October 20, 2021
Introduction
Organised in partnership with Climate Bonds Initiative, this session focused on discussing the role played by sustainability bonds or SDG bonds. It has been recognised that achieving the Sustainable Development Goals (SDGs) by 2030 will require new investments in the order of US$ 2.5trillion per year in developing countries alone. These SDG bonds serve a major role in helping to fill this investment gap and are specifically developed and explicitly labelled to fund projects that have positive social or environmental benefits, supporting one or more of the 17 SDGs. The session, while supporting the continued growth of domestic, regional and global green and sustainability bond markets, discussed opportunities and challenges involved in growing SDG bond markets.
Session Highlights
At the outset, Panellists expressed their grave disappointment on account of the failure to fight against climate change. It was noted that in light of the same, it is all the more imperative to ensure global emissions are down by 55 percent and work towards the attainment of the 17 SDGs. Discussions also revolved around the inflection point to go green, which recognises that the future lies in green bonds.
Emphasising upon the accelerated growth witnessed by the green bond market, Panellists cited that the bond market has seen growth of USD3bn in the past decade. The Panellists explained the development of the Luxembourg Green Exchange (LGX) from dealing in just green bonds to the inclusion of social and sustainable bonds, climate aligned issuers and Environment, Social and Governance (ESG) instruments. While noting the accelerated rise of social concerns on account of COVID-19, the change in investor behaviour to contribute to sustainable change was identified. A critical point discussed was regarding the chain of events triggered by a ‘Clean and Green’ approach since it creates more employment opportunities, productivity and directly contributes to the Gross Domestic Product (GDP) of a country. However, the Panellists opine that there are various challenges in the green bond market since investors are largely unaware of the special regulatory environment, issuance of green bonds, the difference between vanilla and green bonds, and this is merely the tip of the iceberg.
With regard to innovation in the issuance of such financial instruments, the need for innovation to rethink and align economical choices with sustainability was discussed. Further, from a company perspective, it was discussed that when a bond is linked to a strategy or SDG, it would generally have a discount which is not based on sentiment but because of better performance. A speaker noted that the yields from ‘capital with a purpose’ tend to be lower risk and more profitable, as opposed to the common notion that going green always comes with a premium.
Deliberating on a framework, Panellists referred to the green bond principles by International Finance Corporation (IFC) which were designed to be accessible and applicable. The inclusion of SDGs and ESG aspects in frameworks was applauded as well. It was noted that there is immense room for growth. According to a speaker, the resilience market shall be the new normal market in times to come.
Opening Remarks
- Anthony Miller, Coordinator, UN Sustainable Stock Exchanges, UNCTAD
On the panel were:
- Julie Becker, CEO, Luxembourg Stock Exchange
- Alberto De Paoli, CFO, Enel Group
- Jaffer Machano, Global Programme Manager, Municipal Investment Finance, United Nations Capital Development Fund (UNCDF)
- Sean Kidney, CEO, Climate Bonds Initiative (CBI)
- Ms. Denise Odaro, Head of Investor Relations, International Finance Corporation, World Bank Group