The limited size of capital markets in many developing economies, such as Zambia, has prevented them from benefiting further from the international market.
This has been established by a report issued by the United Nations Conference on Trade and Development (UNCTAD) on Thursday.
UNCTAD also cited the lack of standards and sustainability data in the developing economies as another challenge preventing them from emerging in capital markets.
UNCTAD estimated that sustainable funds domiciled in developing economies accounted for less than three percent of global sustainable fund assets, and most of these funds were concentrated in China.
“Another persistent feature of sustainable finance is the relative absence of developing economies in the global sustainable fund market,” according to UNCTAD.
To address these issues, UNCTAD suggested that developing economies needed to establish necessary policy and regulatory frameworks and create an enabling ecosystem for sustainable finance.
UNCTAD stated that this was critical to leveraging the potential of sustainable investment to finance economic and social development.
According to UNCTAD, sustainable funds continued to be more attractive to investors than traditional funds.
The value of the global sustainable fund market fell from its high of US$2.7 trillion in 2021 to US$2.5 trillion in 2022.
“Yet, despite the decline in market valuation, net inflows to the market were positive, in contrast to net outflows from traditional fund markets.
“This suggests that investors view sustainable finance as a longer-term strategy and are convinced by the business case for sustainable sectors, such as renewable energy,” the report stated.
It also indicated that sustainable finance market (funds, bonds and voluntary carbon markets) in 2023 grew to US$5.8 trillion, up 12 percent from 2021.
It attributed this primarily to the increase in the outstanding issuance of sustainable bonds, which had grown fivefold between 2017 and 2022.
“The sustainable fund market experienced a retrenchment in 2022, in common with other financial markets, but remained relatively more resilient.
“Net inflows to sustainable funds were positive, in contrast to net outflows from traditional funds. Nevertheless, a significant proportion of funds may not meet their sustainability credentials, and their performance requires careful examination,” UNCTAD stated.
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