SOVEREIGN GREEN BONDS BRIEFING - Commissioned by: European Bank for Reconstruction and Development By: The Climate Bonds Initiative and consultants
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SOVEREIGN GREEN BONDS BRIEFING Commissioned by: European Bank for Reconstruction and Development By: The Climate Bonds Initiative and consultants: Prepared by Climate Bonds Initiative. Sovereign Green Bond Briefing Climate Bonds Initiative 1
Sovereign Green Bonds
2017 has been marked as Green bonds are a key tool for governments projects by attracting new investors, and
‘the year of the sovereign’ to raise capital to implement infrastructure mobilise private capital towards sustainable
plans in line with national climate targets, development.
in the green bond market,
as governments move to achieve their
with inaugural issuances from Nationally Determined Contribution (NDC)
This briefing covers:
Poland and France setting targets, as set in the Paris Agreement and • The benefits of issuing a sovereign
a precedent in late 2016 and the international Sustainable Development green bond
Goals (SDGs). A sovereign green bond can
early 2017, and Fiji and Nigeria • A simple step-by-step guide on how to issue
provide a strong signal of the country’s
becoming the first issuers commitment to a low-carbon economy, • Case studies of sovereign green bonds and
amongst developing economies. help bring down the cost of capital for green examples of sub-sovereign issuances
Belgium: EUR4.5bn Poland: EUR 1.75bn
France: EUR 9.7 bn
Hong Kong:
HKD100bn green
Nigeria: N10.7bn bond programme
announced
Indonesia: USD1.25bn
>$10bn
$2bn-$10bn2. New and diverse investors potential issuers and indirectly set good Sovereign green bonds
Green bond issuers have often reported
practice issuance processes and standards and wider climate and
a diversification of their investor base as
for the whole market. Issuance on behalf of infrastructure policies
sovereigns also opens the green bond market
one of the benefits of green transactions: The aim of the green bond market is
to a large share of institutional investors’
the deal attracts new socially responsible to facilitate investments in assets that
portfolios allocated to sovereign debt.
investors and asset managers with green support a rapid transition to a low-
investment mandates. Sovereign green bond issuance can also carbon and climate resilient economy –
help boost national financial centres that one that is in line with the global climate
Though sovereigns generally have a
are looking to position themselves as ‘green target of limiting warming to 2 degrees
consistent domestic investor base,
hubs’. The French sovereign bond aimed to Celsius, as subscribed in the Paris
Poland experienced significant investor
raise Paris’ sustainable finance profile. Agreement.
diversification, with green investors making
up 61% of the investor pool, almost none of Although green bonds are about
which had previously invested in sovereign
6. Capital mobilisation assets and not entities, issuers are
bonds from Poland.1 For emerging economies, As well as contributing public funds to low- often scrutinised as to how their
increasing and diversifying the investor base carbon and resilient infrastructure projects, investments contribute to the transition.
could be a key benefit, especially in the case supporting the wider growth of the green For sovereigns, green bond issuance
of offshore sovereign green bond issuances.2 bond market is one way for governments to should be a complement to other
catalyse private sector investments into low- government action on climate change
3. Pricing advantages carbon and climate resilient infrastructure. and infrastructure, not an alternative.
Credible policies that support a low-
Driven by high demand and increasingly It has been made clear that public funds
carbon transition are an important
diversified investor base, several treasuries will not be enough to cover the challenges
foundation for green finance as they
have reported better pricing of their green posed by climate change and infrastructure
create a pipeline of green assets on the
bonds compared to past issuances. The French demand over the next 15 years.5 Mobilising
ground to be financed through green
sovereign bond is reported to have closed at private capital towards the “right”
financial markets.
13bp over a comparable non-green OAT.3 investments will be paramount.
A recent pricing study conducted by the Growing green bond markets can contribute
Climate Bonds Initiative in partnership with to mobilising private capital towards
reform. An active bond market can help reduce
the IFC, Pax, Obvion and Rabobank, shows infrastructure investments, connecting green
the cost of debt by enabling the refinancing
that not all green bonds carry new issue projects with investor demand, and raising
of bank loans for infrastructure projects once
premiums, and some are even issued at a awareness around green project pipelines.
the projects enter the operational phase and
discount. When looking at performance over
Further, sovereign green bond programmes become less risky. Recycling debt to the capital
the first week and first 28 days, green bonds
can include financial incentives such as tax markets also enables banks to generate fresh
issued in USD and EUR tend to perform
reliefs and subsidies for the development loan portfolios, allowing them to continue
better than their benchmark index.4
of low-carbon assets to crowd-in private lending within their capital constraints.
investments in priority sectors.
4. Visibility
Reputational benefits is one of the gains 7. International leadership Sub-sovereign issuance
issuers look for in a green bond issuance.
Sovereign green bonds provide a unique
The government can use the green bond States and cities have been pioneering
way for governments to take action on
issuance as a promotional tool, to reinforce green bond issuance in the public
green finance and engage in cross-border
its sustainability agenda, such as the case of domain. Some states, such as California,
collaborations. The G20 Green Finance
France, or signal a policy shift, such as the have gone as far as developing green
Study Group, the Financial Stability Board’s
case of Nigeria, where the government is bond strategies, others have raised
task force on Climate-Related financial
progressing on the issuance of a sovereign awareness by issuing green bonds to
disclosures and the European Commission’s
green bond to show its commitment to a raise funds for local green infrastructure.
