What’s Happening in Sustainable Finance: Climate on the International Agenda, New Instruments to Support Emerging Markets, and Much More

ESG in Conversation

Episode Summary Hosts

• Nicholas Gandolfo, Vice President, Corporate Solutions
• Aditi Bhatia, Senior Regional Sales Manager, Corporate Solutions

In this episode, our hosts Nick and Aditi discuss the recently held COP27 and COP15 conferences and what their outcomes could mean for green and social financing globally. They also touch on the concept of blended finance and how that might be used to support climate adaptation in emerging markets. Increasing activity among sovereigns is also discussed, as countries come to market more frequently with sustainable debt. Lastly, Nick and Aditi share a rundown of other notable sustainable finance transactions.

Climate High on the International Agenda

Given the current climate crisis, expectations were high for COP27. From an environmental standpoint, the final agreement was seen as a disappointment by some observers. However, the conference closed with a ground-breaking agreement to set up a loss and damages fund, which aims to provide financial assistance to countries vulnerable to, or impacted by, the effects of climate change.

COP15, the United Nations Biodiversity Conference, also concluded late last year with a landmark agreement that includes measures to halt and reverse nature loss – such as putting 30% of the planet and 30% of degraded ecosystems under protection by 2030. The plan also includes a target of mobilizing at least US$200 billion per year from public and private sources for biodiversity-related funding.

Finally, the G20 conference in Bali also turned its attention to issues around climate change, low-carbon transition, and climate adaptation.

Innovative Solutions to Fund Sustainable Development

With an estimated US$9.2 trillion needed to meet global climate and environmental goals,1 private and public sectors are looking for more ways to funnel money to finance mitigation and conservation efforts. To address this need, market participants are discussing innovative solutions like blended finance, which is the strategic use of development finance (such as public or philanthropic capital) and private investment capital to fund sustainable development projects in developing countries.2

A new crop of instruments is also emerging to offer potential solutions. This includes instruments like debt-for-nature swaps, a financial mechanism that allows portions of a developing country’s foreign debt to be forgiven, in exchange for commitments of investment in biodiversity conservation and environmental policy measures.3 We anticipate seeing more variety in the types of instruments being developed to support conservation and climate adaptation in countries most vulnerable to climate change. Check Out Our Special Episode on Sustainable Finance in the Metals and Mining Sector In case you missed it, we recently took a deep dive into the sustainable and transition finance opportunities within the metals, mining and commodities sector. Our panel discussed key considerations for banks, issuers and investors interested in using sustainable finance instruments to help fund improvements across the sector and mitigate potential risks. The sector is incredibly important because of its crucial role in the global transition to a low-carbon economy. However, these companies face numerous environmental and social challenges, which if not managed effectively could negatively impact their access to capital. Listen here: Sustainable Finance Insights: Special Episode on Sustainable Finance in the Metals, Mining and Commodities Sector

Key Moments 0:00:51 Market overview 0:01:38 COP27 insights 0:03:48 G20 Summit 0:04:35 COP 15 insights 0:05:00 State of the bond market and outlook for 2023 0:05:56 Sovereigns’ ambitions in sustainable finance 0:06:33 Social taxonomy update 0:06:52 Green bond tokenization 0:07:12 Emergence of blended finance 0:08:02 More activity in transition finance market 0:08:19 Market scrutiny of SLBs 0:10:08 ICMA paper on sustainable repos 0:10:34 Food security as social use of proceeds 0:10:54 More activity around carbon markets globally 0:11:15 PCAF publishes second version of Global GHG Account and Reporting Standard 0:11:48 CBI principles for transitioning agriculture sector 0:12:23 SLB and SLL overview 0:17:39 Audience questions 0:23:26 Green bonds overview 0:26:51 Green loans overview 0:28:50 Social bonds and loans overview 0:31:04 Labeled products, transition bonds and regulatory updates

Links to Select Resources

• IFLR - COP15: Financial Firms Look to Scale Up Nature Finance
• Bloomberg - Global ESG Bond Issuance Headed for First Full-Year Decline Ever
• GlobalCapital – Record Volumes Spark January Debate in FIG Market
• Responsible Investor – World Bank: Only 31 Southeast Asian Companies Have Issued Sustainable Debt Since 2017
• OMFIF – Sovereigns Need to Show More Ambition With ESG Bond Frameworks
• GlobalCapital – ESAs Call for Evidence of Greenwashing
• Open Access Government – Social Taxonomy: A Step Towards Social Sustainability
• Environmental Finance – Banks Urged to Rework Financing Instruments for Climate Adaptation
• Blockchain News – HK to Issue Tokenized Green Bond, Open Market for Virtual Assets ETFs Trading
• China Dialogue – China’s Central Bank to Focus on Transition Finance
• The Manila Times – ASEAN Launches Sustainable and Responsible Fund Standards
• Bloomberg Law – ESG-Linked Bonds Seen Stalling on Greenwash and Legal Fears
• Environmental Finance – Snam’s Return to Transition Bonds ‘A Big Sign’ SLBs are Under Pressure
• GlobalCapital – Crunch Time Coming for SLBs as First Step-Ups Appear
• The Business Times – ESG is Taking Over the Loan Market
• Environmental Finance – ICMA Principles Could be Adapted for ‘Sustainable Repos’
• Climate Home News – John Kerry: Carbon Offsets Can Help Wean Developing Countries Off Coal
• World Economic Forum – Climate Adaptation: The $2 Trillion Market the Private Sector Cannot Ignore
• Responsible Investor – Scope 3 Emissions Key to Financial Sector Net Zero Plans, says GFANZ
• Climate Bonds Initiative – Principles and Hallmarks for Transitioning Agri-Food Systems: Opportunities, Pathways and Actions
• Sustainalytics SPOs:
  • AIB Green Bond Framework Second-Party Opinion
  • Storebrand Green Bond Framework
  • Volkswagen Aktiengesellschaft Green Finance Framework Second-Party Opinion
  • City of Atlanta Social Bond Framework Second-Party Opinion
  • CABEI Green and Blue Bond Framework Second-Party Opinion
  • VPBank Social Finance Framework Second-Party Opinion

Sources

1Roston, E. 2022. “McKinsey Pegs the Price Tag for a Livable Climate at $9.2 Trillion a Year.” Bloomberg. January 25, 2022. https://www.bloomberg.com/news/articles/2022-01-25/mckinsey-pegs-price-tag-of-livable-climate-at-9-2-trillion-a-year

2 See OECD: https://www.oecd.org/development/financing-sustainable-development/blended-finance-principles/ and Bank of America: https://about.bankofamerica.com/en/making-an-impact/blended-finance

3 See Earth.org: https://earth.org/debt-for-nature-swaps/