But one corner of the market isn’t riding the boom: Sustainability-linked bonds (SLBs). According to Dealogic, there were only three transactions of such kind in the US year-to-date as of mid-March. Globally, the trend is similar, with SLBs in 2023 down 51% YoY. This contrasts with corporate green bonds, which had surged by 48% this year as of March 12, reaching a total of $52.6 billion.

Syed Hasan Jafar, associate dean of graduate programs at Woxsen University in Hyderabad, blames the subpar performance of SLBs on their complex nature and the lack of standardization as to key performance indicators. “Due to uncertainties regarding the legitimacy and significance of these instruments, many investors are still reluctant to adopt SLBs fully,” he says. Some hope that the SEC’s new climate disclosure guidelines will lead to a more mature market for sustainability-linked products. (related story in Trends p. 80)

Meanwhile, in the US, at least, among the corporate bond market’s many flourishing corners, convertible debt is getting attention, particularly for high-flying mid-cap tech companies like Super Micro Computer, MicroStrategy, and Lyft. “The favorable landscape allows firms to borrow under more-advantageous conditions, securing lower spreads above risk-free rates, indicative of cheaper capital compared to periods of market stress,” explains Gaël Fichan, head of fixed income at Swiss private bank Syz Group.

Hasan Jafar warns these issuances carry significant risk: “Convertible debt can lead to dilution of ownership if the company’s stock price rises significantly.” Syz’s Fichan agrees: “Those [convertible bonds] issued by smaller tech companies could face increased vulnerability due to potential tight funding scenarios or abrupt market corrections.”    

The future path of ESG though, may well depend on choices made by the rest of the world, and particularly Asia. Why Asia? Although its per capita emissions are below those of the US and EU, the populous Asia-Pacific region (APAC) is currently a massive carbon producer. Asia is also rapidly becoming a pivotal player in the search for solutions to the climate crisis, and has the resources to achieve it.

“China and India produce one third of the world’s carbon emissions; the former makes over 60% of the solar panel supply and owns the bulk of the rare earth minerals required to manufacture EV batteries,” notes Drew Bernstein, co-chairman of accounting firm Marcum Asia. “Moreover, the region feels the effects of global heating more than anywhere else.”

Africa is certainly pinched between its huge burgeoning energy needs and massive financing gap. Latin America, grounded in agriculture, is investing in sustainable transition, but is a relatively small part of the world economy. By contrast, APAC is the behemoth, anchored by the mature economies of Japan and Australia and primed for future turbocharged growth by the Association of Southeast Asian Nations (ASEAN), which is forecast to be the world’s fourth-richest economic bloc by 2030.

Although its per capita emissions are below the US and EU, populous Asia is currently a massive carbon emitter, generating 17.2 billion metric tons of carbon dioxide via energy production in 2021 (51.2% of the global total), versus 4.5 billion from the US (13.6%) and 3.7 billion in Europe (11.1%), according to the International Energy Agency.

Asia’s wide range of economic development—from frontier markets such as Vietnam to the highly developed economies of Singapore and Japan—means that while the region’s energy and growth needs are significant, it also commands the wealth needed to finance change. Furthermore, cultural expectations in most Asian countries lean toward a strong role for governments in corporate affairs—and for stakeholder-capitalism approaches that seek long-term stability through balance among the needs of employers, employees, customers, citizens and even nature.

“We’re keenly aware of the growing importance that regulators, customers and stakeholders—including banks—place on ESG, climate change, and carbon emissions, in both managing risks and identifying opportunities,” says Gopul Shah, director of corporate treasury and structured trade finance at Singapore-based Golden Agri-Resources, (GAR) a regional agricultural giant specializing in palm oil. “There’s now a clear expectation for companies like GAR to disclose, comply, or explain what we’re doing in critical areas such as sustainable sourcing practices, investments in traceability or mapping and mitigating our carbon emissions.”

Together, these factors are making themselves felt on three fronts: a wave of new and more aggressive environmental reporting regimes across the region, a lively fintech business facilitating reporting connected to the new regulations, and a growing and innovative market in sustainable finance.

Thus far, the approach that Asian governments and corporates are taking to the business of sustainability resembles the European model more than the American. Consider Singapore and Hong Kong. Five years ago, lax environmental regulation and disclosure were among the attractions of these economies. Now, ESG regulation in both is tightening to meet international guidelines. Yet, the two jurisdictions continue to attract corporate interest as bases of operation and corporate treasuries, both from multinationals outside the region and from within APAC.

In fact, these two are effectively leading the ESG regulatory wave that is beginning to sweep the region. In North Asia, Japan is slated to adopt new sustainability disclosure rules by March 2025 consistent with criteria set by the International Sustainability Standards Board (ISSB). China’s three main stock exchanges—Beijing, Shanghai, and Shenzhen—recently unveiled new sustainability reporting guidelines that will require hundreds of large and dual-listed companies to disclose ESG-related information, including energy use, climate change, ecosystem and biodiversity protection, and supply chain security, starting in 2026.

“Mandatory reporting is expected to significantly impact Chinese companies, pushing them to prioritize and transparently report on their sustainability efforts,” says Polly Milne, project director at the Sustainability Group consultancy, based in London. This amounts to “a significant step towards increased corporate transparency and environmental responsibility that will align China with ESG disclosure rules in other countries, including the UK, Australia and Singapore.”

To be sure, not every jurisdiction is proceeding at the same pace. South Korea’s Financial Services Commission announced late last year that it was postponing mandatory ESG disclosure rules for listed companies until 2026 or later, citing delays in the US and other countries and requests from the Korean business community for more time. But new rules are coming nonetheless, initially for companies listed on the Korea Composite Stock Index that have more than 2 trillion South Korean won (about $1.5 billion) in assets.

But the US, where legislation under consideration excludes Scope 3 (supply chain) emissions, is looking more like a global outlier. “The international standard for ESG reporting is the ISSB, which includes Scope 3 emissions reporting as mandatory,” explains Benjamin Soh, co-founder and CEO of regional ESG-focused fintech Stacs. “In Asia, regulatory reporting will be adopted according to this standard for all listed companies.”

In measuring progress and meeting such goals, Asia benefits from a leading edge in technology—environmental as well as financial technology. Hong Kong-based Intensel, for example, uses satellite imagery and big climate and asset databases to provide real-time portfolio analysis.

Another entrant is ESGpedia, a digital platform developed by Stacs, a Singapore-based data and technology company that aims to bolster several green and sustainable-finance efforts, including ASEAN’s Single Access Point for ESG Data, a digital one-stop shop for corporate sustainability information; and the Monetary Authority of Singapore’s Greenprint ESG Registry, a blockchain-based network that is part of a wider effort “to harness technology and create a data-centric ecosystem to support the financial sector’s sustainability agenda.” As sustainability-focused regulations roll out across Asia, tools created by companies like Intensel and Stacs are expected to play a key role facilitating compliance.

As this suggests, APAC is also expected to drive the next stage of growth in sustainable finance, which has surged from less than $100 billion in 2015 to $4.6 trillion worldwide in 2022, according to Precedence Research, which predicts 20% annual growth for the market through 2032, when it could reach $29.1 trillion. “Much of that growth will come in [APAC] as it catches up with Europe and North America and, in some areas, overtakes them,” Societe Generale predicted in a January research note.

Investment bankers and institutional investors in the region expect the new environmental reporting regimes to reinforce North Asia’s existing preeminence in green and impact bond issuance and spawn a new boom in sustainable issuance in East and Southeast Asia. For Asia’s CFOs, challenges and opportunities abound: The former involve meeting a rising level of government regulation aligned with ever-converging regional green taxonomies; the latter involve an increasingly deep and sophisticated sustainable loan, bond and derivatives market.

Cross-border issuance within Asia gives corporate treasurers the opportunity to diversify their investor base while tapping a growing sustainable-funding market. In March, CapitaLand Investment (CLI), a Singapore real estate firm, issued its inaugural sustainability-linked Panda bond, with a three-year tenor at 3.5% per annum, raising one billion renminbi (about $138.7 million), the first such from a company based in the city-state. The deal was 1.65 times oversubscribed, indicating a strong underlying demand for sustainability-linked debt from Chinese investors.

Meeting key performance indicators (KPIs) linked to the interest rate on a loan or bond can deliver substantial bottomline benefits, the discount depending on the market, the bank and the corporate making the deal. “In Asia’s emerging markets, the discount could be as high as 25 basis points per annum,” says Stacs CEO Soh. “You’re saving a lot of money down the road.”

Another advantage of sustainability-linked issuance is that funds can be used for refinancing purposes. In the CLI deal, coupon payments are linked to a reduction of CLI’s energy consumption intensity at its properties in China, targeting a 6% decline.

These benefits are key for RGE, a Singapore-based, privately held multinational with global assets valued at more than $30 billion. RGE has business segments in palm oil, pulp and paper, viscose fiber, and energy provision. “To drive real sustainability impact and ensure that all our businesses have skin in the game,” says Patrick Tan, RGE’s head of banking, “we have committed 100% of our financing to sustainability-linked loans (SLLs).” Proceeds will support the growth of the company’s core businesses as well as its expansion into new initiatives such as sustainable aviation fuel. “SLLs are ideal for us as they are aligned to our DNA as well as our businesses’ sustainability goals,” Tan adds. “In 2023, we issued around $1.14 billion in SLLs and we expect to seek a similar or bigger funding amount this year to support our growth.”

From an issuer’s point of view, sustainability-linked bonds (SLBs) carry another attraction: callability. According to an International Finance Corporation February 2023 report, 65% of the outstanding global corporate SLB market is likely to be called, versus 23% of green bonds—with 69% tied to reduction of greenhouse gas emissions, followed by increased use of renewable energy—and step-ups for missing ESG-linked KPIs are relatively low, at a 25 basis point average.

“Issuers recognize the need to establish green credentials or risk being locked out of capital markets. However, not every issuer has eligible green assets that can be tagged to use-of-proceed instruments like green bonds,” says Clifford Lee, global head of Investment Banking at DBS. “SLBs play a critical role in bridging that gap by supporting companies as they undergo the green transition.”

The lack of standards for ESG factors in business remains a point of contention. GAR illustrates why: The company has been an early adopter of standards set in Singapore and has started implementing international Taskforce on Climate-related Financial Disclosures (TCFD) recommendations and reporting Scope 3, land use and forestry emissions. Do those efforts earn it high marks? Depends whom you ask. A- from Refinitiv, BB from MSCI and High Risk from Sustainalytics.

Elsa Pau, founder and CEO of Hong Kong-based BlueOnion, a fintech company that promotes responsible investing, argues that the diversity of views is healthy: “Different ESG ratings agencies look at companies from fundamentally different perspectives.”

