Emerging markets are central to the global transition to a low-carbon, climate-resilient economy, but they face challenges in mobilising the finance needed to meet these goals. Climate finance flows to emerging markets exceeded $1trn in 2023, with domestic sources accounting for around 80% of total flows. International public and private capital made up the remainder, with global public finance reaching $159bn and private investment rising sharply to $49bn, up 87% and 149% respectively, compared with 2018 levels. Despite this progress, the financing gap remains substantial. Emerging economies need nearly $3trn annually by 2030 to support climate mitigation and adaptation measures.
Sustainability
Green bonds have emerged as one of the most visible instruments for channelling capital into climate-related investment across emerging markets. Green bond issuance in emerging markets increased 34% in 2023, reaching roughly $135bn. Within the broader category of global green, social, sustainability and sustainability-linked bonds, issuance globally exceeded $1trn in 2023, matching its previous high in 2021. China remained the largest issuer within emerging markets, with $89.1bn of green bonds issued, while other regions, including MENA, recorded strong growth in issuance volumes, particularly in the UAE and Saudi Arabia, increasing by over 200%.
The geographic diversity of green bond issuers in emerging markets is notable. Developing economies from Chile to Nigeria have used green and sustainability bonds to fund renewable energy, clean transport and water management projects. For example, Egypt’s $750m sovereign green bond funded clean transport and sustainable water initiatives, including the Cairo Monorail, while Indonesia’s sustainability bond supports the Sidrap Wind Farm, which is expected to supply renewable power to tens of thousands of homes.
Banks in emerging markets have an important role to play but are currently under-invested in climate lending relative to their broader portfolios. A World Bank analysis found that in nearly 60% of banks across emerging markets, climate-related lending accounts for less than 5% of overall portfolios and more than one-quarter of institutions offer no climate financing at all. This constraint is significant because banks dominate financial intermediation in many developing economies, unlike advanced markets where capital markets and non-bank financial institutions have a larger share of climate finance.
Multilateral development banks (MDBs) have been key in scaling climate finance for emerging markets. In 2024 MDBs provided $137bn in climate finance, a 10% rise on the previous year, and helped stimulate a 33% growth in private investment in climate projects, which increased to $134bn. The majority of this financing – around $85.1bn – was directed towards low-and middle-income countries, supporting mitigation measures, with the remainder allocated to adaptation projects that bolster resilience to climate impacts.
Climate finance in emerging markets has grown alongside innovation in green banking and sustainable finance standards. Many emerging market regulators are developing sustainable finance taxonomies and bond guidelines that align financial products with environmental and social goals, reducing informational frictions for investors and building confidence in emerging market green debt instruments. Initiatives such as the Sustainable Banking and Finance Network demonstrate how collective regulatory action can expand markets and promote better risk management practices.
Nonetheless, climate finance flows to emerging markets remain sensitive to global financial conditions and investor sentiment. Recent global data indicates that sustainable debt issuance, including green bonds, decelerated in 2024, and emerging markets issuance fell compared with previous years as market conditions tightened. While China’s issuance expanded, other emerging regions saw a contraction in labelled debt volumes, highlighting volatility in climate finance markets.
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