High-Level Expert Group on Sustainable
more diversified economy and the future Sub-sovereigns in Australia, Canada
Finance are a few examples of the green
development of low-carbon sectors. and the US have issued green bonds
finance initiatives in the international arena.
financing renewable energy, energy
5. Green market creation Sharing experiences between developed and efficiency, low-carbon public transport,
developing countries on sovereign issuances and sustainable land use. In the US,
Given their benchmark role in the in
and encouraging cross-border capital flows states and municipalities have issued
domestic debt markets, sovereign green
are part of growing and connecting green bond USD18.5 billion worth of green bonds
bonds can support the market’s further
markets. Green bond markets in developing as of August 30th 2017, accounting for
development. They can provide a nascent
countries can facilitate, where permitted, foreign xx% of the country’s total issuance and
green bond market with the scale and
investments into the development of local low- 60% of sub-sovereign issuance globally.
liquidity it needs to encourage trading and
carbon industries by attracting the demand for European sub-sovereigns are responsible
facilitate price discovery. France’s green
green and yield from institutional investors in for 30% of the global sub-sovereign
bond was the largest green bond to date at
Europe, the United States and Japan. market (USD8.8bn issued as of August
EUR7bn (USD7.5bn) with a tenor of 22 years.
30th 2017), followed by Canada
In countries with underdeveloped capital
A sovereign issuance will also automatically (USD2.1bn) and Australia (USD962m).
markets, a green bond market agenda can
raise the profile of green bonds with other See Section 3 for more details.
put pressure on driving broader bond market
Sovereign Green Bond Briefing Climate Bonds Initiative 3Seven steps to issue a sovereign green bond
The process of issuing a b. Determine eligible types of expenditures 5. Issue the green bond
sovereign green bond is similar to in budget
The usual steps for a
that of issuing a standard green • These could include direct investments or $
conventional sovereign bond
bond. However, there are some potentially intangible assets such as tax issuance will apply here.
exemptions, subsidies, etc.
additional steps to consider, given a. Supporting materials to
the more complex organisational • Both new projects and refinancing of promote the transaction can include a green
past projects as well as direct or indirect bond prospectus, an investor presentation
nature of governments, the type
expenditures can be included and an FAQ on green bonds.
of expenditures they can entail
c. Decide on reporting practices: b. Additional marketing material can
and their debt’s benchmark role
in domestic capital markets. • Set up a tracking and reporting procedure. be developed to promote the issuance,
showcasing the projects financed, the main
Yearly reporting and ensuring current
elements of the green bond framework
information is publicly available on the
1. Engage governmental (eligible sectors, the guidelines/standards
allocation of proceeds, including project
stakeholders sectors, geographies and whether they
of reference, management of proceeds,
reporting), and the alignment with the
Cross-collaboration between are new or operational is current best
government strategy for economic growth/
ministries is a central part market practice.7
job creation/poverty alleviation/transition to
of the sovereign green bond
d. Amend existing legislation if needed. a low-carbon economy.
issuance process.
The Polish government amended the
c. Following the issuance, invest!
a. Setting goals for the green bond issue Polish Public Finance Act dated 27th
is the first step; this may come from the August 2009 to support its Green Bond
Ministry of Finance or other relevant Framework, including transparency and
6. Monitor and report
ministries, such as the Ministry for traceability of proceeds. Reporting typically occurs at a
Environment or Development. minimum on an annual basis
3. Identify eligible green and includes a statement that
b. Early engagement with the Ministry of
budget items the proceeds are being used for
Finance is essential given their budgetary
the eligible projects and assets identified.
and debt management responsibilities. Key ministries (including
energy, transport, water, a. the reporting should occur based
c. It may be useful to expand the
agriculture, environment, on what is stated in the green bond
engagement to external stakeholders
development, etc.) identify framework. It is an important part of
to include other capital market players
eligible assets from their budgets. the transparency and investor confidence
(including stock exchanges, banks, investors,
of the green bond market.
pension fund regulators). Establishing a a. The assets identified must be equal to or
Public-Private Green Bond Advisory Council6 greater than the size of the bond. Identifying b. In nascent markets, the sovereign can
is one way of organising the stakeholder more eligible assets than the planned bond set a precedent on good reporting practices
engagement. Engagement can also include size enables to upsize the issuance as well as through its framework.
roundtables and bilateral dialogues. prepare for future issuances.
7. Repeat
b. Green assets and projects financed by
Establish a green bond green bonds can occur also outside the Not all eligible expenditures
framework country of issuance,8 to include cooperation may be included in a first
A standard step for green bond and development projects overseas. green bond. Once a green
issuers, this can also serve as bond framework is set up,
a basis for national green bond 4. Arrange independent review most issuers return to market, revealing the
guidelines. The purpose is to benefits of labelling the issuance as ‘green’.
A credible independent review
determine eligible sectors and establish a
and verification provides a. Some issuers opt for a programmatic
monitoring and reporting practice.
investors with assurance of the approach, i.e. issue green bonds on an
a. Determine eligible sectors green credentials of the bond. ongoing basis. The Climate Bonds Standard
• In determining eligible green sectors, it is An external advisor can also support the
identification of the green portfolio.
& Certification Scheme provides for
programmatic certification, requiring
helpful to refer to existing science-based
one pre-issuance review and one yearly
categorisations such as the Paris- a. Options include a third-party certification
post-issuance review for all bonds issued
compliant Climate Bonds Taxonomy and against the science-based Climate Bonds
during one year.
Standard (see Appendix A). Standard or a bespoke second-party opinion.
• It is recommended to consider how The review/verification is carried out by a
reputable science organisation/qualified
the selected sectors align with the
consultancy firm.
country’s wider climate policies, in
particular Nationally Determined
Contributions (NDCs).
Sovereign Green Bond Briefing Climate Bonds Initiative 4Innovation in the eligible portfolio of assets
Any bond-issuing entity with a natural consequence of the role of
portfolio of eligible green projects central governments to create market- Avoiding double counting
enabling conditions and catalyse private
can issue a labelled green bond Some market players are concerned
markets rather than only providing direct
– green bonds are about green finance to projects.
that including indirect expenditures will
lead to double counting of investments
assets, not green entities.
Intangible assets, such as research and in green projects since these
innovation, also appear more clearly in the expenditures are not project-linked.
