Fiji’s green bond, launched in October, creates a market for private capital seeking investment opportunities in climate resilience and adaptation.
The people of Fiji are on the front lines when it comes to combatting climate change. That’s because the nation’s more than 300 volcanic islands—of which 110 are inhabited—include low-lying atolls that are highly susceptible to cyclones and floods.
The damage done by 2016’s Tropical Cyclone Winston, which caused economic losses that amounted to almost one-third of the country’s GDP, hinted at the potential for even greater damage and displacement in the future. As with all Pacific Island states, close to 20 percent of the region’s 10 million people could be displaced due to climate change by 2050.
To protect its 900,000 citizens and their livelihoods, Fiji has developed and launched a sovereign green bond—the first developing nation to do so . IFC and the World Bank supported this effort. The first tranche, which floated 40 million Fijian dollars (about $20 million), drew unprecedented demand from investors and was oversubscribed by more than double that amount. The bond helped Fiji create a new way to mobilize finance for development—and a market for private sector capital seeking investment opportunities that support climate resilience and adaptation.
Fiji’s sovereign green bond aims to raise a total of 100 million Fijian dollars ($50 million) to support climate change mitigation and adaption. Likely projects to be financed with proceeds from the green bond include investments in crop resilience, flood management in sugarcane fields, reforestation, and rebuilding schools to better withstand violent weather. They will all follow the internationally developed Green Bond Principles.
Fiji will also use bond proceeds for projects supporting its commitment to achieve 100 percent renewable energy and reduce its carbon emissions in the energy sector by 30 percent by 2030.
A First for Fiji
Fiji will need investments of more than 9.3 billion Fijian dollars (over $4 billion) in the next ten years to reduce its vulnerability to climate change, according to a recent report from the Government of Fiji and the World Bank. This is urgent because citizens already feel the impact of global warming: more than 25,000 Fijians are pushed into poverty every year due to cyclones and floods, and experts predict this number will rise to over 32,000 by 2050.
Officials in the country are playing a leadership role in creating new solutions to finance climate needs . “By issuing the first emerging country green bond, we are also sending a clear signal to other nations that we can be creative and innovative in mobilizing funds and create win-win outcomes for countries and investors in adapting to the serious effects of climate change,” says Fiji’s Prime Minister, Frank Bainimarama.
Green bonds are a growing market: global issuances have already topped $100 billion this year . But most green bonds are issued by the private sector. Only Poland and France had issued sovereign green bonds before this, and Fiji’s sovereign green bond marks the first with a special emphasis on adaptation—building up the country’s resilience to climate change. To become sovereign green bond issuers, countries must have in place a green bond policy framework that reflects international guidelines for use of proceeds, disclosure, and reporting.
At the request of the Reserve Bank of Fiji, IFC and the World Bank provided technical assistance to the government to develop the sovereign green bond in just four months. This collaboration took place under a broader, three-year Capital Markets Development Project supported by the Australian Government. Through this partnership, Australia and IFC are helping to stimulate private sector investment, promote sustainable economic growth, and reduce poverty in the Pacific.
Demonstrating Leadership that Inspires Action
Fiji is President of the 23rd UN Climate Change Conference (COP 23), now underway in Germany. The Fijian government hopes its experience can help other countries working on strategies to build resilience against climate change.
“As Fiji has made access to climate finance a key pillar of our COP23 Presidency, we are proud that we have been able to set an example to other nations vulnerable to the impact of climate change by issuing this green bond in an amazing short timeframe, because of the close working relationships with IFC and the World Bank,” says Ariff Ali, Governor of the Reserve Bank of Fiji.
IFC is one of the world’s largest financiers of climate-smart projects for developing countries . Since 2005—when we started to track climate-smart components of our investments and advisory services—IFC has invested $18.3 billion in long-term financing from our own account and mobilized another $11 billion through partnerships with investors for climate-related projects.
IFC was also one of the earliest issuers of green bonds, launching a green bond program in 2010 to help catalyze the market and unlock investment for private sector projects that support renewable energy and energy efficiency. In October 2017, we issued our third $1 billion green bond, raising IFC’s total green-bond issuance to more than $7 billion across twelve currencies.
IFC also plays a leadership role in developing guidelines and procedures for the green bond market as a member of the Green Bond Principles Executive Committee and the IFI Green Bonds Impact Reporting Harmonization Framework.
In April 2017, IFC partnered with 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.
Read more about IFC’s work in green bonds at www.ifc.org/greenbonds
Follow the conversation: #IFCmarkets
Published in November 2017