Others, like Karl Schmedders, professor of finance at IMD business school in Lausanne, complain that inconsistency masks the compromises in the business model: “Why do the agencies that provide those ratings get involved? They in essence want to make money, and the enterprise enables greenwashing.”

Here, banks may be able to lend help to corporate clients as arbiters and assessors. “For commercial banks, ESG ratings serve more as a point of reference,” says RGE’s Tan. “For corporates that are transitioning to a greener future, banks may be better equipped than a standard set of ratings to dissect and identify factors that move the needle.”

As DBS’ Lee notes, ESG ratings can be useful in demonstrating a company’s adherence to ESG principles and exposure to ESG risks. However, as ESG ratings remain in an evolving stage of development, many companies continue to rely on their respective ESG financing frameworks to showcase ESG plans to investors.

“While banks expect sufficient ESG transparency from their clients to ensure they can address climate change or transition risks and opportunities, this is still one among many factors that lenders consider,” says GAR’s Shah. “Corporate credit rating, business risk and management profiling, cash flow, industry risk, governance and relationship history continue to remain primary considerations for lenders.”

Issuance of “impact” bonds, sometimes referred to as GSS+ bonds—green, social, sustainability and sustainability-linked instruments—totaled $939 billion in 2023, a slight 3% improvement over 2022, according to Bloomberg data. The sector has yet to match the record heights of 2021.

Green bonds have dominated the impact bond category from the beginning, and 2024 is unlikely to be different. Credit Agricole analysts expect green bonds to account for almost two-thirds (64%) of GSS+ issuance this year. Other label types will be much further behind; sustainability bonds, which have attributes of both green and social bonds, are projected to make up 16% percent of the total, and social bonds 12%.

Why does sustainable finance remain so deeply green?

“There’s a sense of purpose about global climate change” that seems to transcend other impact bonds, says Vulturius. “Social bonds have always played second fiddle to green bonds.” Social bonds seized public attention during the Covid-19 pandemic, when so many people required unemployment support and social interventions, but since then interest has waned, he notes.

As for sustainability-linked bonds (SLBs), which seemed poised for a breakout in early 2022, they could now be at a crossroads. SLBs suffered “another setback” last year, “with almost $20 billion less in new issuance compared to 2022,” according to SEB Group. But “the market has now mostly learned its lesson about the importance of integrity, and how to mitigate greenwashing risk.”

That being the case, “SLBs should record a modest progression” this year, predicts Credit Agricole, while Scandinavia’s Nordea Bank, a leader in SLBs, also expects these “transition finance” instruments to gain momentum.

“It’s important to recognize that we are heading into the fifth year of SLBs versus the 15th for green bonds,” notes Petra Mellor, head of Bank Debt at Nordea Bank. “True, we have some structural aspects still to be fine-tuned for SLBs, but the market relevance is more important than ever.”

Among other trends to watch for in 2024, Vulturius cites decarbonization, blended products, and a strong pickup in North American green bond activity, especially as the IRA’s impact begins to kick in. The US presidential election in November could derail progress, but that is more a topic for 2025, he argues.

And the longer term?

It can be difficult to factor big-issue political discussions—like the recent COP28 meeting—into short-term decision-making, Mellor observes, “but one key takeaway [from COP28] was the increased recognition of transition finance” as an important financial category. That isn’t going away, she says.

Which is another reason to expect that institutions focusing on sustainable finance in its various forms will be have plenty to keep them busy in 2024. With that in mind, Global Finance here presents its fourth annual Sustainable Finance Awards, the winners spanning seven regions and 53 countries, territories and districts, as well as global honorees in 13 categories.      —Andrew Singer

Global and regional awards require submissions detailing hard measures of ESG activity, such as year-over-year growth in sustainable finance transactions or sustainable financial instruments as a percent of total portfolio, as well as softer metrics that include goal alignment with leading ESG norms or innovative product development. Entries were not required for country awards, which were judged by the editorial team’s independent research. Evaluation criteria for both cases include governance policies and goals, achievements in environmental and social sustainability financing, industry leadership and third-party assessments. This awards program covers the activities from January 2023 to December 2023. There was no fee to enter.

Societe Generale (SocGen) bolstered its reputation for sustainable finance innovation in November by serving as sole manager for the first digital green bond issued on a public blockchain and by SocGen. The €10 million senior preferred unsecured bond was tokenized and directly registered by SG-Forge on the Ethereum public blockchain. Blockchain, says SocGen, can potentially increase the traceability and transparency of ESG-related bonds for both issuers and investors.

SocGen also stands out for its reach and versatility. Last year, it was active in ESG projects on all six inhabited continents, including many parts of Africa, and it remains one of the few commercial banks that has ever issued green, social and sustainable bonds, according to Natixis.

 In the project finance sphere, the bank was active on many fronts in 2023, including in October as sole debt financial adviser and mandated lead arranger on Automotive Energy Supply Corporation’s €873 million battery storage factory in France’s Battery Valley. Elsewhere, it helped finance offshore wind projects in Poland and South Korea; onshore renewables in Japan, Australia, Egypt, and Vietnam; and critical materials projects in Mongolia and Africa.           —Andrew Singer

Since Scotiabank announced a goal of mobilizing C$350 billion by 2030 to reduce the impact of climate change, it has chalked up a series of groundbreaking transactions in Latin America’s emerging markets. Notably, the bank supported Inversiones CMPC as it brought the first green sustainability-linked bond issue in the Americas to market in June. The C$500 million in bond proceeds are allocated to designated green projects, and the coupon increases if emission targets are not met.

Also in June, Scotiabank assisted Chile on a sequence of US dollar- and euro-denominated debt issues that are helping the country meet its environmental and social objectives. The deal makes Chile the first sovereign to issue a sustainability-linked bond with a social KPI related to gender diversity.

The bank also supported Mexico’s Trust Fund for Rural Development (FIRA) in April when it placed Latin America’s first green resilience bond on the Mexican Stock Exchange. The US$154.89 million offering is intended to improve the resilience of producers and value chains in the agriculture sector. Proceeds are financing projects to reduce the impact of extreme climate events and strengthen systems against climate stress.          —Andrea Murad

The DBS team helps clients access Asian debt capital markets and raises bond financing for environmental, social and governance-related efforts on the continent. In February 2023, DBS Securities China issued a three-year, AAA-rated onshore panda bond for China Power International; funds were to be used for the development of green power projects. In September, DBS acted as joint lead manager and joint bookrunner on a $650 million, five-year social bond for Hong Kong Mortgage Corporation, the proceeds earmarked to help the company alleviate the financial burden on small to midsize local businesses affected by the Covid-19 pandemic. In 2023, the bank served as joint lead underwriter for the Asian Infrastructure Investment Bank’s ¥1.5 billion, five-year Chinese bond issue aimed at funding sustainable economic development, wealth creation, and improved infrastructure connectivity in Asia.           —Laura Spinale

Industrial Bank of Korea is at the forefront of South Korean’s sustainability field, having launched the nation’s first ESG-related loans in 2022. Offerings have included a KR₩200 billion fund for the RE100, a global initiative encouraging businesses to convert to100% renewable energy. The fund is to provide loans to energy providers that, in turn, will supply renewable energy to companies pursuing RE100-compliant strategies. In partnership with DS Asset Management, Industrial Bank of Korea also created an ESG fund totaling KR₩100 billion to support SMEs and other companies engaged in renewable energy production, eco-friendly power generation, and smart farm development. These and other initiatives boosted the bank’s sustainability financing engagement 15% from 2022 to 2023, to KR₩718.3 billion.           —LS

Canada’s CIBC acted as joint bookrunner on several corporate green and sustainable bond issues last year, including Ontario’s $1.5 billion green bond offering in February, earmarked to support clean transportation and energy efficiency. In November, CIBC was selected by the Canadian government as sole structuring adviser for updates to its Green Bond Framework.

The bank was also bookrunner for Canada’s largest corporate sustainable bond to date in 2023: Hydro-One’s inaugural $1.05 billion issue. Hydro-One will use the proceeds to finance both green and social projects, in keeping with the hybrid nature of sustainable bonds.            —AS

Spain’s CaixaBank takes a multipronged approach to supporting local communities. First, it is Europe’s largest bank provider of microcredits and other loans with a social impact; in the first nine months of 2023, it extended €991 billion of microcredits, an increase of 24% year-over-year.

Second, CaixaBank sustains communities as an issuer of social bonds such as its €1 billion issue last May funding loans to families, self-employed workers and SMEs in Spain. The offering that provides vulnerable people with access to education and healthcare was significantly oversubscribed.

Finally, the bank provides conceptional support, helping to expand the definition of sustainable finance to include deals with individuals and companies, and not just contributions to SDGs, as per its 2023 Guide of Identification of Sustainable Financing.      —AS

OTP’s extensive operations in 12 countries across CEE – Romania, Bulgaria, Croatia, Serbia and Montenegro, and, of course, its home market Hungary— and Uzbekistan and Moldova — have given it access to the growing opportunities for sustainable finance. As well as taking up these opportunities, the OTP Group has led the way in sustainability transparency, standardizing business practices, following a tough anti-corruption policy and prioritizing good corporate governance.

In 2022 the Green Loan Framework was rolled out across the OTP Group to ensure consistency and transparency in the way subsidiary banks manage ESG loans and projects.

Last year saw a further improvement in OTP’s overall ESG Risk Score, and today risk is negligible in business ethics and product governance and low in the areas of data privacy and security, ESG Integration, financials and human capital.   —Justin Keay

Financing for the €4.1 billion Baltic Power project, Poland’s first offshore wind farm, came in last September with the Netherlands’ ING acting as sole sustainability coordinator. The project is expected to supply clean electricity to more than 1.5 million Polish households.

ING’s infrastructure focus does not end in Europe, however. Last year, it closed a KR₩440 billion green loan with Digital Edge to support the first phase of the company’s 100-megawatt data center project in Seoul, South Korea. The Singapore-based firm aims to build sustainable, high-speed digital infrastructure throughout Asia. —AS

Sustainability-linked bonds encountered headwinds in 2023 as questions were raised about both their structure and the credibility of their performance targets, but Finland’s Nordea, an SLB pioneer, insists that they will remain “a key tool for the market.”

In August, Nordea issued a €1 billion sustainability-linked loan bond (SLLB) that employs use-of-proceeds bonds to fund a portfolio of sustainability-linked loans. SLLBs are a potential game changer in the view of some because their structure provides an additional layer of accountability and scrutiny for investors.           —AS

At COP28, the World Bank Group set an ambitious goal to devote 45% of its annual financing to climate by 2025, having committed and mobilized a record $14.4 billion in climate finance in 2023.

The International Finance Corporation (IFC) is scaling up financing to clients through its capital and mobilizing external resources with significant already agreed-upon and implemented measures, and more proposed, to leverage existing resources further while maintaining financial sustainability.