The green bond market to date has largely
sovereign bonds issued so far. These may This is not a practical issue of concern
focused on financing tangible green assets,
be areas of investment that the private yet given the small size of the market.
such as wind farms, low-carbon buildings
sector is less willing to undertake or they In the future, it could potentially be
and railways through direct expenditures.
may include public goods, such as research remedied by disclosure by green bond
Sovereign green bonds have introduced and data collection. These can also have the issuing entities that have received
indirect expenditures, such as subsidies effect of attracting private sector issuers to subsidies or tax credits (that have been
and operational expenditures, into the mix. the market.9 marked as eligible in sovereign green
Poland’s green bond framework includes bond issuances). Sovereign issuers
Sovereign green bonds bring further
expenditures in the form of “budget can start taking some precautions
innovation to the green bond market, which
allocation” (for example for excise tax to address this issue. Already for
investors have final call on. The investor
exemption for renewable energy) and example, the French and Belgian
appetite for the sovereign green bonds from
subsidies for all eligible sectors. The French sovereigns do not include expenditures
Poland and France suggest that investors
bond has for the large part gone to financing that state-owned enterprises plan to
were comfortable with this direction. The
operational and subsidy and tax-related include in their own green bonds. It is
2017 update of the Green Bond Principles
expenditures connected to the six eligible also good practice for corporate issuers
– the industry process guidance on green
categories identified (see the next section for to exclude portions of eligible projects
bond issuance – now includes the related
more details). that are receiving partial funding
expenditures, such as R&D of green projects
through other channels.
The inclusion of indirect expenditures in under its broad definition for green bonds
sovereign green bonds can be explained as a use of proceeds.10
Scaling up the $ 1trillion a year of green bond issuance by 2020
market to deliver 1000
impact
We expect to see more sovereign green
Actual
bond issuances in the coming years, as an
increasing number of countries has either Climate Bonds projection to 2020
expressed interest or started inquiries into 800
a green sovereign issuance.
Sovereign green bonds will be an
important component of achieving NDCs,
along with the development of capital
raising plans to achieve targets. 600
Accounting for a large share of the
bond market, sovereign green bonds
also have the potential to scale up the
market to achieve meaningful issuance.
Global climate leaders have recently set 200
a milestone of USD1tn in green bonds
by 2020 as one of the six urgent steps
USD Billions
needed for a low-carbon transition and
climate-resilient world to avoid the
most immediate threats and severe
consequences of climate change. 0
2013 2014 2015 2016 2017 2018 2019 2020
Sovereign Green Bond Briefing Climate Bonds Initiative 5Case studies Sovereign and Sub-sovereign issuers
Poland
Size: EUR750m (USD850m) sustainable agriculture operations, • According to Sustainalytics, Poland’s
afforestation, national parks, reclamation green bond framework is a step towards
Date of issuance: December 2016 of heaps. The sectors are aligned with the achieving its objective of transitioning
Tenor: 5 years broad categories included in the Green to a low-emissions economy. The
Bond Principles. proceeds of the bond will have clear
Proceeds: Mixed (33% energy,
33% en.eff., 33% sustainable • Projects relating with the following positive environmental impacts and the
framework report to be robust, credible
sectors are excluded: fossil fuel for
land use) power generation and transportation,
and transparent. The crediting of
proceeds to a separate account allows
External review: Sustainalytics rail dedicated to transportation of fossil
for clear segregation and tracking of
fuels, nuclear power generation, palm
green bond proceeds.
Key benefits oil operations, production or provision
of weapons/alcohol/gambling/adult Bond issuance: The bond was issued in
Strategic: Investments deriving from
entertainment, large scale hydro projects December 2016. A EUR 500m issuance
Poland’s green bond are to help achieve
(>20MW), transmission systems where was targeted, and finally upsized to
Poland’s National Renewable Energy
>25% of electricity transmitted is EUR750m.
Action Plan, targeting 15% renewable
fossil-fuel generated, use of biomass in
energy consumption by 2020, and the Monitoring and reporting:
cogeneration coal plants.
creation of carbon sinks through its
National Programme for the Augmentation • Eligible expenditures include budget • Annual reporting is provided to
investors until full allocation of the bond
of Forest Cover. allocations (including excise tax
on the amount allocated to various
exemptions), subsidies and projects.
Investor demand: The team behind the sectors, unallocated funds and examples
issuance from the Ministry of Finance • The Polish Public Finance Act dated 27 of projects from each sector.
reported that one of the main benefits from
the issuance was investor diversification.
August 2009 was amended to enable
earmarking of funds to specific projects • Where possible, reporting on
environmental and social impacts will
The transaction attracted many new and proceeds to be credited to a separate
also be included.
investors with green mandates that had not ‘Green Cash Account’ and be disbursed to
previously bought a Polish sovereign bond. eligible projects over time. Repeat: The Government has raised a
A strong orderbook encouraged the • Unallocated proceeds will be held in second bond for EUR1bn, with a tenor of
8.5 years and a coupon 1.125.
Ministry of Finance to increase the accordance with the Treasury’s normal
transaction to EUR 750m from 500m. liquidity management policy (cash, short
term deposits, etc.). Mr. Piotr Nowak,
Mobilising capital: The sovereign
green bond includes expenditures such • Payment of principal and interest are made Undersecretary of State,
as subsidise which support further from general funds, and are therefore not Ministry of Finance:
investment from the private sector. linked to the performance of the green
projects. “It is always difficult to be
Steps to issuance the first and set a precedent.
Identification of eligible projects:
Poland decided to take a
Preparation of relevant documentation,
the independent verification and even • Eligible expenditures will be approved by responsibility and did its very
the State Treasury, represented by the
changing the law to allow the ‘earmarking’
of funds to specific projects only took
Minister of Development and Finance and best to a close successful
approximately one month – a short time
will depend on the alignment with eligible transaction. Now it can
sectors, investment horizon, availability
for a debut issuance. serve as an example to other
of information for reporting, other ESG/
Engagement of government stakeholders: external factors related to the agencies. Sovereigns that Governments
can efficiently finance their
The green bond issuance was led by
the Public Debt Department, with the •Financing and re-financing of eligible environmental projects on
projects is allowed.
collaboration of multiple departments in
the Ministry of Finance, responsible for Independent review:
green bond market.”
processing data from other Ministries and
other Government Agencies. • The State Treasury of Poland represented
by the Minister of Development and
Green Bond Framework: Finance engaged Sustainalytics to provide
• Six eligible sectors were identified: a second-party opinion on its Green Bond
Framework.
renewable energy, clean transportation,
Sovereign Green Bond Briefing Climate Bonds Initiative 6France
Size: EUR7.5bn (USD7.6bn) became a joint venture with the Trésor, with the on the sustainability credentials and
involvement of the Environment, Agriculture, management of the Green OAT.14
Date of issuance: January 2017
Tenor: 22 years
Research and Investment Ministries, alongside
the support of President Hollande. • Vigeo Eiris attributed the highest level of
assurance on the sustainability of the OAT.
