Sovereign ESG bonds in the global south: 10 questions for those concerned about debt and climate justice

This briefing is organised into ten basic questions. The answers demonstrate not only the complexity of the ESG bond market but also point to several problems with its expansion. 

The past few years have seen a surge in interest in ethically labelled bonds for countries in the Global South. This includes so-called ‘green’ and ‘social bonds’ and derivatives, including ‘sustainability-linked bonds’ and ‘blue bonds’, now being heavily promoted for small island developing states (SIDS). In the past five years, at least 22 countries in the global south have issued sovereign environmental, social and governance (ESG) bonds, raising well over US$60 billion. Most international organisations view this as a positive development, and the expansion of ESG bonds is now a common recommendation made in international meetings and agreements on climate and biodiversity.

This report offers a succinct introduction to sovereign ESG bonds and explores some of the limitations and risks around the push for ESG financing as a way for global south countries to close the financing gap for Sustainable Development Goals (SDGs) and climate action. It also serves as a basis for further discussions, particularly within civil society, in order to be able to define a well-informed and strategic position. Ultimately, the paper will help Eurodad, civil society allies and policymakers define future actions towards mainstream narratives and public support for expanding ESG financing for global south countries.

Key questions: 

1. What are sovereign ESG bonds and how has the market evolved?
2. How is the international market in ESG bonds regulated?
3. What are the trends in sovereign ESG bonds issued from developing countries and SIDS?
4. What strategies are used by donors in advancing sovereign ESG bonds?
5. What is the significance for global south countries of SLB bonds?
6. What is meant by the ‘greenium’ for sovereign ESG bonds and how significant is it?
7. How serious is the risk of ‘greenwashing’ and can SLBs prevent it?
8. How do sovereign ESG bonds respect transparency and public participation?
9. What are the risks of ESG bonds to the debt crisis?
10. Are ESG bonds optimal solutions for bridging the funding gap?