New initiatives include blue-themed bonds to support sustainable ocean economies, a $1.5 billion three-year social bond to help low-income communities in emerging markets and a $3.5 billion credit insurance policy with 13 global insurance companies to support economic activity and foster development in emerging markets.     —GW

The green agenda has been a priority for the African continent for some time, particularly for the private sector. Environmental, social and governance (ESG) initiatives can drive growth in GDP, per capita income and jobs, while fostering collaboration between countries, businesses and communities—and banks are an integral part of this process. Yet, a significant funding gap hinders the continent from achieving the United Nations Sustainable Development Goals (SDGs). While there’s rapid growth in ESG debt instruments, including green, social, sustainability and sustainability-linked bonds, according to Sustainable Fitch, the overall scale of sustainable finance in Africa is still small.

Even so, there are numerous success stories of green ventures in Africa, according to the UN Environment Programme (UNEP). For example, the transition to sustainable agriculture contributes about 17% of sub-Saharan Africa’s GDP and increases productivity while minimizing the impact on ecosystems and helping to reduce food insecurity. The blue economy and ecotourism can generate $576 billion and 127 million jobs over the next 40 years. Renewable energy solutions can contribute 6.4% to GDP over the next 30 years, as Africa has abundant solar, wind, geothermal, hydro, biomass and other natural resources that can be used for innovative solutions.

To meet these needs, the banking sector has continued to provide financial and nonfinancial support, funding projects across the continent. They have also continued to develop innovative products and to revitalize debt capital markets in countries across Africa.

Societe Generale (SocGen) continues to lead in Africa’s sustainable finance. The bank’s successful “Grow with Africa” campaign has continued to contribute to Africa’s sustainable development.

The bank’s infrastructure finance teams support projects to develop wind farms, solar farms and sustainable water and wastewater management projects, and to upgrade hospitals and modernize transport systems. SocGen supports the development of African small and midsize enterprises (SMEs) with expertise, advice and training, as well as an awareness of environmental and social issues.

SocGen strengthened its support in the agriculture sector by facilitating value chains, contributing to a virtuous ecosystem of nonfinancial support to help sector players scale, and by focusing on the blue economy and biodiversity with offerings related to monetizing carbon credits for the maritime sector.

The bank remains dedicated to financial inclusion initiatives and provides access to financial services to populations with limited banking services.

Societe Generale Madagasikara has contributed positively to Madagascar’s sustainable development and supported the country’s ecological transition by working with its customers and communities to follow a more sustainable investment strategy. The bank has changed how it conducts business in several ways, including the “one card equals one tree planted” product launch with the CSR consulting service Bondy, which is focused on reforestation and restoration of biodiversity that ultimately creates jobs. The bank remains committed to education and professional integration, providing funds to help build a better future for youths and structuring projects to build schools and transition some schools to solar energy. Also, the bank financed the rehabilitation of damaged public schools and provided computers.

The Pan-African financial services provider Absa embraces its ethos as an active force for good in its strategy and remains committed to driving tangible, meaningful change in its communities. The bank has worked on several sustainable bond issuances this past year.

Most notably, Absa Group served as joint lead transaction adviser on NMB Bank’s first sustainability-bond issuance, which was a first for Tanzania and East Africa and fostered sustainable finance across borders. The issuance was NMB’s inaugural listing on Tanzania’s Dar es Salaam Stock Exchange. The NMB Jamii Bond’s proceeds are to be used for green initiatives that will enrich the regional environment and finance impactful social projects empowering and uplifting Tanzanian communities socially and economically.

Standard Bank is committed to a strategy for driving sustainable and inclusive growth in Africa based on pillars of social, economic and environmental impact. The bank aims to drive positive impact in line with SDGs to ensure effective ESG-risk management and good practices.

The bank issued 45 billion South African rands (about $2.3 billion) in sustainable financing, including green loans that funded renewable energy projects and green buildings; social loans that delivered affordable housing, basic infrastructure, and essential services in health and education sectors across the continent; and the bank’s first transition finance loan in the thermal coal sector. The bank also participated in sustainability-linked funding across multiple industries that embedded material sustainability key performance indicator (KPI) themes addressing carbon emission reductions and renewable energy consumption, water and waste management, diversity and inclusion and micro- and small-business funding and support.

Standard Bank also mobilized 15.5 billion rands in green project finance and 1.2 billion in social project finance funding renewable energy, carbon projects, basic infrastructure and affordable housing in numerous African countries. These projects include assisting African power producer Red Rocket in developing, designing, constructing and operating wind farms with a combined installed capacity of 280 megawatts (MW) in the Western Cape and 84 MW in the Eastern Cape.

Based in Egypt, CIB (Commercial International Bank) drives change within African emerging markets through pioneering initiatives. The bank recently launched “Brain Trust,” an innovative model that addresses the gap in finance for adaptation projects and mobilizes private investments for pipeline projects in Africa’s agriculture, food and water systems.

CIB also expanded its sustainable finance offerings in 12 corporate and SME financing areas. These include energy efficiency, renewable energy, green building, waste and water management, water desalination, energy management systems, pollution prevention and control, and sustainable agriculture and transport. CIB’s expanded climate finance offerings enable the transition toward a low-carbon economy by addressing the environmental challenges carbon-intensive industries face.

Based in South Africa, Nedbank is a pioneer in green finance, being the first bank in the country to embrace many climate-related initiatives. The bank launched its Green Private Power Tier 2 Bond, with a notional value of 2.1 billion rands, in 2023. This on-balance-sheet transaction was used to finance a portfolio of private renewable power-generation projects in South Africa, including photovoltaic solar and wind projects. These projects help advance South Africa’s renewable energy capacity and accelerate the transition to a low-carbon economy. Nedbank also structured, arranged and invested in a 550 million-rand green bond facility for Burstone Group to finance and refinance a portfolio of green buildings.

IFC (International Finance Corporation) has a vision to create a world free of poverty on a livable planet. As such, it has been a leader in social bonds and sustainable finance in Africa. IFC provided an anchor investment in the West African Economic and Monetary Union’s first social bond in the energy sector that supports the Electricity for All Program (PEPT), a government-led program facilitating access to electricity for underserved populations in electrified localities. Bond proceeds help finance the connection of up to 800,000 low-income households to the national grid over the next four years. 

The strategy of Rand Merchant Bank (RMB) embraces the sound management of natural resources, a cornerstone of sustainable social and economic development.

The bank participated in financing the Development Bank of Rwanda’s inaugural sustainability-linked bond (SLB). This SLB was the first globally issued by a national development bank and the first issued in East Africa. The issuance was structured to recognize the systemic change required for a development bank to meet its sustainability performance targets (SPTs) and to revitalize Rwanda’s debt capital markets.

RMB also established a sustainability-linked financing framework (SLFF) with chemical manufacturer AECI, designed to facilitate SLB and sustainability-linked loan (SLL) issuances. When opportunities arise, the SLFF more broadly overlays KPIs and SPTs on other financial instruments and services. AECI successfully used this framework to debut its 1 billion rand SLB with KPIs focused on effluent discharge, carbon emissions, and gender diversity.  —Andrea Murad

There is no denying that Asia has pollution problems. According to UNEP, roughly 6.5 million people die each year from exposure to poor air quality, and 70% of them live in the Asia-Pacific region. Water pollution and industrial waste also plague the region. However, thanks in no small part to the financing efforts of the following banks, there is hope. Funding for sustainable development projects, clean public transportation, offshore wind farms and other renewable energy efforts will help improve the local environment. And social financing geared toward supporting small farmers, microbusinesses and women-owned businesses will forge a brighter financial future for those living in a cleaner world.

With operations in Singapore, China, India, Indonesia and Taiwan—and strong efforts in transparency, support for emerging markets, ESG-related loans and bonds, and transition/sustainability-linked loans in those markets—DBS takes Asia’s regional award for the Best Bank for Sustainable Finance. Consider its operations in China as one example of its strength on the continent. By the end of 2023’s third quarter, the green loan balance in that country had increased 37% from the balance held in January of that year.

DBS touts itself as the bookrunner of choice for bond issues in Asia and a pioneer bank for ESG capital instruments. Notable ESG activities include working with the People’s Bank of China. This relationship enables DBS China to offer low-cost loans to fund sustainable development projects—including clean energy projects and projects geared toward reducing carbon emissions. Notable financing includes a 572.2 million Chinese yuan (about $79.5 million) green loan to Weifang Bohai Bay Photovoltaic Technology and Weifang Tianen Binhai New Energy to support a photovoltaic power plant project. The loan was issued in November.

Reporting on sustainability since 2015, DBS published its first stand-alone sustainability report in 2018. These reports are produced in accordance with Global Reporting Initiative standards. In 2021, the bank became the first bank in Singapore—and among the first 100 banks globally—to become a signatory to the Net-Zero Banking Alliance. In 2022, it outlined its progress toward the alliance’s goals in a report called Our Path to Net Zero: Supporting Asia’s Transition to a Low-Carbon Economy. That report describes in great detail how the bank selected decarbonization activities, and the science behind those decisions. Goals are set for 2050, with interim goals listed for 2030. The bank has also produced green credit guidelines, a sustainable- and transition-finance framework, responsible business-practice pillars, and community impact analyses—all available for public perusal. For all these activities, DBS earned our award as the Best Bank for Sustainability Transparency in Asia-Pacific.

Additionally, the bank has won our award as Best Bank for Sustainable Financing in Emerging Markets in Asia-Pacific, with strong work in China, India, Indonesia, Singapore, and Taiwan. As a leader in Asian emerging and local currency bond markets, it has funded various sustainability-related projects. DBS China completed the drawdown of a $297 million term loan for China Three Gorges’ acquisition of Alcazar Energy Partners’ solar and wind projects located in Jordan and Egypt, with a total capacity of 411 MW. DBS also partners with clients to facilitate Asia’s transition to clean energy as part of its effort to reduce and eventually eliminate coal-fired power. It has developed a climate analytics tool for net-zero banking, examining, at a portfolio level, the bank’s goals for existing and new customers in the power, oil, gas, real estate, steel and aviation sectors. It works with partners to decarbonize Asian supply chains for its clients, and it provides loans to accelerate decarbonization.

By providing sustainable financial solutions tailor-made for microbusinesses, farmers, fishermen and other traditionally unbanked citizens, BPI (Bank of the Philippine Islands) is doing much to help develop sustaining communities in that nation. One example of these solutions is the JFC Agri Loan Financing Program. This financing mechanism is specifically designed for small-scale farmers—particularly farmers who act as suppliers to BPI corporate client Jollibee Foods Corporation. This financing facility gives small farmers (working on average plot sizes of less than 1.5 acres) access to affordable financing in a region known for very high interest rates on microloans. Microfinance solutions are only one arm of BPI’s ESG work. 53% of its total loan portfolio supports the UN SDGs.