Proceeds: 14% energy, Green Bond Framework
Bond issuance: The bond was issued as a
33% energy efficiency, • Proceeds will be allocated to projects that regular French Treasury bond (OAT). A 3bn
20% transport, 3%waste, target climate change mitigation, biodiversity issuance was targeted and was upsized to
23% sustainable land use, protection, climate change adaptation and 7bn due to high investor demand.
pollution control. Six eligible sectors have
8% adaptation been identified, compliant with the TEEC
Monitoring and reporting: The Government
committed to three types of reporting:
External review: Vigeo-Eiris label11: energy, transport, buildings, natural
resources, adaptation, pollution control. • Annual reporting to investors on
Key benefits
• Six eligible asset types within the allocation of proceeds, until the
complete allocation of bond proceeds.
Strategic: The French Government issued sectors have also been identified, which
This is reviewed by an audit firm.
the largest green bond issuance so far, include tangible assets (real estate, land,
marking its role as leader in the sustainable infrastructure) and intangible assets • Annual reporting on the performance
finance realm. France was the host and (systems and organisation, applied research of the green expenditures based on the
convenor of the historic 2015 Paris Climate and innovation, scientific knowledge). current performance assessment of public
Agreement and has been implementing
several policies to support investment in • Eligible expenditure types include operating expenditures (e.g. numbers of households
benefitting from tax credits for retrofitting).
(33%), tax (33%), intervention12(27%) and
its Energy and Ecological Transition for
Climate (TEEC), creating a TEEC label for
investment (7%) expenditures. • Ex-post impact reporting on
investment funds and mandating disclosure • Investments that other French agencies environmental impact of green bond,
prepared by a Green Bond Evaluation
from investors to report on their exposure could refinance by Green Bond issues (e.g.
Council (e.g. avoided GHG emissions,
and management of ESG-related risks SNCF issues its own bonds) and State
improvement of air quality, etc.)
investments that are already financed
Investor demand: Demand for the bond
by a dedicated source (e.g. subsidies to Repeat: The bond was tapped twice in
was high, with order books closing at
renewable energy) are excluded. 2017 to reach EUR9.7bn (USD10.7bn).
above 23.5bn, leading the bond to be
upsized from 3bn up to 7bn. • Tracking of allocation is carried out by the
Ministry of Finance.
Pricing: According to media reports, the Jean Boissinot, Direction
green OAT due in June 2039 priced at • Expenditures from the previous year, current Générale du Trésor, French
13bp over the 1.25% May 2036 OAT. year and potentially future years are included;
the percentage of allocation is disclosed.13
Treasury:
Market creation: The French sovereign is
the largest green bond issued globally, as Identification of eligible projects “The green bond market
well as the largest of the French market to
date. The tenor is also above average. • An inter-ministerial group with from our perspective is more
representatives from the Ministries a means to an end than an
Mobilising capital: The green OAT of Finance, Environment, Agriculture, end in itself, and actually
includes tax and intervention expenditures Research and Investment undertakes the
there are two ends, the first
to mobilise private capital in green Eligible Green Expenditure selection. The
investments as well as direct investments group is coordinated by the Ministries one is that we are bringing
International: Following a successful
of Finance and Environment, under the in the fixed income market
issuance and to show continuance of
supervision of the Prime Minister. a very powerful tool to raise
France’s ambitions to lead in sustainable • Each ministry is responsible for identifying new questions and raise the
finance, newly elected President Macron is eligible assets within its programmes, level of engagement around
holding a Climate Summit to mark the 2-year leveraging existing budgetary processes.
climate change, and the
anniversary of the Paris Climate Agreement.
• All expenses related to nuclear, military or second one is about financing
fossil fuels are excluded.
Steps to issuance: the low-carbon transition
Independent review which is what it is all about.”
Engagement of governmental stakeholders:
the French sovereign green bond was an • The French Treasury commissioned Vigeo
initiative of the Ministère d’Écologie and soon Eiris to provide an independent opinion
Sovereign Green Bond Briefing Climate Bonds Initiative 7Belgium
Size: EUR4.5bn International collaboration: Belgium’s • Proceeds can be used for expenditures
Date of issuance: February 2018 proposed expenditures include in the current budget, expenditures
support for international environmental from the budget the year preceding
Tenor: 15 years cooperation through the Green Climate the green bond issuance/tap date, and
Proceeds: Low-carbon transport, Fund and similar programmes to support investments in green investment funds
energy efficiency renewable credible climate change adaptation and made maximum 2 years before the
mitigation efforts. issuance/tap date.
energy, circular economy, and
living resources and land use. Identification of eligible projects
Steps to issuance
External review: Sustainalytics Engagement of government stakeholders: • An Inter-Ministerial Working Group,
coordinated by the Ministry of Finance,
Key benefits The interest of raising a green bond the Belgian Debt Agency, the Minister of
came from several departments in the the Environment and the Prime Minister,
Strategic: The sovereign green bond
Government. The deal had the explicit will annually select Eligible Green
has two primary strategic aims for
support of prime minister Charles Michel Expenditures by screening the budget.
