Developed countries still dominate the green bond market, but emerging market issuances are also growing and account for approximately 20% of global issuance. Despite specific barriers, there are green bond market pioneers in emerging markets and developing economies who have overcome these challenges through several strategies.

While each of these countries faced unique constraints, lessons can be learned from these pioneers' collective experiences on how imperfect capital markets can operate effectively as platforms for raising finance for green projects.

This guide shares lessons from early experience in launching green bond markets in emerging markets and developing economies. The authors investigated countries that have been successful in developing green bond markets at all levels of market readiness, considering capital market development, the enabling policy and regulatory environment, and investor appetite for this new asset class.

The objectives of this guide are to:

• Provide a working knowledge of the opportunities and challenges associated with green bonds as a financial instrument for environmental projects.
  • Through examining global trends and specific country case studies, this guide suggests when green bonds can most appropriately be applied as a financing mechanism.
• Inform policy-makers and regulators of ways to unlock the green bond market potential in their home countries.
  • This requires an understanding of market development pathways and the set of actions required to prepare a national financial sector for green bond issuance.

Who should use this guide

This guide has been produced for financial sector policy-makers and green bond market actors in developing and emerging economies. For financial sector policy-makers, the report outlines possible strategies and enabling frameworks to initiate or grow domestic green bond markets. For green bond market actors, including issuers, investors and regulators, the report provides guidance on barriers and possible solutions to participating in the green bond market.

A framework for green bond market development

Four factors have emerged as critical foundations for green bond market development:

• A sound enabling policy and regulatory environment aligned with international standards with clear direction on eligible use of proceeds to guide issuance and promote investor confidence.
• Investor demand for sustainable finance instruments to encourage green bond issuance whilst incentivising the adoption of a green label and meeting of the associated costs.
• Public sector participation and collaboration to provide institutional frameworks and address market capacity gaps.
• Stable macroeconomic and political conditions to provide a general foundation for bond market development

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This guide includes two case studies on the Indian and Kenyan green bond market. These case studies provide a detailed overview of the domestic green bond markets, the specific barriers that limit green bond market development, opportunities for growth, and policy recommendations. Policy recommendations provide learning to financial sector policy-makers and green bond market actors in both case study countries as well as for developing and emerging countries more broadly.

Download the guide here.