LONDON (Reuters) - The World Bank's private sector investment arm and European asset manager Amundi have agreed to form a $2 billion green bond fund to help provide more financing for low-carbon investments in emerging markets, they said on Friday.
Green bonds are used to raise funds for projects which help tackle environmental problems such as renewable energy, energy efficiency and waste management.
The International Finance Corporation (IFC) said it would invest up to $325 million in the so-called Green Cornerstone Bond Fund, which will buy green bonds issued by banks in Africa, the Middle East, Latin America, Eastern Europe and Central Asia.
Amundi will raise the rest of the $2 billion from institutional investors worldwide, the IFC said in a statement.
The global market for green bonds was worth over $90 billion last year and is forecast to grow to around $120 billion this year, according to Moody's Investors Service.
However, the IFC said that few banks in developing countries have issued such bonds and its fund should encourage more local financial institutions to do this.
"This green-bond fund will lower the risk for the private sector and attract new investors – essentially creating a market where there was none," said IFC chief executive Philippe Le Houérou.
"We've already identified dozens of banks in many developing countries around the world that could be interested in this fund. It's a win-win supporting the green economy and deepening access to international markets for emerging market issuers," he added.
The fund should be fully invested in green bonds within seven years, the IFC added.
Reporting by Nina Chestney; Editing by Elaine Hardcastle