Belgium: raise capital for implementing its
climate and environmental policies, and
and finance minister Johan Van Overtveldt,
and was formally announced by the prime •The Inter-Ministerial Working
supporting the development of the green Group will request each relevant
minister at the One Planet Summit in
bond market, especially in Belgium. Other ministry to confirm the eligibility of
December 2017.
strategic benefits cited by the Belgian selected projects.
government include supporting economic Green Bond Framework
Independent review
growth and employment in strategic green
sectors and investor base diversification. • Belgium’s Green Bond Framework aligns • A second opinion on the Green Bond
with its environmental commitments
Framework was commissioned from
Investor demand: Investor demand was and policies by focusing on climate
Sustainalytics and is publically available
strong with an order book of EUR12.7bn change mitigation and adaptation (96%
on the Belgian Debt Agency’s website.
that included 150 investors. of available eligible green expenditures),
The majority of investors were in the
natural resource protection (3%) and • Sustainalytics views the framework
biodiversity (1%). positively and in line with international
Eurozone (53%) followed by non-
Eurozone EU countries, in particular • Five eligible green sectors are included best practices for use of proceeds and
disclosure and with the issuer’s strong
Scandinavia and the UK (23%). Asia in the framework: Energy Efficiency;
sustainable development strategy.
accounted for 12%, other Europe 9%, the Clean Transportation; Renewable Energy
US 3% and Middle East less than 1%. (excluding large hydro projects that exceed Bond issuance: Belgium’s sovereign green
25MW); Circular Economy; and Living bond was issued in February 2018 after a
Pricing: On the back of the strong order
Resources and Land Use. two-week pan-European roadshow.
book, Belgium’s green bond achieved a 2.5bp
discount compared to a regular OLO with • The Framework excludes nuclear, Monitoring and reporting:
the same maturity. The Finance Minister
declared the competitive pricing result in
armament and any expenditure mainly
related to fossil fuel. • The Ministry of Finance and the Belgian
Debt Agency will coordinate and publish
annual savings of 1.125 million euros.
• Eligible Green Expenditures include an annual report online. The report will
investment expenditures (66% of cover allocation of proceeds, broken
available eligible green expenditures), down by eligible green sector and type
Johan Van Overtveldt, operating expenditures (26%) and tax of expenditure.
finance minister:
“We were confronted
expenditures (8%).
• An independent audit firm will
with investors showing an
• Eligible Green Expenditures can be annually review the allocation of
directed towards state agencies, regions the proceeds report.
overwhelming interest in our
green bond… The Agency
and communities, companies and
households. 88% of identified eligible • Separately, an environmental impact
report will be coordinated and published
expenditures are operated by public
obtained a competitive pricing by the Minister of the Environment the
agencies, with corporates accounting
for this green OLO...the green for the remaining 12%. To avoid double
year after issuance.
bond results in an annual counting, Eligible Green Expenditures Repeat: FThe Belgian Debt Agency
savings in interest expenses of will exclude any expenditure to a Belgian declared the EUR4.5bn sovereign green
agency or a local authority planning to use bond is expected to grow to EUR10bn
1.123 million euro”
it for issuing its own green bonds. within four years.
Sovereign Green Bond Briefing Climate Bonds Initiative 8Nigeria
Size: NGN10.69bn (USD29.7m) as projects that promote the transition Bond issuance: Nigeria’s sovereign green
to low-emission economy and climate bond was issued in December 2017
Date of issuance: December resilient growth. following road shows in Abuja and Lagos.
2017
Tenor: 5 years • Eligible projects categories include: The bond is listed on the Nigerian Stock
Exchange (NSE).
Mitigation – energy efficiency,
Proceeds: Renewable energy resource efficiency, improved electricity Monitoring and reporting:
(solar) (81%) and afforestation grid, renewable energy and clean
technology. Adaptation – sustainable • The Ministry of Environment, supported
(19%). 100% of proceeds by the Ministry of Finance, will report
forest management.
allocated to new projects. bi-annually on their website.
External review: Climate Bonds • Within each of these categories, the • Reporting will include: Aggregate
projects have to be in line with Nigeria’s
Certified. DNV GL verified NDC targets.
amount allocated to the various Eligible
Sectors, remaining balance of funds,
against the Climate Bonds
Standard.
• The share of proceeds used for refinancing which have not yet been utilized,
and new projects will be disclosed. examples of projects from each Eligible
Key benefits • Proceeds will be credited to the Green Sector, subject to confidentiality
disclosures, and environmental impact
Bond Proceeds Account at the Central
Strategic: The green bond commits to of the projects. Social impact will also
Bank of Nigeria (CBN). For each projects,
the deployment of federal funds for new be disclosed where appropriate.
amounts will be transferred to project-
projects that help Nigeria meet its climate
commitments and start diversifying its
specific sub-accounts. • Details of investments in specific projects
will be included in the reporting.
economy from oil-based revenues. Identification of eligible projects
Market expansion: Nigeria is the first • The Nigeria government budget is • The Central Bank of Nigeria will also
provide periodic report on the green
African nation to issue a sovereign green screened for eligible projects based
bond account and the use of proceeds.
bond. It is also the first Climate Bonds on budget documents and Ministry of
Certified sovereign bond. Environment Green Bond Guidelines. Repeat: Following the success of their first
Visibility: The green sovereign issuance • The Green Bond Program Technical issuance, Nigeria aims to issue N150bn
(US$420m) of green bonds in 2018.
gives a strong signal to local market Advisory Team and an Inter-Ministerial
This is the full size of the green bond
players and international ones that Nigeria Committee on Climate Change, made up
programme approved in the country’s
is committed to diversifying its economy of representatives from the Ministry of
budget plans.
and green projects will be developed. Power and the Ministry of Environment,
assess the proposed eligible projects.
