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The Covid-19 outbreak will weigh on the sustainable bond market in the short term, but Moody’s Investors Service says growing investor demand will drive greater issuance in the years ahead, particularly in emerging markets.

In a new report, Moody’s said that the fallout from the coronavirus outbreak has curbed the new issue prospects for emerging market (EM) sustainable bonds, “as prolonged market disruption could deter issuers from coming to market.”

Over the longer term though, the rating agency sees a favourable outlook for EM sustainable debt due to investors increased focus on issuers’ exposure to environmental, social and governance (ESG) issues, and their broader sustainability efforts.

And, it noted that emerging market economies “are often more susceptible to ESG risks, such as physical climate hazards or income inequality… and they face immense investment needs to finance sustainable development.”

Moody’s said these trends “will underpin strong growth in green, social and sustainability bonds across global emerging markets in the coming years.”

“Sustainable finance in emerging markets is coming of age,” said Rahul Ghosh, senior vice president, emerging markets research, at Moody’s.

“Emerging market issuers in exposed sectors and regions will encounter growing pressure to adapt their business models and undertake investments to reduce or mitigate underlying ESG exposures,” he said. “Those that outline clear financing plans to reduce their ESG and climate risk exposures stand to benefit from robust investor demand.”