The Bank of China (BOC) won as Best Bank for Sustainable Infrastructure Finance in Asia-Pacific for its work on the nation’s first marine-ecology-oriented development project, the Dongtou Bays • Sea Garden project. The goal of this four-year project is to create needed environmental infrastructure. It also seeks to solve ecological maladies, such as the accumulation of sea garbage in the bay. The BOC funded the project via underwriting bonds for it, along with other infrastructure finance in Asia linked to carbon-emissions reduction.

The bank’s second win, as Best Bank for Sustainable Bonds in Asia, is due to its funding of a broad range of sustainable project categories across the globe. Projects funded promote renewable energy and green buildings and strive to prevent pollution.

These bonds are part of the $1.9 billion in green and sustainable bonds the BOC has floated in overseas markets and 30 billion yuan in sustainable and green bonds in China. The bank has also underwritten 286.2 billion yuan in domestic green bonds and sustainable bonds and $24.8 billion in green and sustainable bonds overseas.

Meanwhile, the bank also prides itself on an abundant and diversified portfolio of green products and services marketed under the BOC Green+ global brand. Among the dozens of loans, trade finance products, services, and deposit products offered are bonds linked to transition and sustainability. These cover efforts in clean transportation, renewable energy, green buildings, pollution prevention and control, and sustainable wastewater management. Recent offerings fund efforts to reduce carbon emissions by constructing new wind power facilities. Additional projects funded seek to improve the management of marine environments, earning BOC the Best Bank for Transition/Sustainability-Linked Bonds in Asia-Pacific award.

CTBC acted as the mandated lead arranger and bookrunner for the Hai Long offshore wind project, the largest such project—in terms of capacity and cost—in Taiwan. It will generate an estimated 1,022 MW of clean power. CTBC has also supported other similar projects, providing financing for 605 MW and 300 Mw offshore wind developments. The bank further acted as a structuring bank for a 17 MW waste-to-energy incinerator built by Cleanaway Energy. This incinerator is dedicated to processing solid recovered fuel. Once processed, this high yield recovered fuel will be used for power generation rather than being disposed of in a landfill. For these and other activities, CTBC has been named Asia-Pacific’s Best Bank for Sustainable Project Finance.

In 2023, the Thai ESG-bond market had an estimated value of 44.9 billion Thai baht (about $1.25 billion). Nearly 28.4 billion of that—63% of the total Thai ESG-bond market—was underwritten by Bangkok Bank. Among projects financed by these bonds was the Xayaburi Power Company’s 3.5 billion baht green bond to design, develop, construct and operate a hydroelectric power plant. Bangkok Bank also underwrote a 3.9 billion baht bond for Energy Absolute Public Company to modernize its buses—supplanting the current internal-combustion buses used for public transport in Bangkok with clean-running e-buses. Additional projects funded include biomass facilities, hydropower projects, solar power facilities and offshore wind power projects.

The Industrial Bank of Korea says it was responsible for 81% of the ESG bonds issued in South Korea in 2023, totaling 6.9 trillion South Korean won (about $5.2 billion). The bank continues to promote the acquisition, trading and issuance of ESG and social bonds. Many of its bonds, indirectly guaranteed by the South Korean government, support small and midsize industries. It has been involved in successful social bonds with organizations such as the Korea Credit Guarantee Fund, the Small and Medium Business Corporation, and the Korea Housing Finance Corporation. In late 2023, the bank issued a $600 million five-year gender-equality- themed social bond. Proceeds will be used to finance or refinance new or existing loans to SMEs and projects supporting gender equality. In further ESG efforts, the bank’s insurance arm invests in green bonds and other eco-friendly projects to promote the expansion of ESG finance and to support carbon neutrality.

The bank also launched that nation’s first ESG-related loans. It established a 200 billion won fund to finance renewable energy providers that, in turn, supply renewable energy to companies seeking to be powered entirely by renewable energy. This has earned it our Best Bank for ESG-Related Loans in Asia-Pacific award. (For more information on this and other initiatives, see the Industrial Bank of Korea’s entry in our Global Winners section.)

ING takes the regional award for Transition/Sustainability-Linked Loans for several efforts. These include its position as sole sustainability coordinator on Southeast Asia’s first private equity backed, leveraged SLL. This $790 million deal supports the activities of the Goodpack company. Based in Singapore, Goodpack is the world’s largest provider of reusable pallet-sized metal containers for road, rail and sea shipments. The funds will support Goodpack’s efforts to implement circular supply chains, or supply chains that reuse materials and goods as long as possible. A second, $403.8 million loan issued by ING supports a company called EdgeConneX in its efforts to build more environmentally sensitive data centers. —Laura Spinale

If 2023 was notable for anything, it was the growing awareness of the urgent need to tackle global climate change. This was compounded by the year becoming the hottest ever recorded, with weather events once considered freaky now increasingly commonplace in many countries, including those across Central and Eastern Europe (CEE). The region’s banks have put themselves at the forefront of this new awareness, operating more sustainably but also looking to take advantage of what will be major commercial opportunities going forward.

Last year, our Sustainable Finance Awards reported that CEE’s banks have moved away from greenwashing. This trend has become more pronounced, with institutions demonstrating awareness of the UN’s 17 SDGs and the Paris Agreement climate goals, and how the banks can meaningfully play their part in creating a greener future. Increasingly, banks are not just identifying opportunities but are working with clients to help them shift toward greater sustainability, which will be vital in driving the whole process forward over the long term.

Established 95 years ago and Poland’s second-largest bank, with around $9 billion of Tier 1 capital, Bank Pekao has long been committed to sustainable finance, which forms the cornerstone of its 2021-2024 business strategy: Responsible Bank, Modern Banking. It is dedicated to reducing the financing of energy-intensive projects, has its ESG strategy closely monitored by an ESG council, and has been making steady progress toward its goal—outlined in its business strategy—of financing 30 billion Polish zloty (about $7.6 billion) of sustainable projects by the end of 2024. (As of the third quarter of 2023 it had reached 22 billion zloty.) Green financing now accounts for 6.6% of all projects, actually above the aim of 4%, while some 30 different initiatives are underway to meet the above sustainable finance goal.

Bank Pekao has pursued a dynamic green bond and SLB issuance program. Through 2023, it was involved in leading, coordinating, financing and/or co-financing at least eight major projects, including a 3.9 billion zloty 1.2-gigawatt offshore wind farm, a 3.5 billion zloty green bond issue for a leading CEE media company, a 0.5 billion zloty contribution toward a new public-private financed tram line in Krakow. The bank also co-organized a 180 million zloty green bond issue for an international property group.

In the wake of the devastating earthquake on February 6 last year that struck Antakya and 11 towns in the surrounding region, Isbank secured $915 million from the Turkey: Disaster Response Framework of the European Bank of Reconstruction and Development (EBRD) to target recovery. It has financed and supported female entrepreneurs through numerous projects, including WeLead, which reached 3,500 women last year. It has also worked as part of a consortium to help refinance $574 million in renewable energy power plants. It has provided green loans to two companies to produce electric/hybrid tugboats.

Hungary’s largest bank, with an extensive network of branches across Hungary and 12 other CEE countries, OTP Bank has long put sustainability at the heart of its business model. By the end of 2023, it had reached 230 billion Hungarian forints (about $642.4 million) in green loans (both corporate and retail), laying out its policies clearly through careful internal monitoring and through its ESG Exclusion List, which has been incorporated into its green loan framework to ensure that no investment takes place in any of the prohibited sectors.

The OTP Group has led the industry in sustainable project finance through its network of operations across CEE. In Romania, together with OTP Hungary, OTP Bank Romania participated in numerous syndicated loans to support sustainable real estate developments in Romania. The total exposure for these projects amounted to €115 million (about $124.9 million) by the end of 2022. OTP financed wind and solar energy production projects by more than €55 million, targeting a new generation capacity of over 1,250 MW from renewable sources.

The bank’s unique reach across CEE—in countries such as Romania, Bulgaria, Croatia, Serbia and Montenegro—has given it access to growing opportunities for sustainable finance, with standardization of business practices and products encouraging the growth of sustainable financing in these countries. By the end of the third quarter of 2023, the OTP Group reported 403 billion forints in sustainable financing business across the region.

OTP Bank’s ESG-related loans have been on a rising trend over the past few years. Sustainalytics judges that OTP’s overall ESG risk score improved from 17.8 to 14.6, putting it into the low-risk category, with risk negligible in business ethics and product governance, and low in the areas of data privacy and security, ESG integration, financials and human capital.

One of Turkey’s largest banks, Akbank provided loan support to the Turkish economy of 1.2 trillion Turkish lira (about $38.5 billion) over 2023, with a strong focus on sustainable investment. It has provided 174 billion lira in 2023 to support a sustainable future, reaching 87% of the 2030 target of 200 billion lira in sustainable loan financing.

The bank has been very active in social bonds and transition-linked loans, increasing issue volume by about 100% for the year as of the end of 2023’s third quarter. Social loans over the first three quarters of 2023 increased 34 times over 2022, with a large proportion of this assisting the areas affected by February’s earthquake. Separately, Akbank contributed 650 million lira to help redevelop these areas and a further 10 billion lira in support to its customers in the area. An agreement signed with the EBRD secured a loan agreement of $90 million to be distributed in the region.

Akbank has also launched Turkey’s first sustainable deposit product, aimed at commercial customers, to enable them to contribute actively to projects aligned with the UN’s SDGs. The bank has supported SMEs through its SME Eco Transformation Package in collaboration with IGE (a company facilitating exports through guaranteed practices for companies) and by launching the IGE-Akbank Green Transformation Guarantee Support Package in 2023, explicitly aimed at helping SMEs to reduce their carbon footprint and lower their energy costs.

As the second-largest bank in Austria, Raiffeisen Bank International (RBI) has expanded into 13 CEE markets and had total assets of €198 billion at the end of 2023. Amid a corporate strategy to “make sustainability happen,” RBI plays a leading role in sustainable bonds, for which it was the fourth-largest issuer in CEE in the first three quarters of 2023, according to Bloomberg data. Sustainable bonds come in several formats (linking with ESG ratings or sustainability targets or linking through proof of sustainable use of funds), and RBI included two corporate bonds (ESG volume of €755 million and ESG volume share of 17%) and seven bonds issued by sovereigns or financial institutions (ESG volume of €2.6 billion and an ESG volume share of 7%).