Steps to issuance:
• The Green Bond Advisory Group assesses The Honourable Minister
Engagement of governmental stakeholders: the potential Eligible Green Expenditures.
for State for Environment,
• Ministry of Environment Amina • The Ministry of Finance makes a final Ibrahim Usman Jibril:
Mohammed initiated the green bond selection of eligible expenditures based
process in 2016; in September 2016, on the following criteria: Alignment
Nigeria’s president formally announced with Eligible Sectors, investment
“Climate Change is real,
the issuance plans during the signing of horizon, alignment with the disclosed and business, government
Nigeria’s official climate targets (NDC). development plan at the time, economic and the capital market need
• A Green Bond Advisory Group impact (e.g Economic Rate of Return,
jobs created), GHG emissions reduction,
to work together to slow
was established by the Ministry of its effects. This pilot green
information ability to facilitate reporting,
Environment and the Ministry of Finance
other ESG/external factors related to the bond, which we expect to be
to ensure access to a broad range of
agencies/organizations. the first of many more, has
relevant expertise from the public and the
private sector, and local and international Independent review developed the platform to
address the nation’s target
markets participants, including the
Climate Bonds initiative. • DNV GL verified certification against the of reducing its emissions by
Climate Bonds Standard.
20% unconditionally and
Green Bond Framework
• Moody’s Investors Service has assigned a
• Proceeds of green bond issuance will Green Bond Assessment of GB1 (Excellent) 45% conditionally by 2030.”
be allocated to eligible projects, defined to the issuance.
Sovereign Green Bond Briefing Climate Bonds Initiative 9Fiji
Size: FJD100m (USD50m) • Eligible expenditures can relate to report from a third party auditor will
tangible assets such as land, power confirm that proceeds allocation.
Date of issuance: October 2017
Tenor: 5 years and 13 years
plants and other infrastructure, as well as
supporting related expenditures such as • Impact reporting will be carried out
annually, by using metrics such as
(two tranches) research and innovation.
avoided GHG emissions, improvements
Proceeds: Renewable energy, • A Green Bond Steering Committee, in air quality, recycling efficiency, etc.
low-carbon transport, consisting of regulators and representation and be overseen by the Green Bond
from the Ministry of Economy, the Steering Committee.
sustainable water supply Office of the Attorney-General and
External review: Sustainalytics environmental experts will oversee the
Green Bond implementation and allocation
Key benefits process as set out in the Framework.
Strategic: Green bond issuance is part of • The Ministry of Economy will open a
Fiji’s strategy to transition to a low carbon separate, ‘ring-fenced’ sub-account to
and climate-resilient economy, in line with receive proceeds from the green bond
its Green Growth Framework and 5-Year issuances and will be responsible for
and 20-Year National Development Plan. tracking eligible expenditures.
Mobilising capital: The sovereign Identification of eligible projects:
green bond includes expenditures
such as tax exemptions and tax credits •The project identification process is
managed by the Director of Climate
and subsidies which support further
Change, Ministry of Economy, who is
mobilisation of private sector capital for
responsible for coordinating with other
green investments.
ministries to verify eligibility of projects.
International: Fiji is the first developing
Independent review:
country to issue a sovereign green bond
and also the first amongst the island • The Republic of Fiji engaged Sustainalytics
states, which are most vulnerable to to provide a second opinion on its Green Frank Bainimarama,
extreme weather events caused by climate Bond Framework. Sustainalytics found the Fijian Prime Minister and
change. The Fijian bond was issued during Framework to be credible and transparent
the country’s presidency of COP23. and aligned with the four pillars of the
President of COP23:
2017 Green Bond Principles.
Steps to issuance “The Fijian people, along with
• Sustainalytics recommends a every Pacific Islander, live
Engagement with government minimum performance improvement
on the front lines of climate
stakeholders: The process is being led threshold for certain projects such as for
by the Ministry of Economy and Reserve energy efficiency (e.g. 30%) and also change and we are proud
Bank of Fiji, with the involvement of other recommends more granular to set an example to other
ministries as relevant, and with strong impact reporting through selected climate-vulnerable nations
support from the Prime Minister and impact indicators.
by issuing this green bond
President of COP23 Frank Bainimarama.
Bond issuance: The bond was issued with to fund our work to boost
Green Bond Framework: the assistance of the World Bank and
climate resilience across Fiji.
• Eligible projects include: renewable IFC as part of a broader Capital Markets
Development Project. By issuing the first emerging
energy and energy efficiency, resilience
Monitoring and Reporting:
country green bond, we are
to climate change, clean and resilient
also sending a clear signal
transport, pollution reduction, water
efficiency and wastewater management, • A webpage will be created on the to other nations that we can
Reserve Bank of Fiji website for investors
sustainable management of natural
to be up to date on Fiji’s Green Bond be creative and innovative
resources and eco-efficiency
Programme and Framework and access in mobilizing funds and
• Eligible expenditures include status reports on the selection and create win-win outcomes
investments, operational expenditures, implementation of the projects
for countries and investors
tax exemptions and tax credits,
guarantee schemes and subsidies. To • Annual reporting on the use of proceeds in adapting to the serious
allocation and output of the selected projects
avoid double counting they may not
will be carried out until all bond proceeds
effects of climate change.”
finance a project that already has a
have been allocated. An annual assurance
dedicated source of funding.
Sovereign Green Bond Briefing Climate Bonds Initiative 10Indonesia (green sukuk)
Size: USD1.25bn investment will help Indonesia implement Identification of eligible projects:
Date of issuance: February
their infrastructure expansion plans and
climate targets. • Eligible green sukuk projects are
2018 selected from expenditures in ministry
budgets that are tagged to have climate
Tenor: 5 years Steps to issuance
change benefits in line with Indonesia’s
Proceeds: Renewable Energy, Engagement with government climate objectives.
Energy Efficiency, Resilience stakeholders: The Finance Ministry led the
process and tested the idea with investors in • The budget tagging process starts
To Climate Change/Disaster with the environmental benefits of
January 2018. The budget tagging process in
Risk Reduction, Sustainable place since 2015 facilitated the involvement
each project being assessed by the
individual ministries together with
Transport, Waste To and Waste of other ministries.
the Climate Change Secretariat of the
Management, Sustainable Green Bond and Green Sukuk Framework: National Development Planning Agency.
