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Green-Bond Fund Offers Green Path for Emerging Markets


Proceeds from green bonds support climate-smart projects like the Penonome wind-power plant in Panama. © Rafael Pérez-Pire Angulo/Penonome

Financing developing countries’ shift to a greener path of growth can often be a challenge. Private investors frequently have both the capacity and appetite to invest in climate-smart projects in emerging markets, yet they lack the proper tools to make investments happen.

To tackle this deficiency, IFC has recently partnered with leading asset management company Amundi to launch the world’s largest green-bond fund dedicated to emerging markets—a $2 billion initiative aimed at unlocking private funding for climate-related projects.

IFC is investing up to $325 million in the Green Cornerstone Bond Fund, which will buy green bonds issued by banks in developing countries. Amundi will raise the rest of the $2 billion from institutional investors worldwide and provide its services in managing emerging-market debt. The fund aims to be fully invested in green bonds within seven years.

The global market for green bonds has expanded rapidly in recent years—totaling more than $100 billion in 2016. But few banks in developing countries have issued such bonds. IFC and Amundi expect the new fund to encourage more local financial institutions to issue green bonds, by increasing global demand and building local markets.

Together, IFC and Amundi will also work with local financial institutions to strengthen their capacity to issue green bonds by providing training and sharing international best practices.

 

Connecting Climate-smart Projects with Investors

Developing innovative financing products to spur climate-related investments through capital markets is key to IFC’s mandate. Since 2005, we have invested more than $15 billion in renewable power, energy efficiency, sustainable agriculture, and green buildings, with an additional $10 billion mobilized from other investors. And these investments are expected to grow to reach 28 percent of our annual financing by 2020.

Bonds are an especially attractive financing tool for infrastructure projects because they provide a potentially low-cost and long-term source of capital. IFC was one of the earliest issuers of green bonds, having launched the program in 2010 to help catalyze the market. Two benchmark $1 billion issues in 2013 set records as the largest green bonds in the market at the time of issuance. To date, IFC has issued $5.8 billion in green bonds.

IFC uses the proceeds from green bonds to support climate-smart investments in emerging markets. Between July 2015 and June 2016, for example, 35 IFC investments received green bond financing. Together, these projects are expected to reduce greenhouse gas emissions by the equivalent of 1.3 million tons of carbon dioxide per year—a result similar to taking 275,000 cars off the road.

Two components of IFC’s Green Bond program make it especially attractive for investors: impact reporting and the availability of a third-party second opinion on the program’s environmental standards. IFC’s work toward harmonization of environmental impact metrics and its engagement with the Center for International Climate and Environmental Research (Cicero) are extremely helpful as investors look to evaluate the impact of projects in the program.

 

Scaling up the Green Bond Market

In fiscal year 2016 alone, IFC issued 23 green bonds across seven currencies. They totaled $1.4 billion—the highest annual issuance since the inception of the program. In addition to issuing these bonds, IFC has been proactively helping emerging-market issuers tap into the green bond market by investing in the bond or providing credit enhancement to the bonds.

In Turkey, for example, IFC became an anchor investor in the first green bond from a Turkish bank for a $300 million issuance in the international market that attracted more than $4 billion in bids. In India, IFC invested in the green bonds issued by financial institutions YES Bank and PNB Housing to help construct green residential buildings.

IFC issues green bonds in various structures and currencies, including Chinese renminbi, Indian rupee, and South African rand. We also play a leadership role in developing guidelines and procedures for the green bond market.

Our goal for the green bonds initiative is to catalyze $13 billion in private sector capital annually by 2020 to climate-friendly projects.

Published in April 2017