The Development and Investment Bank of Turkey was founded by the Turkish state in 1975 and was committed to environmentalism long before it became widespread. Its share of SDG-related loans has reached over 90% of its portfolio, while the share of climate and energy SDG loans is now 60%. The bank’s loans have had a marked impact on reducing Turkey’s carbon footprint—the bank has financed 388 projects, accounting for over 15% of the country’s installed renewable energy projects, while it has helped fund 156 projects aimed at boosting renewable energy, cleaning wastewater and reducing industrial emissions.   —Justin Keay

Over the past few years, most Latin American countries have updated their nationally determined reductions of greenhouse gases under the Paris Climate Agreement, with some joining the High Ambition Coalition’s 30×30 initiative to protect the world’s terrestrial and marine areas. Achieving net-zero by 2050 will push Latin American spending to about $20 trillion, with annual spending on physical assets increasing by about $700 billion, according to McKinsey & Company. Because of their geographies, natural resources and economies, Brazil and Mexico account for over half the investing needs in this region.

Latin American banks are vital to this transition to a more sustainable economy, as they have been integral in developing and financing innovative sustainable debt. According to Sustainable Fitch, debt financings from this region have diverged from global trends in that they’re more focused on social objectives. The region has also seen an increase in unique financial instruments, like SLBs, that have KPIs linked to gender diversity and are issued by sovereign nations.

There’s a strong focus on developing infrastructure for underserved communities in Latin America. Banks have financed significant deals in the region that provided, for example, sanitation and water services and renewable energy. Sustainable debt instruments also fund forest conservation and initiatives to preserve the environment, as agriculture is a top industry in this part of the world.

Based in Brazil, BTG Pactual incorporates ESG criteria into its decision-making processes to understand the risks and opportunities of each new relationship as it relates to the environment, society and climate. The bank is committed to assisting clients in their transition to a sustainable low-carbon economy. To date, it has exceeded over 74 billion Brazilian reais (about $14.9 billion) in ESG-labeled issuances, reaching its CFO Taskforce goal two years ahead of schedule.

The bank has participated in notable financings to promote its ESG goals. BTG Pactual contributed to sanitation programs in Brazil with sustainable, blue, and sustainability-linked bonds in local and offshore markets. The bank worked with mega-operations of water and sanitation firms Aegea and Iguá, and contributed about 15 billion reais in ESG bonds for sanitation—with over 10.6 billion reais having a blue label. As the bank was one of the first to issue blue bonds, it has consulted with companies to help them develop a blue framework or structure blue bonds, contributing to expanding private company funding and disseminating the blue label in local markets. BTG Pactual also contributed to Aegea’s issuance of a sustainable and sustainability-linked bond with KPIs related to social and environmental issues.

Banco do Brasil’s long-term commitment is to assist its clients in their transition to a more sustainable economy. The bank has provided transparency through its ESG Databook and quarterly Management Discussion and Analysis reports during this process. These detail Banco do Brasil’s activities and finances regarding its sustainable financing activities. The bank has also maintained top ratings from MSCI and Sustainalytics and has had external reviews from consultancies regarding its sustainable credit portfolio and sustainable finance framework. Banco do Brasil recently approved its proposals and corresponding action plan. The bank’s policies covering environmental, social and climate issues are included in business and administrative practices.

Itaú BBA is committed to sustainable development in the countries where it operates, and this commitment is part of its activities and strategy combining environmental, social and climate aspects. The bank worked with sanitation firm Aegea to finance the Águas do Rio 1 and 4 projects to strengthen water and sanitation services. This is the largest infrastructure debenture and ESG-labeled transaction in the Brazilian market, with 5.5 billion reais raised in sustainable and blue debentures. The project will benefit 27 municipalities and 124 neighborhoods in Rio de Janeiro by achieving 99% water coverage by 2032, 90% sewage coverage by 2033, and reducing water losses to 25% by 2033.

Based in Brazil, Bradesco BBI has achieved at least 86% of its goal of mobilizing 250 billion reais in sustainable finance by 2025. The bank also set goals for net-zero first-round commitments for the coal, electricity generation, agriculture and food sectors.

The bank participated in Eletrobras’ largest issuance, a seven billion reais sustainable debenture that funds renewable energies, transmission lines, green hydrogen, access to renewable energy for populations in isolated areas, forest conservation, and access to education for underprivileged populations.

Bradesco BBI helped to finance Cogna Educação’s 500 million reais social bond. A first of its kind in the Brazilian market, bond proceeds provided educational resources to socially vulnerable municipalities.

The bank was also the bookrunner and ESG coordinator of Comerc Energia’s 1 billion reais green debenture, the company’s first green debenture for renewable energy, energy efficiency, efficient lighting and green hydrogen. Bradesco BBI helped define initiatives and environmental benefits derived from this transaction, and these are included in a framework encompassing Comerc Energia’s future issuances.

Bradesco BBI served as bookrunner and ESG coordinator of 5.5 billion reais Águas do Rio 1 and 4 sustainability and blue debentures that fund water and sanitation services provided by Aegea. This issuance is one of the largest in the local market.

BBVA’s strategy is focused on increasing growth through sustainability, achieving neutrality of green gas emissions, and promoting integrity within stakeholder relationships. Green bonds have become a core part of the bank’s strategy as it helps its clients transition toward a sustainable future. According to Bloomberg, BBVA was ranked the most active bookrunner in Mexico in 2023 for sustainable bonds.

The bank served as joint bookrunner for Colombia’s inaugural social bond with a $2.5 billion notional amount. This bond is the country’s first ESG-labeled offering in international capital markets and leverages the republic’s green, social and sustainable sovereign bond framework.

Based in the Americas, Scotiabank has been working to advance climate transition and promote sustainable economic growth. In 2023, the bank underwrote 7.7 billion Canadian dollars (about $5.7 billion) in green loans and CA$4.7 billion in SLLs. Scotiabank was the sustainability structuring agent on Empresa de Telecomunicaciones de Bogotá’s SLL. The structure encourages replacing copper wiring with fiber optics in the metropolitan area of Bogotá and developing equity strategies by training women in issues related to information and communications technologies.          —AM

As a region, the Middle East highlights the tension between financing fossil fuels and achieving genuine sustainability.

The economies of many Middle Eastern nations, including the UAE, heavily rely on fossil fuel revenue. Banks play a crucial role in financing these industries, which directly contradicts the environmental pillar of sustainability.

A complete withdrawal from fossil fuels would be economically and socially disruptive in the Middle East and the global markets where it sells oil and gas, so the region’s banks are establishing a more transitional role, facilitating a gradual and managed transition towards cleaner energy sources, while still supporting current economic realities.

Green financing is increasing, with the region’s biggest banks actively increasing their investments in renewable energy and sustainable projects. In addition to adapting and transitioning their portfolios to keep pace with global and local ESG regulations, they are also taking steps to provide greater transparency and accountability by measuring and publicly disclosing the environmental impact of banks’ investments. Looking forward, banks in the Middle East are well-placed to help finance the global transition trend.

On its third iteration of its Sustainable Finance and Product Framework, QNB Group has developed a clear road map for integrating sustainability into its business practices and offerings. Green finance solutions include dedicated green, social (including SME financing), and sustainability-linked financing. Having issued the first green bond issued by a bank in Qatar in 2020, QNB executed the first interbank green deposit in the local market, completed green deposit placements with a large sovereign wealth fund, and in 2023, issued the first corporate green guarantee for renewable energy.

QNB’s eligible green loan portfolio in the geographies with established sustainable financing targets saw an increase of over 45% between December 2022 and November 2023, while QNB Group’s total sustainable financing portfolio of $8.5 billion is about 4% of the group’s total loan book.

A loan agreement with the EBRD will provide disaster relief in Turkey via QNB’s Turkish subsidiary, QNB Finansbank. A strong partnership with the EBRD since 2015 has resulted in more than $750 million of agreements. In March 2023, Egyptian subsidiary QNB Alahli launched the first green retail-financing program in cooperation with the EBRD to invest in green projects in Egypt.

Arab Bank has established a sustainability department responsible for systematically managing the goals and programs to improve the bank’s economic, social and environmental impacts. At the same time, a formal Sustainable Finance Framework outlines five focus areas: responsible financing, employee empowerment, transparent reporting, system optimization and community cooperation. Arab Bank actively invests in local communities through various programs, supporting education, health care and environmental initiatives.

The bank’s community investments totaled $20 million in 2022, with the Abdul Hameed Shoman Foundation and Arab Bank’s Corporate Social Responsibility program, “Together,” leading the charge. Arab Bank also offers a range of products including green loans, social impact bonds and climate-focused investments—helping clients meet sustainability goals.

Boursa Kuwait has a corporate sustainability strategy outlining its goals and initiatives across ESG’s three pillars: environmental, social and governance. It publishes annual Sustainability Reports detailing progress and performance on ESG metrics. Boursa Kuwait also offers a guide to help market participants integrate ESG reporting into their operations and provides workshops to advocate corporate and capital markets sustainability.

Eco-friendly practices within its office operations to reduce energy and water consumption while minimizing waste culminated in Boursa Kuwait being awarded a LEED (Leadership in Energy and Environmental Design) Gold certification by the Green Building Council in 2023. While admitting it has limited environmental impact as a stock exchange, the complete renovation of its main trading hall to include greener state-of-the-art technologies sends a powerful message to the entire region.

In line with the Kingdom of Saudi Arabia’s Vision 2030 to diversify the economy away from oil, SAB (Saudi Awwal Bank) is committed to achieving sustainable financing and investments of 34 billion Saudi riyals (about $9 billion). To this end, SAB is the lead arranger for the 14 billion riyal financing raised to support the Red Sea Project, which prioritizes renewable energy and regenerative tourism and played a significant role in the inaugural green bond issuance of the kingdom’s Public Investment Fund.

As of December 2023, SAB has allocated around $3 billion toward sustainable finance projects, while SAB doubled its funded assets toward sustainable finance year-on-year. Financed projects include the $8.5 billion NEOM Green Hydrogen Company—the world’s largest green hydrogen production facility—which will play a crucial role in producing clean energy.

First Abu Dhabi Bank (FAB) is the first bank in the Middle East and North Africa to target net-zero emissions by 2050, addressing the bank’s operations to supporting clients’ transitions. Committed to providing $135 billion in sustainable and transition financing by 2030, FAB is on target to achieve this. In 2022, FAB facilitated in excess of $23.6 billion of sustainable finance: $9.5 billion in SLLs and $10.6 billion in green and social loans. FAB’s Green Bond & Private Placement accounted for 17% of all FAB Bond & Private Placement in 2023, and 12% in 2021, with an annual increase of 42%.

FAB issued a $600 million five-year green bond last year and a three-year $353.9 million sukuk to fund green and social projects.

As the principal banking partner of COP28, the NBD Group, including Emirates NBD Capital (EmCap), pledged to mobilize more than 100 billion Emirati dirhams (about $27.2 billion) of sustainable finance by 2030. With EmCap’s support, clients mobilized more than $15 billion of sustainable finance in 2023 (67%) in the debt capital markets and 33% via labeled loans. EmCap successfully closed more than 20 green and sustainability bonds in 2023.

