Beth Burks and Crista Clapp on mobilizing capital for climate action and sustainable development

What tangible signals are you seeing that capital is actually being mobilised at scale to deliver on global sustainability goals?

Christa Clapp

The sustainable debt capital market, such as green bonds, has reached a mature state with over $1 trillion in annual issuance that covers about 10% of total bond issuance each year. We see good traction in renewable energy, green buildings, and clean transportation and much less for adaptation.  

Energy security, geopolitical tensions and growing energy demand -- including from data centers -- are influencing the dynamics that shape capital markets. We believe some data centers can be finance through a green bond label – we determine eligibility by considering the emission intensity of its energy use, the approach to managing water resources and the power usage efficiency of the equipment.

There are pockets that are underserved such as decarbonizing high-emitting sectors, and many emerging markets. Emerging markets emit a large part of global annual emissions today, and transition finance is one area we expect will help serve these markets.

 

How are markets addressing investing into emerging economies’ sustainable development?

Beth Burks

Creditworthiness plays a key role in unlocking institutional investors’ capital, who is often allocated based on credit rating thresholds. Fiscal space and addressing debt levels remain central barriers to public and private investments in sustainable development.

Among the promising areas is the high stakeholder awareness of key roadblocks and the increasing number of initiatives convening to remove barriers including the EMDE Investor Taskforce, backed by the UK government. Multilateral banks’ move towards originate-to-distribute models, and the development of blended fund financing demonstrate innovation is happening.

We expect demand for transition finance to rise particularly in Asia-Pacific and Middle East. We expect the City of London’s Transition Finance Council recent guidelines will help earlier, which many financial institutions are currently testing.
 

Blended finance is often highlighted here as a key tool to unlock private capital—what needs to change for it to move from a niche instrument to a truly scalable solution in emerging and underserved markets?

Beth Burks

We believe blended finance funds could benefit small, low-carbon infrastructure projects. Low-carbon projects such as solar energy are often much smaller in size than other forms of infrastructure. Therefore, pooling of these projects is often required for refinancing through bonds.

Overall, we expect growth in these markets will likely be gradual largely due to complex coordination requirements. There is also nothing that inherently means that blended funds will be directed towards low-carbon investments, so further assessments of impact may be necessary.
 

Has S&P Global Ratings made any changes relevant for development finance and the cost of capital?

Beth Burks

Our role as a credit rating agency is to provide independent opinions of sovereign and private sector borrowers. We routinely review new relevant information available as a standard discipline. Last October we made changes to our Multilateral Institutes criteria following a review of newly released data. This May we announced that we are looking into the role of partial guarantees, which are a tool used to de-risk investments particularly in infrastructure.

Beyond credit ratings, there are several factors that influence the cost of capital including the strength of institutional frameworks, the degree of transparency and predictability within the operating environment, foreign exchange risks, and market liquidity, among others.
 

You mentioned adaptation investments are less visible in the bond markets, what factors are at play here?

Christa Clapp

Resilience to physical climate risks is important to decision-making for industries and investors. Our recent analysis  suggests a 50% chance of the world reaching 2.3 degrees of warming above pre-industrial levels by 2040.

Adaptation financing in green bond markets remains concentrated among the public sector, commercial banks, and some real estate issuers, funding projects such as flood defenses, resilient infrastructure, early-warning systems, and climate-smart land management. Yet many climate-vulnerable countries lack the fiscal capacity to invest at scale and remain reliant on grant funding.