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Discover the critical insights of the Finance and Prosperity Report 2024 through these compelling interactive graphs. Engage with these visualizations to explore the data, understand the trends, and gain valuable insights into the future of finance and prosperity.

A Thai Recipe for Green Finance: What’s Cooking in the World of Sustainable Finance?

Emerging market economies require USD 6.9 trillion to USD 7.6 trillion between 2023 and 2030 in order to achieve the Sustainable Development Goals. Additionally, intergovernmental organizations and research institutes worldwide estimate that global investments up to USD 275 trillion will be required between 2020 and 2050 to reduce greenhouse gas (GHG) emissions to net zero by 2050. Sovereigns in emerging markets are recognizing the need for additional finance and exploring a myriad of options, including borrowing from the capital markets through dedicated sustainable financing instruments that earmark proceeds for specific types of projects. Since 2016, twenty-six emerging market (EM) sovereigns have issued green, social, and sustainability (GSS) bonds amounting to USD 125 billion, as of 30 June 2024. A key aspect of these labeled bonds is that issuers need to report the use of proceeds and the social and environmental impacts of projects and activities supported.

Addressing climate risks and seizing opportunities to finance the transition to a sustainable economy are some of the most urgent and complex tasks currently facing the financial sector. Financial regulators and supervisors play a key role in guiding the financial sector to manage climate risks and mobilize finance for climate action more effectively. However, to ensure a just transition that makes sure vulnerable segments of the economy are not left behind – especially in developing countries – regulators and supervisors must consider financial inclusion when implementing measures to green the financial sector.

Arresting climate change will require trillions of investment, the vast majority of which must come from private investors. As issuers increasingly market their offerings to investors seeking green investments, how can they be sure they are putting their money to promote causes as intended?

For Rwanda, a country deeply committed to its own Vision 2050, the challenge is not just in meeting these lofty goals, but finding the financing to make it happen. The Development Bank of Rwanda is a key player in Rwanda’s quest for sustainable development. However, there’s a catch. Its traditional funding sources—namely, the Rwandan government and international institutions—are limited and often access is already stretched.

Nearly $500 trillion is invested in financial assets worldwide. While markets are increasingly recognizing the risks of climate change and biodiversity loss, the financing gap to meet the goals of the Paris Accord and Sustainable Development Goals (SDGs) continues to rise. Low- and middle-income countries are especially affected.

With the Earth experiencing rapid changes undermining critical life-support structures, transitioning to a low-carbon, climate-resilient global economy has become urgent. This is reflected in the Paris Agreement, a legally binding treaty of 196 entities under which they have pledged to lower greenhouse gas emissions contributing to climate change. Financial institutions and capital markets—which fund investments into future economic activities—must become a greater force for addressing climate change and encouraging low-carbon growth.

Setting a reachable target has been more art than science. Here at the World Bank, we developed the Feasibility-AmBitiousness (FAB) Matrix to give more structure to the target setting exercise. As the name implies, the FAB Matrix gauges targets along feasibility and ambitiousness dimensions. This helps issuers map out possible blind spots and avoid targets that are vulnerable to greenwashing accusations : i.e. highly ambitious targets may not be feasible (long shots), and, likewise, highly feasible targets may not be ambitious (low-hanging fruits).

This paper proposes a new relative evaluation and benchmarking framework for performance-linked financing instruments. It argues that the carrots and sticks of sustainability-linked bonds should not use key performance indicators which are solely tied to outcomes. Instead, they should be based on its issuer's level of performance with respect to a target. The paper defines performance as the part of the outcome that the issuer can influence. Otherwise, the issuer may be rewarded or penalized for factors outside their control. In such a case, principal-agent theory would predict a dilution of the performance-based instrument's incentives. This framework is then applied to deforestation in Brazil's Legal Amazon and estimate performance by accounting for the real effective exchange rate, global commodity prices, and prevalent deforestation trends. The results show that policy efforts helped lower deforestation in the 2000s, even after accounting for external factors. The trend reversal and acceleration in deforestation since 2012 are partly due to weaker policy and macroeconomic factors. Based on these results, the paper proposes an Amazon sustainability-linked bond, which could allow for a more effective mechanism to incentivize policy efforts. The paper also introduces the feasibility and ambitiousness matrix to set sustainability performance targets. The matrix is used to define the terms low-hanging fruits and long shots and to discuss why such targets are subject to the risk of greenwashing.