In 2023, EmCap ranked first in the Gulf Cooperation Council countries for bond issuances and was the highest-ranked regional bank in international sukuk. In 2024, EmCap hopes to take a global role in advising on labeled bonds and loans and structuring sustainability-linked tools. EmCap also plans to facilitate debt-for-nature swaps—involving developing debt being restructured, along with a promise that some funding is allocated for nature-related projects.

In late 2023, Abu Dhabi Islamic Bank (ADIB) raised $500 million by issuing Shariah-compliant green bonds, oversubscribed 5.2 times; this was the world’s first green dollar-denominated sukuk. ADIB aims to allocate an amount equal to the net proceeds of this issuance to fund green projects to accelerate climate transition. This may include financing or refinancing green projects, as well as financing customers for eligible green projects.

In launching its ESG strategy for the next three years, ADIB aims to take advantage of the overlap between the principles of Shariah law and ESG integration to maximize positive impacts. Financial instruments issued under ADIB’s sustainability framework include green, social and sustainability sukuk.

The number of green loans provided by the National Bank of Kuwait (NBK) increased by 14% in 2023, resulting in an increase of 10% in the total monetary value of green financing. This is in addition to a twofold increase in the number and monetary value of sustainability-linked facilities extended in 2023.

The total monetary value of social financing increased by 7% in 2023. Green mortgages to SLLs also increased in developed markets, including the US, France and Singapore. NBK has been expanding its retail business to offer consumers innovative financing solutions to adopt sustainable behaviors and lifestyles by providing electric vehicles and eco-friendly home loans.                        —Gilly Wright

According to SEB Group’s green bonds report, green bond issuance is expected to increase by up to 20% globally this year, and “North America and corporations will be the main drivers of growth in 2024.”

Why North America? Under the administration of US President Joe Biden, the Inflation Reduction Act was signed into law in August 2022, “but it came into force only last year,” Gregor Vulturius, SEB’s lead scientist and adviser on climate and sustainable finance, tells Global Finance. That is, the “shiny new factories” will be showing up only this year and next; and of course, they will need financing.

It’s not as if the region underperformed last year, either. North America was up 80% in 2023 green bond issuance, which was in “a suffering bond market,” Vulturius notes.

Canada’s Scotiabank has an ambitious goal: to mobilize $350 billion to reduce the impacts of climate change by 2030. It reached $130 billion by the fiscal end of 2023, up from $96 billion in 2022—not too bad, given a relatively flat year for sustainable finance globally. ESG bonds accounted for 13.6% of the bank’s overall bond volume, a big jump from only 3% in 2022.

Scotia doesn’t confine itself to North America, either. According to Bloomberg, it was Latin America’s second-leading bookrunner for green, social, sustainable and other labeled bonds in 2023, with a 21% market share. In May, Scotia acted as ESG distributor for the United Mexican States’ Sustainable Sovereign Bond issuance, where demand reached approximately $1 billion.

The bank is active with various impact bonds, including SLBs. It was a sustainability structuring agent for Bell Canada, Canada’s largest communications company, when it added sustainability-linked pricing to its securitization program in September 2023. In June, Scotia also advised the Republic of Chile on its dollar and euro SLB offerings.

Elsewhere, Scotia supported Mexico’s Comisión Federal de Electricidad as joint bookrunner in a June 2023 social bond issuance and played a similar role for Canadian real estate firm Ivanhoe Cambridge for that firm’s inaugural sustainability bond. On the loan side of the ledger, Scotia tallied 67 ESG-loan deals between January 1 and October 31, 2023, with a total volume of CA$7.7 billion.

Finally, Scotiabank has committed to clear, open and detailed sustainability reporting—and once again takes North American honors for transparency. It developed and abided by four transparency principles that guide its net-zero strategy, and the bank regularly publishes its numeric progress toward achieving long-term goals.

Canada’s CIBC figured prominently in sustainable and project infrastructure finance in 2023. In June 2023, the bank co-led a syndicate of underwriters for Northland Power’s CA$500 million fixed-to-fixed-rate green subordinated notes issuance. The power company will use the proceeds for green projects, including an offshore wind farm in Poland and an energy storage project in Ontario, Canada.

CIBC was also the lead arranger and administrative agent for the AES Clean Energy Master Indenture Structure warehouse upsizing. The $2.7 billion refinancing project, which happened in May 2023, included 25 banks and was the largest debt financing for a US renewables transaction.

The bank’s prowess for green and sustainable bond underwriting was already described in the global awards above, but the bank was also a standout in SLLs in 2023. It was Canada’s top bookrunner, with a 25% market share according to Bloomberg, and it acted as sole bookrunner, lead arranger and sustainability structuring agent for $700 million FortisBC Energy’s revolver financing—with a performance target for Scope 3 emissions as well as a social target aimed at protecting Canada’s indigenous population.

Additionally, CIBC was a joint bookrunner for Enbridge’s $900 million sustainability-linked notes, OMERS Realty Corporation’s $600 million green debentures, and Sun Life Financial’s $500 million sustainable subordinated debentures offerings over the past year.           —Andrew Singer

Green bonds dominate sustainable finance, and Western Europe dominates green bonds. The world’s top three banks in green bonds and loans in 2023 were Western European—BNP Paribas, Credit Agricole and HSBC, according to Bloomberg data—while year-end green bond issuance in Europe outclassed its closest regional rival, Asia-Pacific, $243.75 billion to $174.2 billion, according to Climate Bonds Initiative data.

Looking ahead, falling EU interest rates and new standards for green bond issuances bode well for 2024 and beyond. On the punitive side, European banks could encounter new fines and higher capital requirements if they delay implementing green transition plans too long. More European banks, too, are imposing internal restrictions on their fossil-fuel sector financing.

For CaixaBank, sustainable finance is about more than reducing greenhouse gas emissions. It also entails a strong social commitment, such as boosting financial inclusion through its microfinance bank, Europe’s largest; or issuing social bonds, a bond type that some other banks abandoned after the Covid-19 crisis.

Indeed, when CaixaBank closed on its fifth social bond, in May 2023, that €1 billion debt instrument focused on education and health care was oversubscribed by €750 million.

CaixaBank is also a leader on ESG-related loans. It ranked third globally, according to Refinitiv, and was first in Europe in the first half of 2023, providing $11.65 billion in financing through 57 transactions.

The bank also brings some resourcefulness to its deals. As sustainability coordinator for Acciona Energía’s €750 million green financing in November 2023, the bank incorporated a local impact indicator in which participating companies committed to planting 26,000 trees per year (collectively) during the financing’s term.

LGT Group, Liechtenstein’s royal family-owned private banking and asset management group, began to embed sustainability-oriented clauses in its investment programs decades ago. It makes a point of publishing the extent to which its investments meet sustainability criteria.

As of June 30, 2023, the group had invested 54.5 billion Swiss francs (about $62 billion) in sustainable investment solutions globally, representing 36% of LGT’s total assets under management. That was up from 34.8% at year-end 2022. Moreover, 80% of LGT’s discretionary mandates in Europe, the Middle East, Africa and Asia now meet the EU’s Article 8 sustainability requirements, which qualify as “light-green” funds that “promote investments or projects with positive environmental or social qualities, or a combination of such characteristics, as long as the investments are made in enterprises that adhere to sound governance practices.”

The Netherlands’ ING was 12th globally among green bond bookrunners in 2023, according to cbonds.com, and many of those issuances were in Western Europe. In June 2023, for instance, ING acted as sole structurer and joint active bookrunner on Anglian Water’s £860 million (about $1.1 billion) dual-tranche green bond issuance to help meet that water and sewerage company’s capital expenditures.

In infrastructure finance, ING played multiple roles, including sole underwriter and mandated lead arranger, in AtlasEdge’s plans to expand sustainable data centers across Europe. The company raised €525 million in committed debt financing and a further €200 million uncommitted accordion facility. The 2023 sustainability-linked financing includes KPIs to ensure the new data centers use renewable energy.

ING is a veteran of sustainable project finance, too. As sustainability coordinator for Baltic Power’s offshore wind farm project and its €4.1 billion multibank credit facility, for instance, ING helped ensure that financing aligned with the Loan Syndications and Trading Association’s Green Loan Principles and the International Capital Market Association’s Green Bond Principles. Baltic Power will be the world’s first to use low-emission steel produced almost entirely from recycled raw material.

Societe Generale (SocGen) SLBs lost momentum in 2023, but SocGen stayed the course, acting as structuring adviser and joint bookrunner for the Republic of Chile’s €750 million SLB issuance in June. SocGen was also the sole structuring adviser in the UK’s Heathrow Airport €650 million SLB, with its separate performance targets for slashing carbon emissions “in the air” and “on the ground.”

As noted in the Global Winners section, according to Natixis, SocGen is one of the only commercial (i.e., nondevelopmental) banks that has ever issued green, social and sustainable bonds. In September 2023, SocGen was the global coordinator for French real estate development and investment company Praemia Healthcare’s €500 million sustainability bond. Proceeds will finance green and social assets—including medical and eldercare facilities.

SocGen has been a perennial supporter of sustainable finance projects in the emerging world, and 2023 was no different. In Central and West Africa, it partnered with Afrigreen, a debt investment fund, to support the decarbonization of local companies, raising €87.5 million. In contrast, in Kazakhstan, the bank supported the development of green mobility as global coordinator and mandated lead arranger for the €627 million financing of 105 electric locomotives to be used in that Central Asian nation, among other projects.

Finland’s Nordea kept its innovative skills sharp in 2023, introducing its second sustainability-linked loan bond, or SLLB, at the end of August. The €1 billion issuance followed the first-ever SLLB (€370 million) launch in late 2022. This hybrid instrument uses standard use-of-proceeds bonds to fund a portfolio of SLLs, though with no coupon adjustment for investors. The bank absorbs any performance shortfall.

Overall, SLLs at Nordea were up 30% in the first three quarters of 2023 compared to 2022, and the bank ranked top in SLLs in the Nordic region, according to Bloomberg.        —AS

Global Finance: You’re coordinating McKinsey’s presence in sustainable finance, and you led the firm’s delegation to COP28. What should we be looking for in sustainable finance in 2024?

Cindy Levy: I would put four things on that list. First: will be capital mobilized in the banking system on the back of three years of work on net-zero plans. Those plans are mostly finished now, and the big global banks—European, Asian, and some in the US—are moving forward.

 So, will we now see big announcements of redeployment—e.g., “I’m taking my X billion out of cement, steel, and moving it into new sectors that are more green finance oriented”? My hopeful answer is you will start to see some of that, with transition finance becoming more of an asset class in the banks.

GF: No. 2 on your list?

