future."
She was also optimistic about the prospects of 'outcome bonds', such as the World Bank's 'rhino bond' or reforestation bonds.
She described them as a "win-win" because investors "can claim some positive outcome – and they are redistributed, so they are great for development banks".
The structure allows issues to be targeted at specific countries or ecosystems, she added: "It becomes fully customisable to cater to different objectives and market expectations ."
BNP Paribas is working on an outcomes bond focused on coral reefs in Indonesia.
"It is a work in progress, but we are convinced it's the right way to go, and we have a nice pipeline of deals."
She said development banks have helped the flow of private capital to emerging markets: "We view positively development banks as derisking platforms".
But she added that they are "not industrialised enough". "To take it to the next level, we need to favour distribution."
Emerging markets potentially offer "solid potential provided we have the right level of governance," she said.
Constance Chalchat will be speaking at a conference being organised by the OECD and Environmental Finance in Paris on 4 to 5 February. See the agenda here: CoP-PF4SD Conference 2025: Mobilising private finance towards 2030 and beyond.
To register email events@fieldgibsonmedia.com