Management of Natural
Resources, Green Tourism,
• Eligible projects are projects that promote The Ministry of Environment and
Forestry confirms that the expenditure
the transition to a low-emission economy
is consistent with Indonesia’s NDC,
Green Buildings, Sustainable and climate-resilient growth, including
and then endorsed by the Ministry of
Agriculture. climate mitigation, adaptation, and
Finance as tagged for budget allocation.
biodiversity.
External review: CICERO
• These will fall into the following sectors: • From the tagged expenditures, the
Ministry of Finance will select items
Key benefits Renewable Energy, Energy Efficiency,
that are covered by the Eligible Sectors
Resilience To Climate Change/Disaster
Strategic: The green sukuk issuance set out in the Green Bond and Sukuk
Risk Reduction, Sustainable Transport,
supports Indonesia in implementing Framework, and that have a project
Waste To and Waste Management,
its climate change mitigation targets, development timeline consistent with
Sustainable Management of Natural
as set out in its Nationally Determined the tenor of the green sukuk.
Resources, Green Tourism, Green
Contributions (NDCs), as well as
Buildings, Sustainable Agriculture. Independent review:
its climate adaptation plan, which is
integrated in the National Development • Eligible green projects exclude fossil fuel- • The Framework was reviewed by
Plan. The green sukuk utilizes a budget based electric power generation, large CICERO.
tagging process, which identifies climate
change mitigation expenditures under
scale (>30MW capacity) hydropower
plants and nuclear assets. • The Framework received a Medium
Green shading, as it includes a broad
six ministries. The process is being
expanded to cover both climate change • The proceeds of the Green Sukuk can range of projects to support its NDC,
be used both for the financing and/or allowing for light, medium and dark
mitigation and adaptation expenditures
refinancing of eligible green projects. If green project types.
under 17 ministries.
part of the proceeds is used for refinancing
Bond issuance: The green sukuk was
Investor demand: Green sukuk tap into the share of proceeds used for refinancing
issued in February 2018 reaching a size of
dual investor bases, Islamic investors and new financing will be disclosed.
USD1.25bn.
and green investors. According to media
reports, the green sovereign sukuk saw • The proceeds will be managed within Monitoring and Reporting:
the Government’s general account until
extraordinary demand. Islamic investors
received a 32% allocation, and 33% went
proceeds are transferred to one of the • Tracking and monitoring of the
relevant ministries, into a account of the environmental benefits of the green
to U.S. and European investors.
relevant ministries for funding exclusively projects will be done by the respective
Pricing: The strong demand led to pricing eligible projects. ministries and reported to the Ministry
being tightened by 30bps, reducing the
• Unallocated proceeds will be held in cash. of Finance.
yield to 3.75 per cent.
• The Framework can be used for both • The Ministry of Finance will prepare and
Market expansion: Indonesia’s sukuk publish an annual report on their website.
green bond and green sukuk issuance.
issuance is the first green sovereign sukuk The report will contain at minimum a list
A register will be established to record
globally. It’s the second country to issue and brief description of projects financed
the allocation of each Green Bond or
green sukuk following several green sukuk by the green sukuk, the amount allocated
Green Sukuk proceeds.
issuances in Malaysia in 2017. to each project and an estimation of the
International: The green sovereign sukuk • The framework aligns with the beneficial impacts of the projects, such as
Green Bond Principles, the ASEAN emissions reductions.
establishes Indonesia as a leading player
in South-East Asia on green finance
Green Bond Standards, and Indonesia’s
Financial Services Authority’s green • An independent third party will provide
and helps build the green sukuk market assurance on the annual report.
bond regulations.
in the region. Attracting international
Sovereign Green Bond Briefing Climate Bonds Initiative 11Examples of sub-sovereign issuances
Victoria, Australia
Size: AUD300m (USD225m) Treasury Corporation Victoria worked • Water (e.g. wastewater biogas recovery)
Date of issuance: July 2016
with DNV GL has established a green
bond framework compliant with the Climate • Hydropower
Tenor: 5 years Bonds Standard. The framework includes 5 Issuance fully subscribed in a little over 24
project categories hours (is this unusual??)
Proceeds: Mixed (7%
renewable energy, 13% en.eff., • Renewable energy (e.g. solar and wind First state or federal government-issued
generation plants) bonds anywhere in the world to receive
80% low carbon transport,
0.5% water) • Low carbon buildings (e.g. energy international Climate Bond Certification
efficiency improvements)
External review: Climate bond
certified; verification carried out • Low carbon transport (e.g. new metro
tunnel)
by DNV GL
California, United States
Size: USD300m The State Treasurer’s Office worked • Protection of Beaches, Bays, and Coastal
with the Department of Finance to define Waterways
Date of issuance: October 2014
Tenor: 23 years
projects categories eligible for financing.
• Forest and Wildlife Conservation, and
• Air Pollution Reduction (E.g.: Air pollution Open Space Protection
Proceeds: Mixed (97% air control for heavy duty trucks)
• Flood Prevention
pollution reduction, 1.2% • Clean Water and Drinking Water (E.g.:
• Sustainable Communities and Climate
water, 1.8% biodiversity and Water treatment plant)
Change Reduction
conservation) • Energy Efficiency and Conservation The Climate Bonds Initiative reviewed the
Projects in Public Buildings
External review: Climate Bond State’s expenditure plans to identify green
Certified; verification carried • Protection of Rivers, Lakes, and Streams. expenditure for the green bond issuance.
(E.g.: Tidal restoration project)
out by DNV GL
Sovereign Green Bond Briefing Climate Bonds Initiative 12North-Rhine Westphalia, Germany
The State of North-Rhine Westphalia has • The proceeds of the bond are invested in: • Modernisation of educational and public
issued 3 sustainability bonds, increasing
the deal size with every issuance: • Education and sustainability research health facilities
EUR750m bond was issued in March • Inclusion and social coherence
2015, followed by a EUR1.6bn transaction
one year later and finally a EUR1.825bn in • Public transport and local mobility
February 2017. All bonds were externally • Protection of natural resources
reviewed by Oekom Research.