Levy: I’m going to call it Alterra [the $30 billion investment fund established at COP28 for global climate solutions] versus multilateral development banks. The MDBs have been critical to climate finance to date, but it’s no secret that their track record of “crowding in”  private capital on the back of their climate instruments has been disappointing. So, will Alterra scale or be replicated around the world as the new way that this gets done?

GF: What else?

Levy: The third development is serious financing of industrial decarbonization, of many flavors. If you take what was announced on methane at COP28 [oil companies pledging to reach near-zero methane emissions in their operations by 2030], this represents a huge decarbonization opportunity for oil and gas, and for the world. It has to be financed.

GF: And how will that be done?

Levy: [Some] very rich oil and gas companies can finance it and will prioritize it. But a lot of national oil companies that need to invest billions in methane abatement will have to do it out of fiscal budgets that are competing with school systems, health systems. There are financing mechanisms being created now to incentivize that decarbonization.

Power plants will be able to use transition credits to retire their coal plants early, replacing them with high-integrity alternative green energy sources, for instance. There are 5,500 power plants in Asia that have an average life of 14 years. If those don’t retire early, we’ve already missed net zero.

GF: Your fourth trend to watch?

Levy: My last one is carbon markets. We absolutely need high-integrity carbon markets as a global mechanism that allows capital to flow into decarbonization, and especially into the global south. This year is the moment of truth.

GF: What are the time horizons for all this?

Levy: Some of these are here and now. If you’re building infrastructure, it could be three to five years.

GF: Banks are starting to move on their own commitments now. Do they get more capital for a high-emission cement company somewhere in Asia? Will banks lean into that? 

Levy: With Alterra, you will see innovation this year. Are they going to take [private equity partners] Blackrock and TPG or Brookfield where they have never been before? With Alterra they can do longer durations, with different nations, different technologies because they now have the risk mitigation.

 As for voluntary carbon markets, it’s hard to tell. We’ve been working very hard on these markets. We’re halfway there now. We’ve had a number of standards that are a step up—adding credibility, integrity to these markets. But then you have setbacks.

GF: Do you foresee more private dollars for sustainable finance globally in 2024?

Levy: We see revenue from sustainable finance as one of the biggest growth opportunities for global banks. How does it play out? If I’m a real estate bank—a commercial real estate lender—I want to lead on retrofits. If I am a power sector bank, I need to lead on renewables. And if I am a heavy-emissions sector bank, I want to lead on decarbonization. Given what just happened at COP28, I want to go out to every one of the oil and gas companies and speak to them about their methane emissions.

The debt package was provided by the European Investment Bank (EIB) and the Nordic Investment Bank—both supported by the InvestEU program of the European Commission (EC)—as well as 23 other commercial banks, including JPMorgan Chase, Citi and BNP Paribas.

Raised on the back of contracts worth $55 billion with BMW, Scania, Volvo and Volkswagen, it includes refinancing of a $1.6 billion debt package raised in July 2020.

With $1 billion, the EIB will provide the lion’s share of the financing, having previously supported Northvolt’s demo line in Västerås, as well as the initial phase of the Skellefteå factory, with the EC’s support.

“We should not underestimate the importance of this type of project in reaching Europe’s climate neutrality, and now we’re glad to continue our support for the expansion,” states EIB Vice President Thomas Östros.

The deal shows vision and intent when it comes to Europe’s battery industry, which is fighting to compete with the US and China.

“It is of strategic importance and a key battleground for global competitiveness. Northvolt, our battery pioneer, showcases that the EU has what it takes to build an innovative, sustainable, and globally competitive battery ecosystem,” EC Executive Vice President Maroš Šefčovič, who is leading the commission’s work on the European Green Deal and the European Battery Alliance, comments in a statement. “I am proud of Northvolt’s success story as well as of other 160 industrial projects taking shape across the entire value chain, while promoted under the European Battery Alliance. The EIB’s role is indispensable. We need to be strategic, bold, agile.” Northvolt has now secured more than $13 billion in equity and debt to enable its expansion in Europe and North America. This is the first loan raised through Northvolt’s Green Finance Framework, which was created in 2023. The company received the highest “dark green” rating attainable from the external rating company Cicero, being the first in its sector to do so.

When the 28th annual UN Climate Change Conference—better known as COP28—convened in Dubai at the end of November, the future of fossil fuels was the elephant in the room. Almost 200 countries declared that a deal to phase out oil and gas production was essential to achieving the Paris Climate Accord’s target of limiting global warming to 1.5 degrees Celsius above preindustrial levels.

Pushback came promptly from oil-producing countries including host United Arab Emirates (UAE) and Saudi Arabia, which made it clear that they have no intention of cutting down on oil and gas extraction; indeed, most of them have plans to ramp up output in the coming years.

Nobody symbolized these tensions better than COP28’s president, Sultan Ahmed Al Jaber, who is also the CEO of the Abu Dhabi National Oil Company (Adnoc). While many observers had signaled a conflict of interest from the day of his appointment, oil producers and oil majors insisted they had to be part of the process. Since the world can’t suddenly stop using fossil fuels, Al Jaber argues, it needs to find ways to exploit them in a cleaner, smarter way. So, while no promise to decrease oil and gas production emerged from the conference, COP participants pledged to triple renewable energy capacity by 2030. Similarly, solutions including technology to reduce methane emissions, decarbonization projects, and hydrogen plants received a lot of attention in the conference program.

“We cannot unplug the energy setup we have today,” says Shargiil Bashir, executive vice president and chief sustainability officer at First Abu Dhabi (FAB), the UAE’s biggest bank. “We need energy between now and the future and for all the coming generations. So we need to find the sustainable solutions that can take us to that point.” Two years ago, FAB committed $75 billion in sustainable finance in the form of lending, investment, and business facilitation; and it has already delivered $27 billion in energy projects, wastewater infrastructure, and green buildings. During the conference, the bank announced an increase in commitment to $135 billion.

Money talks, however; and the amounts pledged to fight climate change were underwhelming: Participants in the conference pledged over $85 billion to climate action, announced the COP28 presidency.

This included $3.5 billion for the UN’s Green Climate Fund to assist developing countries in adapting to climate change, and $792 million to the much-discussed Loss and Damage Fund, created at COP27 in Egypt and finalized in Dubai, which will provide financial assistance to developing countries that suffer severe impacts from climate disasters.

While those amounts may sound large, they fall far short of the trillions that some observers say will be needed every year to address the effects of global warming.

“Progress was made on a number of issues” at COP28, says Fabio Natalucci, monetary and capital markets deputy director at the International Monetary Fund (IMF), “including the operationalization of the Loss and Damage Fund, but there is still a gap between ambition and action.”

“Financial pledges remain too weak,” says political scientist François Gemenne, president of the Scientific Council of the Foundation for Nature and Man and a member of the UN Intergovernmental Panel on Climate Change. “That will need to be the focus of COP29.”

In most cases, the actual funding mechanisms to ensure the money gets to the people who need it the most are as yet unclear. One major issue, especially for developing nations, is what part of the amounts pledged will be distributed as loans that could end up increasing the debt burden of already weak economies.

“We call for deeper and fairer commitments, especially for the countries of the South,” says Hassanein Hiridjee, CEO of the Axian Group, a pan-African real estate, financial services, technology, telecom and energy company. “We need our realities to be better taken into consideration, and we need concrete actions.” In 2023, Africa received only 2% of global investments in renewable energies, Hiridjee notes.

Far from making substantial progress, “COP28 has come to an end with increasing challenges in achieving climate action targets with decreasing commitments, rising conflicts, and fragility,” says Mohammad Jamal Alsaati, special adviser to the president of the Islamic Development Bank.

After much back and forth, the final statement issued before the conference broke up on December 12 delivered a road map for “transitioning away from all fossil fuels … to reach net zero by 2050.” For many present in Dubai, the lack of a commitment to fossil fuel phaseout was a hard blow.

“Governments have agreed, after 28 attempts, what we’ve known for decades—we must reduce fossil fuel use,” Mike Davis, CEO of the UK-based NGO Global Witness, said in a statement to the press shortly afterward. “At a COP run by petrostates and flooded by thousands of oil and gas lobbyists, that simple acknowledgment is a hard-won victory.” Davis added that “we should be realistic about what the failure to agree a phaseout means: fossil fuels forever.”

Other observers, however, prefer to see the glass half full, noting that for the first time, a COP agreement used the term “fossil fuel.”

“I see the COP28 deal as a turning point toward a fossil-free world in 2050,” says Gemenne. “Sure, it has some weaknesses, but making 197 countries, which are completely different from one another, with different constraints and resources, agree on a common pathway for the future is nothing short of a diplomatic miracle.”

Another big challenge of COP28 was to bring the private sector to the table at a time when borrowing costs are high; and in this, COP28 had some progress to report.

Shortly after the conference opened, the UAE announced the creation of Alterra, a new private-sector fund with $30 billion in hand and that aims to gather $250 billion by 2050 to encourage nature-positive finance. Banks and financial institutions expressed a desire to join in. The UAE banking sector said it expected to mobilize over $270 billion in green finance by 2030.

“There is an urgent need to mobilize private capital to turn ambition into reality,” says the IMF’s Natalucci. “According to our estimates, climate mitigation investment in emerging markets and developing economies needs to increase to $2 trillion a year between now and 2030; and between 80% and 90% of that needs to be financed by the private sector, up from the current 40%. In terms of flows, it is five times the current flows. If you look at total investment in these countries, it’s a four-times increase, from 3% to 12%. However you slice it, there needs to be a lot more private capital.”

A deeper partnership between the public and the private sector is also critical, says FAB’s Bashir, bringing together commercial banks, development banks, and governments. “We need the policymakers to be supportive,” he argues.

While the conference delivered on some of the goals the UAE had set for COP28, it remains to be seen how the gathering event’s promises—however modest—will materialize on the ground.

“An agreement is only as good as its implementation,” said President Al Jaber during the closing session, passing the responsibility on to the next COP host, Azerbaijan.

Global Finance: What are the biggest challenges for climate finance?

Shargiil Bashir: When we speak about climate finance, it’s important that it happens in a partnership between the public and the private sector, where the commercial banks can support but also where you have the development banks coming in, where you are seeing commitments coming from the governments’ side. We need policymakers to be supportive. And I think that what we are seeing now is all these different stakeholders coming together, working in that direction.

GF: What are the specific sectors you want to invest in?

SB: We are seeing transition happening in every single sector, whether this is oil and gas, aviation, power, agriculture. Every single sector needs to transition. For us, all clients needs the support to transition. We will not achieve net zero by 2050 by only one sector transitioning or one country transitioning. We need a global focus. We need all the industries to focus on the transition and we are here to support all the different industries transitioning to net zero by 2050.

GF: Some banks have stopped financing new fossil fuel projects what is your take on that?

