Finding appropriate ways to finance large investments in climate action is increasingly on the minds of global decision-makers, as the world looks for practical ways to implement the 2015 Paris Agreement to hold global warming down to below 2C.
The aim of this year’s COP24 climate talks in Katowice is to create practical frameworks for realizing the vision agreed three years ago in Paris. The original agreement setting out global aspirations on climate change included a broad commitment to make finance flows consistent with the goal of mainstreaming climate action. With proceeds earmarked to projects with clear environmental and sustainability benefits, Green Bonds are a key instrument to accelerate the transition towards a low-carbon economy and towards greater environmental stability.
During international climate talks in Katowice, Poland, the EBRD presented its latest initiative – a €250 million Direct Investment Framework for Green and Sustainability Bonds issued by financial institutions that it approved in September. Over the next three years, the EBRD framework is expected to mobilise private sector capital investments of a further €1 billion, and aims to double the supply of such bonds issued by financial institutions across the regions where the bank invests.
While the global market for Green Bonds has grown rapidly in recent years, exceeding US$ 155 billion of issuance in 2017, large regional gaps remain with only approximately 2 per cent of global issuance volume coming from the EBRD regions of central and eastern Europe, Central Asia and the southern and eastern Mediterranean. The EBRD, an experienced issuer of these bonds, has been leading efforts to increase the market’s scale with its own Green Bond Programme totalling €2.6 billion since 2010.
“Finance is a critical enabler of climate action with the EBRD being a leading investor in environmental projects in its region,” said Josué Tanaka, the EBRD’s Managing Director, Energy Efficiency and Climate Change. “Since 2006, the EBRD has invested more than €28 billion in almost 1,600 projects leading to reductions in CO2 emission of more than 93 million tonnes per year.In 2017, 43 per cent of the Bank’s investment was made in Green Economy Transition projects, achieving the initial target under the flagship initiative two years ahead of schedule.”
In March 2018, EBRD completed a US$ 68.5 million investment in Amundi Planet – Emerging Green One, the world’s first and largest Green Bond fund dedicated to emerging markets, including the EBRD region. In parallel with this investment, the EBRD launched a dedicated Green Bond technical cooperation programme across its regions to help increase the issuance of Green Bonds to finance environmentally friendly projects.
“The Green and Sustainability bond market in our region is still nascent compared to global volumes. However, we note increasing calls from potential issuers for EBRD’s involvement as investor and technical assistance provider for pilot issuance,” said Francis Malige, the EBRD’s Managing Director, Financial Institutions. “Not only will this new instrument attract a broader investor base to our region, but it may also serve to highlight the issuer’s SRI credentials, which may also encourage them to buy the conventional bonds as well.”
With this framework the Bank aims to double the supply of Green and Sustainability Bonds in its regions. As EBRD representatives explained at COP24, in a side event on Extending Green Bonds to New Frontiers, the framework also reinforces the importance of Sustainability Bonds which include a combination of green and social assets. The objective of the framework is to incentivise transparency and adherence to high green standards with its financial institution clients and to report on the underlying projects’ quantitative and qualitative environmental benefits and impacts.
Britta Bochert is a Principal Banker at the European Bank for Reconstruction and Development. This article was submitted to RI by the EBRD.