08 October 2020
A pioneering initiative by the IFC to encourage green bond issuance by banks in emerging markets is bearing fruit, reports Graham Cooper
Green bonds have now been issued by more than 65 countries. But the market remains dominated by development banks, European sovereigns and utilities, and government agencies in Europe and the US.
Issuance from emerging markets has grown rapidly in the past year but, aside from China and a few sovereign issues, the bulk of these bonds have come from the energy sector.
This is starting to change, however, thanks largely to an educational initiative aimed at financial institutions in emerging markets which forms part of the International Finance Corporation's (IFC) Green Bond Technical Assistance Program (GB-TAP). Organisations attending the course have issued eight bonds since August 2019, raising a combined $228.25 million.
GB-TAP was launched in January 2019 to complement to the Amundi Planet Emerging Green One (Ego) fund – the world's largest emerging market green bond fund – in which the IFC is a cornerstone investor. While the $1.42 billion fund created demand for emerging market green bonds, the GB-TAP was designed to create supply.
The training course at the heart of GB-TAP was initially run as a two-day event in Singapore and Thailand, then as a five-day course at the Stockholm School of Economics in June and October 2019. Attendance on the Stockholm courses was by invitation only and preference was given to banks that were already issuing in the traditional bond market.
The course tutors explained why green bonds could be a better option for such banks by helping them broaden their investor base and motivate their staff, in addition to the environmental benefits, says Jean-Marie Masse, chief investment officer at the IFC. "We teach them the benefits of green bonds and how to issue them."
"We teach them the benefits of green bonds and how to issue them" -- Jean-Marie Masse, IFC
The training was designed in partnership with the International Capital Market Association (ICMA) and gives bankers a grounding in the Green Bond Principles and the importance of green bond issuers' disclosures to investors, with case studies and workshops helping to illustrate best practice.
In total, 19 banks from 11 countries were represented on the course: Thailand, Philippines, Indonesia, Georgia, Armenia, Turkey, South Africa, Nigeria, Benin, Togo and Senegal, says Johan Nordlund, programme director – finance, at the Stockholm School of Economics Executive Education. They were joined by two representatives from Symbiotics, a European firm that helps arrange financing for micro, small and medium size enterprises in emerging and frontier markets.
Covid-19 has brought an end to the in-person events but the course material is now being converted into an online format. This should be completed by the end of this month, ready to present to bankers in Eastern Europe and Africa and then, on a separate occasion, to potential issuers from Latin America, says Masse.
The bonds issued since the Stockholm training fall into two groups. (See Table). Four were issued by Turkish banks and four were arranged by Symbiotics.
Symbiotics provides advice to banks, pension funds and other institutional investors about sustainable and inclusive finance and serves as an asset manager for their 'impact' investments, particularly in developing countries. Two Symbiotics executives attended the Stockholm course, so "we were training the trainers," notes Masse.
Each bond is linked to a single loan -- Dirk Dijksma, Symbiotics
All four Turkish deals were labelled green, sized at $50 million, and listed in Dublin. They varied in tenor between four and 10 years. The Ego fund has allocated about 3% of its assets to each of them.
The Symbiotic bonds were smaller in size – ranging from $3.5 million to $10.25 million – and their proceeds were used for loans to financial institutions in Sri Lanka, Peru and India. The latter two were labelled as social bonds while the Sri Lankan deals were both labelled green. One of the Sri Lankan bonds was issued in US dollars but the other three bonds were issued in local currencies.
Symbiotics used a special purpose vehicle – Micro, Small and Medium Enterprises Bonds SA – to issue these bonds, which are all listed in Luxembourg. This structure allows a single issuing framework to be used for all four bonds, thus minimising transaction costs, notes Dirk Dijksma, Symbiotics' Geneva-based head of innovation investments. Each bond is linked to a single loan, he explains.
"I see huge potential" in this model, says his colleague Mattia Corato, a London-based portfolio advisor. Further green bonds are likely to be issued in the final quarter of this year or early in 2021, he predicts.
The IFC's decade of commitment to green bonds
In addition to its role in the Ego fund and the Green Bond - Technical Assistance Program (GB-TAP), the IFC is also a major issuer of green bonds. Since its inaugural green deal in 2010, it has issued almost $10.4 billion across 172 bonds in 20 currencies.
It has also played a major role in developing guidelines and procedures for the fast-growing market as a member of the Green Bond Principles Executive Committee and the IFI Green Bonds Impact Reporting Harmonization Framework.
The GB-TAP thus draws on a decade of experience. In addition to the educational programme for potential issuers of green bonds, GB-TAP also aims to support issuance from emerging markets by helping to enhance issuers' reporting, developing a database and sharing knowledge through the publication of research papers and case studies.
The programme is funded by the Swiss State Secretariat for Economic Affairs, the Swedish International Development Cooperation Agency, and the Luxembourg Ministry of Finance.