SB: So for us, what is extremely important, and we need to be realistic about that: We cannot unplug the energy setup we have today. We need energy between now in the future and for all the coming generations. So we need to find the sustainable solutions that can take us to that point. That includes investments in renewable energy, new technologies like hydrogen and so on. And that is where FAB want to be in support.

“We’re sitting on a wealth of data and research,” says Marija Kramer, managing director and head of ISS-Corporate Business. It’s a point of pride for the Rockville, Maryland-based firm.

A unit of Institutional Shareholder Services, Kramer’s team specializes in helping companies design and manage their governance. While chiming in on a merger or acquisition vote is still very much a part of ISS’s bread and butter, the proxy advisory firm’s newer suite of services is something that wasn’t available to your grandfather’s boardroom, she says.

A topic like ESG, or environmental, social, and governance policy, is still unfamiliar territory for many corporates, despite the visibility and sometimes controversy it has attracted in the investment community. As a result, ISS’s role in the business world has expanded to include collecting massive amounts of data that it says could help companies craft their ESG strategy.

At least that’s the intention. Against the backdrop of frightening geopolitical tensions and economic uncsertainty, it sometimes feels like “the Wild West,” Kramer says.

Morrow Sodali, a proxy solicitor, can relate. Like ISS, its offerings have grown more diverse and ESG-heavy. “Our evolution as a business has been significant over the last 12 months,” says Christian Sealey, CEO-International at Morrow Sodali, citing the “ever-increasing demands” placed on clients by their stakeholders.

The New York- and London-based firm traditionally offers “tailored solutions” to clients in areas including communications, investor relations, crisis and reputation management, public affairs, and branding. But over the past year, it has conducted three bolt-on acquisitions to solidify its ESG bona fides, purchasing FrameworkESG in March, HXE Partners in August, and Powerscourt in October. “There’s more pipeline in the works from an M&A standpoint that will hit the tape soon enough,” Morrow Sodali managing director Tommaso Breschi says.

Another player is Glass Lewis & Co., the “number two” behind ISS when it comes to corporate governance research. Last year, the San Francisco-based firm launched “ESG scores” as part of an effort to provide what it called “a snapshot view” of companies’ emissions reduction initiatives.

ISS and Glass Lewis’ proxy recommendations typically grab headlines due to the caliber of big-name companies involved—Starbucks, McDonald’s, Alphabet, and Toyota were among the recent few—and the choices they make.

The stakes are certainly high. If a client’s board is wrangling over how to justify generous pay packages for its top executives, a proxy adviser might present a case that helps determine the proper incentives. The outcome could make the difference between a lofty bonus or a steep pay cut for a CEO.

Last year, more than 80% of the companies in the STOXX Europe 600 index and 55% in the Standard & Poor’s 500 explicitly disclosed ESG metrics as a part of executive pay. That’s up from 59.4% and 22%, respectively, in 2021. Numbers were not yet available for 2023.

Right now, “the heavy ESG focus is among the bigger trends that companies and investors are grappling with,” Kramer says. That’s especially the case with European companies, which tend to utilize more environmental metrics than their US peers. The latest round of EU rules around ESG reporting will likely influence decision-making in the US, since investors are showing a growing interest in sustainable criteria, she predicts.

“My sense is that we often have a trend start in one market and it continues across the pond into another,” Kramer says, calling ESG “an area of growth.”

Sealey agrees. While there are nuances in the issues Morrow Sodali’s clients face in European markets compared to, say, the Asia-Pacific region, and vice versa, “the more interesting observation is that the challenges corporates encounter wherever they operate are becoming increasingly common and global in nature,” he argues. “This trend is evident in the continued rise of shareholder activism and the integration of ESG directly into business strategy: trends that show no sign of losing momentum anytime soon.”

Advising companies on what they ought to do is big business, and proxy advisory firms continue to grow their influence.

In the case of ISS, Glass Lewis and Morrow Sodali, each firm is well-funded by large private equity firms. In 2017, Genstar Capital teamed up with Deutsche Börse Group to buy ISS in a deal valued at about $2.3 billion. A few years later, Toronto-based Peloton Capital Management scooped up Glass Lewis for a price that reportedly hovered below that range. And last year, Morrow Sodali sold a majority stake to TPG Growth.

Critics say this strong cash position has allowed the triumvirate to exercise too much sway. Earlier this year, Tesla CEO Elon Musk broadcast his dislike for ISS and Glass Lewis on social media. “Far too much power is concentrated in the hands of ‘shareholder services’ companies like ISS and Glass Lewis,” he complained over Twitter, now X, “because so much of the market is passive/index funds, which outsource shareholder voting decisions to them.”

Musk’s comments were echoed in July when a scathing op-ed in The Wall Street Journal slammed ISS and Glass Lewis for their pro-ESG stance. ISS insists it’s apolitical. Glass Lewis didn’t respond to requests for comment. The firms’ newfound focus on ESG has also been a sticking point among right-leaning US lawmakers, many of whom sought to reverse a Department of Labor rule that allows for the consideration of ESG factors in investment decisions in retirement plans. They were unsuccessful.

Even BlackRock CEO Larry Fink, formerly a strong supporter, has gone sour on ESG, disavowing the term entirely and claiming he is “embarrassed” to have been associated with it.

But Barri Rafferty, who joined Morrow Sodali as CEO, Americas in September, believes ESG has only gained steam, despite detractors. “While the nomenclature for ESG may be under dispute, the commitment to responsible business practices does not seem to be waning,” she says.

Stakeholders clapping back against proxy advisers is nothing new, but the firms’ opinions still count. When cinema giant IMAX Corp. had to cajole dissenting investors to accept a $124 million bid as part of a takeover of IMAX China earlier this year, company brass hyped the fact that ISS and Glass Lewis both agreed the Hong Kong-listed subsidiary should accept the deal.

“Glass Lewis joining ISS in recommending in favor of our offer to take IMAX China private is further validation of the benefits of this transaction,” IMAX chief executive Rich Gelfond said in October.

But ISS and Glass Lewis’s advice fell on deaf ears. More than 10% of the votes were cast against the “scheme” that the two firms favored. IMAX China remains a publicly traded company—banking that, in a post-pandemic market where movie-goers are returning to theaters, there’s value to be gained as a separate entity.

“The IMAX case strikingly illustrates a discord between proxy advisers’ recommendations and the actual investor sentiment, spotlighting a critical flaw in the advisory system,” argues Thomas Smale, CEO of FE International, a tech-focused M&A adviser. He calls it a “potent reminder” that advisory guidance without critical analysis can lead to decisions misaligned with stakeholders’ real interests.

For all the backlash that ISS, Glass Lewis and Morrow Sodali receive, they continue to expand their reach. Since 2015, Glass Lewis has opened four locations, most recently in Tokyo as a means of expanding across the broader Asia-Pacific region. ISS is currently implementing “methodology enhancements” to its ESG scoring solution for institutional investors; the new criteria are set to take effect in December. And Morrow Sodali’s “glocal” approach is paying off, according to Rafferty.

“As we expand our business, we want to connect the dots for our clients globally, yet offer deep vertical expertise locally,” she says. “As the number of non-US holders in US companies’ shareholder profiles and institutions evolve, we are seeing the need to work across the globe with less firm boundaries, leverage our global reach to help clients track who has voting authority to get those shares voted, and answer questions that require expertise in multiple markets and jurisdictions.”

Global Finance: Could you give us your feeling on these first few days of COP28?

Fabio Natalucci: Well, I think the COP presidency was quite ambitious from the beginning, and I think they have been quite successful in terms of action. For example there is Loss and Damage fund that was a very challenging issue but is now on track with new pledges, the new $30 billion Alterra fund in conjunction with the private sector. The details remain to be seen but this is a relatively large number. There’s also been a number of pledges like tripling renewable energy production… It seems overall the main theme, or the core of the summit, has been climate finance and how to bring private capital to the table. This is the main challenge now.

According to our estimates, climate mitigation investment in [emerging markets and developing economies] EMDEs need to increase to $2 trillion a year between now and 2030, and between 80% and 90% of that needs to be financed by the private sector, up from the current 40%. In terms of flows, it is five times the current flows. If you look at total investment in these countries, it’s a four-times increase, from 3% to 12%. However you slice it there needs to be a lot more private capital with two extra considerations: One is that, coming out of Covid-19 – the level of debt is high everywhere, but also the fact the external financing costs are higher in EMDEs as well since central banks have sharply raised interest rates. Financing cost for emerging markets as a bloc has increased. So, not only is there not a lot of public money available, it’s also expensive.

Global Finance: COP28 has yielded some impressive announcements but now the devil is in the details right?

Fabio Natalucci: I think one important point that is starting to sink in is that we need more than just debt. Some countries have a lot of debt already so to maximize the limited amount of public money that is available, we need other instrument so equity, grants, guarantees… and that ties back to the discussion about what multilateral development banks can do and how then can optimize the use of their balance sheets. Instruments other than debt, I think, generate more ability for the public sector to mobilize. Then the details we will see… but at least the general direction in terms of announcements, scale and what is being discussed seems quite promising.  

Global Finance: Why is it so important that the private sector comes on board?

Fabio Natalucci: In terms of investment projections, between 80% to 90% need to come from the private sector. So how to incentivize? In some case it’s a matter, I think, of better understanding the countries. The Network for Greening the Financial System (NGFS), of which the IMF is an active observer, published a report on blended finance where we try to explain the ecosystem, who are the main players, different objectives, mandates, tools… and one of the things has come across is that sometimes there’s a knowledge gap or perception gap between public and private sector. Another barrier is that countries need to have climate policies in place, like carbon pricing and what we call the “climate information architecture”, meaning you need data – high quality, comparable, consistent data – otherwise the private sector cannot measure neither the risk nor the opportunities, as well as disclosures. We also need to have taxonomies, particularly transition taxonomies for emerging markets, it’s important. And sometimes barriers have nothing to do with climate like the investment grade for EMs or, from the project side, the barrier is sometimes that there are not enough projects. There is money, but nowhere to invest. And finally, we need to foster risk mitigation and diversification—more risk-sharing between public and private sector.

Global Finance: What do you hope will be the outcome of this COP?

Fabio Natalucci: My hope is that we realize that in this bigger picture we need more private money. I think the time horizon where this needs to be fixed, or it’s going to be more expensive and even more challenging to fix, is very narrow. It’s a global problem. It cannot be solved by individual countries or institutions; it has to be solved by everyone. But also don’t turn perfection into an enemy of the good. I used to work at the FED before and during the financial crisis, the strategy that we were told to use was a “spaghetti strategy” – so you throw and see what sticks and sometimes what sticks in one country won’t stick in another country. So yes, you need to standardize products, projects, but it’s also important to keep in mind what’s on the ground. Different countries have different challenges.