GB Green and Sustainable Bonds

Green Bonds are fixed-income financial instruments issued with the aim of addressing climate change and facilitating environmental solutions; those bonds are labelled as green by the issuer. Since they have similar yields, ratings and return profiles to other fixed income investments, they provide investors with a clear way to get both economic and environmental returns without additional risk. The majority of green bonds are use-of-proceeds bonds or asset-linked bonds, where the issuer promise to the investors that all the raised funds will only go to specified climate-related programs or green assets and thus contribute to beneficial environmental and climate outcomes.


Originally these instruments were conceived so that proceeds were dedicated to finance green assets and projects with climate benefits; however, as market expanded and became more sophisticated, a broader range of socially-conscious debt labels (SDG bonds, social bonds, even blue bonds) provided other avenues for responsible investment. The green label can also be applied to a range of financial structures and debt formats, including inter alia, private placement, securitisation and covered bonds

Green definitions feature which eight sectors were comprised in sector allocations across the globe: energy, buildings, transport, water, waste, nature-based assets, industry and ICT.

Green bonds can be placed by central and local governments, banks or corporations.

Following the Climate Bonds Initiative CBI) terminology, the climate-aligned bond universe includes:
-Fully-aligned issuers with 95% or more green revenues (revenues deriving from climate-aligned assets and green business lines)
-Strongly-aligned issuers (between 75% and 95% green revenues).
-Green labelled bonds.

The green bond labelled market kicked off in 2007 and has grown steadily since then, with the market really starting to take off in 2014. In 2018 bond issuance set yet another record. Cumulative issuance since 2007 amounts to USD521bn.

The Climate Bonds Initiative Market Report 2018, a research about climate-aligned issuers, conducted between April and June 2018, identifies USD1.2tn of aligned outstanding bonds from fully aligned issuers (with USD497bn of outstanding bond volume), strongly aligned issuers (with USD314bn of outstanding bond volume) and green bonds (with USD389bn of outstanding bond volume accounting). The report also includes USD250bn of un-labelled bonds issued by US Muni agencies. The overall climate-aligned bond universe amounts to USD1.45tn.

Sources:
-Climate Bonds Initiative (2018). Climate Bonds Taxonomy, A guide to climate aligned assets & projects. September 2018.
-Climate Bonds Initiative (2019). Green Bonds Market Summary. Q1 2019. April 2019.
-Climate Bonds Initiative (2018). Bonds and Climate Change. The State of the Market 2018. September 2018.
-SEB (2019). Green Bond Market Review and 2019 Outlook. SEB, The Green Bond. SEB Climate & Sustainable Finance Review.
 

Supporting National Development Banks (NDBs)

The objective is to support NDBs in their efforts to raise private funds at adequate maturities in both local and international capital markets, through the issuance of green bonds or sustainable bonds. Those issuances should attract national and international institutional and impact investors and therefore have an impact on the issuer’s ability to diversify sources of funding, while promoting low-carbon investments or investments with high positive social impacts.

Those projects will also participate in the development of national capital markets. The Program is currently supporting NDBs in Colombia and Mexico.

sotm

The ‘Bonds & Climate Change: State of the Market 2018’ report is an in-depth analysis of the climate-aligned and labelled green bond markets.

 
 

Supporting Countries in LAC to Design Efficient Incentivization Strategies for Sustainable Bonds

The IDB is also working with other type of players such as Government Agencies, Financial Sector regulatory bodies or domestic Stock and Bond Exchanges in order to support the design of national strategies to incentivize domestic green and sustainable bonds markets. Pilot projects are currently being developed in Brazil, Mexico and Ecuador.

Both sections of the program include a strong dissemination component and all relevant knowledge products will be made available through this platform.

The program is currently being developed thanks to the support of Switzerland’s State Secretariat for Economic Affairs (SECO) for Colombia, Peru and Ecuador – and of the International Climate Initiative (IKI) of the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) via the LGI program for other countries in the region.

The IDB is working closely with the Climate Bonds Initiative and several trainings and activities will be carried out within LAC countries throughout 2016-2017. The Climate Bonds Initiative is an international, investor-focused not-for-profit. It is the only organization in the world working solely on mobilizing the $100 trillion bond market for climate change solutions.

IDB-en
 

Beneficiary Institutions will receive technical and promotional assistance throughout the process

As part of the Bond Structuring phase, the IDB may provide - when relevant - a credit enhancement to the bond issuance in the form of a full credit guarantee with sovereign counter-guarantee.
 
$1.45tn

Climate-Aligned Bond Universe



Development Banks have crucial role as issuers and anchor investors


Source : Climate Bond Initiative

Quick guide to terminology
• Green bonds: Bonds issued in order to raise finance for climate change solutions and labelled as green by the issuer.
• Fully-aligned climate issuers: Bond issuers that derive >95% of revenues from climate-aligned assets and green business lines.
• Strongly-aligned climate issuers: Bond issuers where 75%-95% of revenues are derived from climate-aligned assets and green business lines.
• Climate-aligned bond universe: the term is used to describe the full universe of aligned-outstanding bonds - i.e. from fully aligned issuers, strongly-aligned issuers and green bond issuers.
 

Green Bonds Principles

Developed by the International Capital Market Association (ICMA) and updated in June 2017, the Green Bond principles are a set of voluntary guidelines for green bond issuers. They promote transparency and disclosure and aim at developing a sound green bond market.

Transparency
Disclosure
Promote Integrity
Use of Proceeds
Process for Project Evaluation and Selection
Management of Proceeds
Reporting
External Review
English
X