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Green trade financing in emerging markets

Green trade financing and market share

The global green economy is valued at US $7.9 trillion, comprising 8.6% of listed equity markets, while outstanding green bonds have reached US $2.9 trillion as of Q1 2025. Complementing this momentum, green trade finance is rapidly growing, channelling capital into cross border transactions and supply chains with measurable environmental benefits.

Green trade finance supports low carbon goods, sustainable materials, renewable technologies, and responsible production, aligning instruments with climate goals to drive a sustainable global economy. ESG related trade finance investments rose 35% in the past year, with major economies such as China reaching US $ 4.9 trillion in outstanding green loans, increasingly directed towards green infrastructure and clean energy projects. 

The emergence of green trade occurred due to:

  • Funding gap in emerging markets: Emerging markets require green finance to close the climate investment gap, support sustainable growth, and build resilience, with the annual shortfall estimated at US $ 7.4 trillion
  • Environmental challenges: Many emerging markets are among the most vulnerable to climate change, facing heightened risks of floods, droughts, and other extreme weather conditions
  • Diversifying and deepening local capital markets: Green trade finance expands funding options for governments and businesses, lessening reliance on volatile foreign investment and helping to build more robust, diversified domestic capital markets
  • Supporting sustainable economic growth: Investing in low-carbon supply chains and green infrastructure stimulates job creation, fosters innovation, and safeguards long-term economic stability

Industry standards such as the ICC Principles for Sustainable Trade and Trade Finance (2025) and the Green Loan Principles are strengthening the credibility of green labelled financial products through transparency, verification, and common frameworks. Momentum is also evident in initiatives such as the European Investment Bank’s €5 billion sustainable trade fund,  and the African Development Bank’s US $6 billion sustainable bond issuance, which supports infrastructure and climate resilience.

Hurdles slowing the expansion

Several barriers continue to limit the effectiveness and reach of green trade finance: 

  • Capital access and lack of awareness: SMEs in emerging markets struggle to access green finance due to perceived risks, limited collateral, and complex application processes. This challenge is compounded by a significant awareness gap, with the International Finance Corporation (IFC) estimating that around 70% of SMEs remain unaware of available climate finance opportunities, restricting their participation in green initiatives
  • Regulatory fragmentation: Inconsistent standards across countries hinder cross border green trade finance, raising costs, creating investor uncertainty, and discouraging long term commitments. The lack of harmonisation also leads to duplicated compliance, reduced efficiency, and weakened credibility of green finance mechanisms
  • Capacity gaps: The 2025 State of Green Banks report shows that many green banks in developing economies face capacity gaps, including limited expertise, inadequate training, and weak impact assessment capabilities
  • Investor risk aversion: Global investors show heightened risk aversion in emerging markets, with S&P Global’s Credit Outlook 2025 linking volatility, tariffs, and uneven monetary policy to wider debt spreads

Key solutions and innovations to unlock green trade finance

The following solutions offer a foundation for scaling green trade finance, and needs to be supplemented with strategic vision, collaboration, and system wide transformation:

  • Innovative instruments: The expansion of green, social, sustainability, sustainability linked, and transition bonds pushed cumulative GSS+ issuance past US $5.9 trillion by early 2025. These instruments finance low carbon production and infrastructure, lower trade finance costs, and support exporters in meeting green standards, accessing new markets, and scaling sustainable trade
  • Policy harmonisation: The adoption of the ICC Principles for Sustainable Trade and Trade Finance (PSTF) is helping reduce regulatory fragmentation and enable cross border green trade. Launched in October 2024 and endorsed by major banks including Standard Chartered, ING, Commerzbank and Santander CIB, representing 25% of global trade finance volume, these principles are gaining traction
  • Capacity building: Capacity building for local banks and SMEs is vital to scaling green finance. The UK-funded Climate Finance Accelerator, active in nine middle income countries including South Africa, is strengthening pipelines of low carbon projects, building technical expertise, and improving access to investors
  • Guarantee facilities: Instruments such as the Green Guarantee Company (GGC) addresses the challenge of limited private capital flow into green projects by providing partial guarantees that de risk investments for commercial lenders. By sharing risk with financial institutions, the GGC has already enabled up to US $ 1 billion in green investments across emerging markets

Driving green trade finance in the future

Green trade finance is a vital driver of sustainable growth in emerging markets, enabling access to capital for climate friendly development. Innovative tools and global partnerships are helping bridge the finance gap, but challenges such as regulatory mismatches and investor risk remain. With stronger collaboration and capacity building, green trade finance can unlock a resilient, low carbon future.

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