 ESG investing has entered the mainstream of global financial and asset

managers, including EM-dedicated funds, are increasingly integrating ESG

factors and impact considerations into investment decisions

 ESG investing is shifting from purpose neutral to purposeful, which brings it

closer to the concept of sustainable development and could help EM issuers that

pursue sustainable activities to raise market financing

 UN Sustainable Development Goals (SDGs) are not on track to be met by 2030,

in part due to an annual $2.5tn financing gap; the mobilization of private capital

will be critical as multilateral development banks (MDBs) cannot cover this gap

alone

 MDBs were the pioneers in issuing SDG bonds to fund lending, but bond

issuance linked to SDGs by DM and EM corporates and sovereigns has risen

significantly in recent years

 There is increasing investor acknowledgement that the only way to mitigate

ESG risks in EM in the long run is by enhancing sustainable growth outcomes;

as a result, there is growing overlap between the frameworks for ESG investing

and development finance in EM

 As a result, EM investors are increasingly seeking out frameworks and

methodologies to qualify and quantify impact so as to avoid impact-washing

 This overlap, which captures elements of ESG investing more skewed towards

development outcomes, but which retains the broader market appeal of

traditional ESG, will help to attract new sources of capital for EM issuers in the

years ahead

 Cooperation between MDBs and private institutions will likely grow to help EM

issuers access capital markets; further public-private cooperation provides fertile

ground for innovation when it comes to financing instruments, use-of-proceeds

tracking and impact measurement

 Low-income EM countries tend to have the largest SDG financing gaps, but also

the lowest ESG scores, which can be a problem to attract capital and may

require a more forward-looking ESG scoring framework

 While the growing interest in ESG investing is leading to a global regulatory

push for investors to consistently consider these factors in their investment

decisions, particularly in Europe, so far there is no global standardization of

sustainable investment regulations