US$2bil green bond fund set up
Fund to provide more financing for low-carbon investments in emerging markets
GREEN bonds could be coming more popular in emerging markets.
Last month, the World Bank’s private sector investment arm International Finance Corp (IFC) and European asset manager Amundi agreed to set up a US$2bil green bond fund to help provide more financing for low-carbon investments in emerging markets.
Green bonds are used to raise funds for projects which help tackle environmental problems such as renewable energy, energy efficiency and waste management.
The partnership is a joint venture between IFC and Amundi, holding 20% and 80% respectively, the companies say in a statement.
The venture will establish the First Emerging Markets Green Bond Platform for creating fixed income funds targeting emerging markets. IFC will commit US$325mil to seed the initial strategy.
In addition to managing the green bond strategy, Amundi will have the responsibility of raising the remaining US$1.675bil from institutional investors worldwide and participating to the spreading of green bond best practices in emerging markets.
The IFC-Amundi joint venture combines both institutions’ expertise in catalysing financing for emerging markets and fixed income asset management.
The First Green Bond Emerging Market Platform will, over time, offer a number of carefully targeted strategies supporting Amundi and IFC’s shared goals of mobilizing investors toward the development of the private sector in emerging markets and the achievement of the Sustainable Development Goals.
Of the US$2bil strategy, the initial portfolio will be composed of emerging market fixed income debt from sovereign and financial institutions active in emerging markets. The portfolio will substitute those holdings for green bonds issued by financial institutions as opportunities arise in the target markets.
The Fund aims to be 100% invested in green bonds by the end of the seven-year period of active investment.
The active investment period of the program will be seven years, after which the size of the programme will decline as bonds mature and proceeds are distributed.
The IFC said that the project meets two essential goals.
Firstly, it is for the development of financial markets and green bonds in emerging countries, in accordance with IFC’s mandate, through the financing of bonds issued by financial institutions.
Secondly is the mobilization of institutional investors to finance the energy transition in emerging countries and to support the 2 degrees Celsius goal adopted in the Paris Agreement
Thus, investors in the program will encompass large institutional investors – such as Sovereign Wealth Funds, Pension Funds and insurance companies.
Third party investors
The IFC intends to invest US$325mil in the most junior tranche and senior tranche, thereby demonstrating its commitment to the project and increasing attractiveness for third party investors, said the IFC.
Prior to this, the IFC has raised US$1.4bil through the issuance of green bonds as of the end of the 2016 fiscal year and has a US$1.3bil advisory portfolio including more than 700 projects in about 100 countries.
The size of the labelled green bond market was estimated at US$118bil at the end of 2016, with and additional US$27bil issued during the first quarter of 2017, demonstrating rapid growth over the past few years.
The top three largest issuing countries as of Aug 30, 2016 were the United States (19%), France (12%) and China (10%).
Within emerging markets, the launch of green bond national guidelines in China and India has tremendously accelerated issuance, with China having issued over US$6bil to date (2007-2016) and India over US$1bil.