A New Green Revolution: Green Bonds

(First of two parts)

The Philippines’ GDP growth has maintained a relatively stable upward trend over the last decade. Regionally, the archipelago continues to outpace most of its neighbors, maintaining an average annual growth rate of six to seven percent in the last seven years. The driving force behind this economic and developmental progress is the reinvigoration of the national government’s investment in public works, health and education infrastructure, and improved public financial management. However, the effort and resources expended towards the modernization and overall development of the Philippines still falls short in one key consideration — climate and environmental resilience and the sustainability of these infrastructural pursuits, and of the overall development and growth path of the country in its entirety.

Post-liberation, the Philippines has followed traditional development pathways that — while conducive to basic economic objectives of expansion and growth — are inherently unsustainable to the landscape and the environment. As of 2018, the manufacturing sector has contributed over a quarter of all value generated within the economy. Partnered with the increased activity in infrastructure development, and the resulting rising demand in land, resources, and energy, the economic activity of the country continues to exacerbate the environmental burden of sustaining day-to-day operations.

Despite maintaining the lowest ecological footprint among its neighbors in Southeast Asia, the rapidly-growing incidence of overconsumption, unregulated production, and lack of a solid waste management framework have significantly amplified the population’s strain on the country’s natural carrying capacity.

Since the 1960s, the country’s resource demand has more than doubled, and the resulting Greenhouse Gas (GHG) emissions have grown by a whopping 67% since 2007. Waste management remains another critical shortcoming. As of 2015, the Philippines has become the third-largest source of plastic pollution, directly affecting the rapid degradation of local marine life. A more direct and dire consequence of waste management malpractice is experienced during typhoon season, where major flooding across cities becomes a common and unfortunate occurrence. Linked to that are several other issues in energy, transportation, resilience, agriculture, and overall social and environmental welfare.

Although bleak, it is certainly not too late to turn the tide against this lack of environmental awareness and integration. A hopeful study carried out by the United States Agency for International Development (USAID) shows that despite the rapid growth in GHG emissions, emission levels were just over a third of GDP growth for the same period, indicating the potential for notable improvements in the future. The responsibility of this environmental and climate change rehabilitation will need to fall on the collective shoulders of the public sector, private corporations, and most importantly, the citizens themselves.

On that note, the most impactful and sustainable approach to environmental protection, climate change mitigation, and adaptation, often begins at the grassroots level — within organizations, localized communities, and even at the Local Government Unit (LGU) level. The bottom-up approach starts off simple, but it ultimately allows the target beneficiaries to create sustainable solutions that are tailored to their particular needs and context. The lack of financing, however, limits the potential for green growth and development.

As an example, financing for LGUled projects is sourced predominantly from government Internal Revenue Allotments (IRAs), which, depending on the size of its municipalities, make up 50-70% of their respective budgets. In response, the Department of Finance has been urging the Bureau of Local Government Finance to take more steps in strengthening LGU fiscal autonomy.

At the moment, the push directing Public-Private Partnership and Overseas Development Assistance financing towards local governments has significantly increased funding pipelines for LGU-initiated projects. There is an opportunity to further accelerate this through the use of green bonds as an alternative funding source, which in turn can foster self-reliance and project autonomy. Through this, the investment can empower the community to learn, do, and offer more, leading to great growth potential. Within the private sector, green bonds may help incentivize the correction of negative environmental externalities within established operations, such as in energy efficiency improvements, pollution controls, and energy mix diversification. As most of these pursuits emphasize impact over profit, traction for their growth has been weak, in spite of the obvious benefits and pressing need for active action in striving for green infrastructure.

In the second part of this article, the discussion will delve towards the structuring of green bonds as well as further opportunities for local adoption.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.