This paper discusses both the relevance of economic and social rights (ESRs) for environmental, social, and governance (ESG) investing in the sovereign debt asset class and how to start incorporating these rights into the investment process in a practical way. Many in the investment industry recognize the potential role that investors can play in influencing a country’s decisions on environmental and social issues, including human rights. Investors are also increasingly acknowledging the potential to influence a sovereign’s actions on social issues, such as ESRs, given the state’s direct role in providing a pathway to social advancement for its citizens. The rest of this paper is organized as follows. Section 2 explains the relevance of ESRs to the sovereign debt asset class. Section 3 introduces the income adjusted ESR dataset, and section 4 illustrates the insights that this dataset can provide for sovereign debt investors. Section 5 provides one practical example of how sovereign debt investors could use such a dataset in practice. Section 6 presents our conclusions.

The continued rise in sustainable investing is only matched by the continued demand for more and better data. The World Bank's Sovereign ESG Data Portal includes 71 Environmental, Social, and Governance (ESG) indicators ranging from water stress, coastal protection, forest cover loss, heating and cooling degree days, precipitation anomalies, and new data on economic and social rights. This video showcases the data portal features and capabilities and how sovereign ESG data can be incorporated into investment decision and financial analysis.

Sustainability-Linked Funds (SLFs) represent an innovative approach to mobilizing private capital towards achieving sustainable development goals. By leveraging concessional finance from donors, SLFs can enhance credit for issuers and offer a financial incentive for achieving pre-established Key Performance Indicators (KPIs). SLFs can invest in conventional debt instruments, avoiding fragmentation of the debt portfolio and supporting emerging market issuers' access to private capital.

‘More for less’ demonstrates how a viable market for sustainability-linked debt can address the triple challenge of public debt distress, climate shocks and nature degradation. The paper charts out building blocks, use cases and seven pathways for scaling sustainability-linked sovereign debt. Barriers to achieving scale are also addressed, from data and technology shortfalls to restrictive accounting practices and coordination failures among key stakeholders. As a way forward, the paper calls for coordinated, ambitious interventions by key stakeholders across the sustainable sovereign financing universe.

Chile and Uruguay broke new ground this year by selling bonds whose costs will be linked to meeting climate sustainability goals. On its $2 billion borrowing in March, Chile will have to pay more interest if it misses targets for cutting carbon dioxide emissions and expanding renewable energy. In the case of Uruguay’s $1.5 billion October issue, the rates will rise or fall depending on whether the country meets emissions and forest targets.

This event will discuss how global sustainable finance architecture reforms and development of the innovative financing tools and processes can help unlock climate finance, and what impact they would have on emerging markets, global and national development/climate agenda. The event will showcase how the World Bank Group is working with global partners to build an enabling framework to leverage climate finance for emerging market and developing economies (including International Sustainability Standards Board (ISSB) and Network for Greening Financial Sector (NGFS)), and will provide regional examples related to the implementation of these reforms in the context of the specific initiatives and projects.

In an upcoming publication “An Economic Memorandum for the Brazilian Amazon” we introduce the concept of a model-based KPI. The key idea here is that outcome and performance are not the same. Performance is the difference between an observed outcome and would have been expected, based on a forward-looking statistical model.

Governments in many countries are looking for innovative financial instruments to address the triple crisis of unprecedented debt levels, climate change and nature loss. Sovereign bonds – representing almost 40% of the $100 trillion global bond market -- are the largest asset class in many institutional investors’ portfolios. They are one of the key instruments for channeling capital to emerging markets and developing economies (EMDEs). Yet many developing countries are unable to deploy the capital needed to take action to avoid negative impacts of climate shocks and nature loss, particularly following the pandemic crisis.

Droughts, wildfires or deforestation have easy-to-see effects on our environment and our economy – but what about financial markets? Is environmental degradation, accelerated and intensified by climate change, accurately accounted for in asset prices? Answering this question of financial materiality can be as daunting and confusing as piecing together a puzzle with missing pieces. The wealth of geospatial data provides a new box of promising puzzle pieces.

International investors are increasingly interested in promoting sustainable development. Deforestation in the Brazilian Amazon is among the world’s greatest environmental challenges, despite declines from a 2004 peak in Brazil’s Legal Amazon, which includes nine states covering the Brazilian share of the Amazon and parts of two other biomes. Recently, deforestation appears to be accelerating again. Could more decisive government action have averted this recent increase? If so, can financial instruments help incentivize governments to protect critical natural assets like the Amazon going forward? It’s possible.

Recent deforestation alerts suggest that forest loss in the Brazilian Amazon is slowing. This is good news – but also not entirely surprising. Economic models are becoming increasingly able to foretell the direction of deforestation. In April 2023, we published our projections for Brazil’s Land Use Change and Forestry (LUCF) emissions based on a new macroeconomic model. Back then, we only had official deforestation data until 2021. Nevertheless, the model predicted falling LUCF emissions for 2023 which is consistent with the easing deforestation pressures in the “arc of deforestation” we are now witnessing.