Sovereign green, social, and sustainability (GSS) bonds contribute to strategic government initiatives surrounding climate, catalyzing local green finance markets and attracting new investors. These and other findings are contained in a first of its kind survey undertaken by CBI.
For governments with access to domestic and international capital markets, sovereign GSS bonds can attract the investment needed for sustainable development, as well as help to fulfil the greenhouse gas (GHG) emission reduction objectives included in each country’s Nationally Determined Contributions (NDCs) under the 2015 Paris Agreement.
As of November 2020, 22 national governments had issued sovereign GSS bonds totalling USD96bn. At least 14 other sovereign governments across the world have indicated their intention to issue GSS bonds. The report covers 97% of issuance with 19 out of 22 issuers participating in the project by sharing their experiences of issuing GSS bonds: eight from Developed Markets (DM), and 11 from Emerging Markets (EM).
According to the report, Sovereign GSS bonds have market changing potential:
-For most countries, a key motivation for issuing a sovereign GSS bond was to support the growth of a local green bond market. Sovereign issuers can serve as role models for other types of issuers.
-In most cases a wider strategic initiative to achieve NDC targets, address SDGs, and mitigate climate change and social inequalities triggered the decision to issue.
-The process of issuing a sovereign GSS bond typically involved a budget tagging exercise and commitments to report on the allocation of proceeds and their impact.
-In most cases, a sovereign GSS bond broadened and diversifi ed the investor base, a key motivation for issuing. Sovereign GSS bonds also encourage investors to initiate dedicated GSS investment strategies.
-Many respondents collaborated with counterparts both pre and post issuance, in knowledge forums and bilateral conversations.
Issuing a sovereign GSS bond is a large commitment and presented challenges for some respondents.The results of this survey suggest that there are tested solutions for these difficulties and that most sovereign GSS issuers successfully overcame hurdles. Challenges and initial costs were usually compensated for by the benefits obtained including increased visibility and reputational benefits.