• Sustainable urban development
Île-de-France, France
Île-de-France issued 4 bonds, Projects categories. This framework was • Biodiversity (e.g. Green space
the first one a EUR350m bond, implemented for all four issuances (2012, development)
in 2012. The subsequent three 2014, 2015, 2016).
• Social initiatives aimed at helping
bonds have been between • Buildings and facilities vulnerable population groups (e.g.
(e.g. Construction and renovation of Medical centres)
EUR50mm and EUR650m, with
second opinions from CICERO
schools and sports complex)
• Social housing (e.g. Construction
and Vigeo Eiris with a 12-year • Public transport and sustainable of housing units and thermal
transportation (e.g. Public transport and rehabilitation)
tenor on average. infrastructure)
• Economic and socially inclusive
Île-de-France has established a project • Renewable energy and development (e.g. Creation of
framework for green and sustainability energy-efficiency (e.g. Geothermal incentive programme for sustainable
bonds, which defines seven Sustainability energy policy) development)
Sovereign Green Bond Briefing Climate Bonds Initiative 13Appendix A: Climate Bonds Taxonomy
Certification Criteria approved
Criteria under development
Due to commence
INFORMATION INDUSTRY &
WASTE &
LOW CARBON TECHNOLOGY & NATURE BASED ENERGY-
ENERGY TRANSPORT WATER POLLUTION
BUILDINGS COMMUNICA- ASSETS INTENSIVE
CONTROL
TIONS COMMERCIAL
Solar Rail Built (grey) Residential Power Recycling facilities Agricultural land Manufacturing
infrastructure management
Wind Vehicles Green and hybrid Commercial Broadband Recycled products Forests (managed Energy efficiency
infrastructure & circular and processes
economy unmanaged)
Geothermal Mass transit Retrofit Resource Waste to energy Wetlands Energy efficiency
efficiency products
Marine Renewable Bus rapid Products for Teleconferencing Methane Degraded Lands Retail and
Energy transport building carbon management wholesale
efficiency
Hydropower Water-bourne Geosequestration Other land uses Data centres
transport (managed and
unmanaged)
Bioenergy Alternative fuel Fisheries and Process & fugitive
Infrastructure aquaculture emissions
Energy Coastal Energy efficient
distribution & infrastructure appliances
management
Dedicated Combined heat &
transmission power
Appendix B: Climate Bonds Certification
1 2 4 5
Issuer begins
by preparing
Engage a verifier
• Engage an
3 Confirm the
Certification
Report
annually
the bond Approved Verifier post-issuance • Prepare a simple
for pre- and report each year
• Identify assets
post-issuance Get Certified & issue a • Within 12
that meet months of for term of the
Certification Certified Climate Bond bond
the relevant issuance,
• Provide • Provide it to
sector criteria • Submit the Verifier’s Report submit the
them with bond holders and
and compile and Information Form to the Verifiers
relievant Climate Bonds
supporting Climate Bonds Initiative post-issuance
information Initiative
information • Receive a decision on pre- report
• Receive a
• Create Green issuance Certification • Receive
Verifier’s
Bond Framework • Issue your bond, using the notification
Report giving
setting out how Certified Climate Bond mark of post-issuance
assurance
proceeds of the certification
that Climate
bond will be used
Bonds Standard
requirements are met
Sovereign Green Bond Briefing Climate Bonds Initiative 141. “A greener hue to European sovereigns”, Institutional Investor, April 2017. 2. There is evidence of unmet demand for green bonds in the EUR and USD markets. 3. http://in.reuters.com/article/france-bonds/france-launches- 7bn-debut-green-bond-idINL5N1FE351 4. https://www.climatebonds.net/files/files/Greenbond_Pricing_ Jan_16-March_17.pdf 5. [REFERENCE] http://www.mckinsey.com/industries/capital- projects-and-infrastructure/our-insights/bridging-global- infrastructure-gaps; http://newclimateeconomy.report/2014/ 6. This was the case in Nigeria where the Green Bond Private- Public Sector Advisory Group was set up by a joint initiative of the Ministry of Environment and Ministry of Finance to advice and guide the first tranche of sovereign green bonds. 7. Climate Bonds Initiative, 2017: Post-issuance reporting in the green bond market 8. For example, the first French sovereign green bond includes some projects located in Europe, outside of France. 9. Some supranationals, given their role as development agents to catalyse markets, have already been including similar assets in their green bond definitions. The Common Principles for Climate Mitigation Finance Tracking for example, developed by a group of multilateral development banks and the International Development Finance Club, include indirect expenditures such as technical assistance and support for policy development leading to climate change mitigation, education, training and capacity building around climate change and intangible assets such as R&D in low-carbon technologies. 10. The international voluntary guidelines that have emerged since the market’s inception- the Green Bond Principles and the Climate Bonds Standard- are reviewed and updated every year as the market evolves. 11. The TEEC label was created in 2015 for mutual funds and aims to screen climate-friendly investment funds. This label guarantees that investments are going to activities in line with the green economy and that the environmental information supplied is being transparent and of quality. The Climate Bonds Taxonomy and Green Bond Principles were both used as references for the label. 12. These include payments to households (e.g. children benefits, etc.), enterprises (e.g. subsidies for employment) and other subsidies to special entities. 13. The first French green sovereign allocated more than 50% of the proceeds to current and future investments 14. For further detail see https://www.icmagroup.org/Regulatory- Policy-and-Market-Practice/green-social-and-sustainability-bonds/ green-bond-principles-gbp/ © Published by the Climate Bonds Initiative March 2018. This report was prepared by the Climate Bonds Initiative. Lead Author: Diletta Giuliani (Climate Bonds Initiative) Co-Authors: Beate Sonerud (Climate Bonds Initiative). Input was also received from the Climate Bonds team Design: Godfrey Design The Climate Bonds Initiative would also like to thank the Polish Ministry of Finance, the French Treasury, the Nigerian Ministry of Environment and Mr Nick Robins for their input to the publication. Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual or organisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication. Sovereign Green Bond Briefing Climate Bonds Initiative 15
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