Green Bonds for Cities: A Strategic Guide for City-level Policymakers in Developing Countries (2016)

AUTHOR:Padraig Oliver, CPI

DATE:December, 2016

TOPICS: green bonds, sustainable cities

SUMMARY: As of November 2016, 271 cities in developing countries had committed to developing climate mitigation and adaptation plans. They currently have limited access to the capital necessary to implement these plans. Less than 20% of developing countries cities have access to local capital markets, through for example issuing bonds to investors, and only 4% are deemed creditworthy enough to access international capital markets. This report offers a strategic guide for cities in developing countries to access green bond market flows, a potential source of finance for cities in developing countries looking to secure investment in low-carbon, climate-resilient infrastructure to meet the water, energy, housing and transportation needs of their expanding urban populations. Since 2007, USD 131 billion in green bonds have been sold to institutional and retail investors attracted by their link to green projects, goods and services. The last three years has seen an exponential 13-fold increase in the value of annual bonds issued, from USD 3.2 billion in 2012 to USD 44 billion in 2015. This is projected to reach USD 75 billion by the end of 2016. There would seem to be considerable room for these cities to access increased finance from the green bonds market. CPI analysis of the projects underlying green bonds currently in the market shows USD 2.3 billion in value is linked with city-based projects in developing countries, including urban mass transit systems, district heating and water distribution networks. To put this in context, this represents: 1.7% of total green bond market flows since 2007. 6% of all flows to developing countries: A total of USD 38 billion of the proceeds from green bonds issued by development finance institutions (DFIs), commercial banks, and corporations has been directed toward projects in developing countries. 11% of flows to all city-based projects worldwide: USD 17 billion has been raised by cities in developed countries such as the US, France, and Sweden.