The Asia LEDS Partnership (ALP) and the Africa LEDS Partnership (AfLP) collaborated with the Climate and Development Knowledge Network (CDKN) for a South-South exchange on the growth of green bond markets and on overcoming challenges in Asia and Africa. Keeping in mind the rapid growth and relevance of the green bond market, and the strong appetite for the innovative debt instruments, a webinar was organised on the 25th of March 2022.
It is believed that climate finance can play a key role in the achievement of the Sustainable Development Goals (SDGs). Sustainable finance approaches and instruments are fundamental to incentivise the transition to more sustainable practices, reduce carbon emissions, and to allow societies and economies to adapt to the adverse effects of climate change. In addition, green bonds play an important role in climate change mitigation and adaptation. They can also fund projects and assets in the fields of renewable energy, sustainable waste and water management, sustainable use of land and in the transport sector, among others.
Joan Manda, Senior SDG Investment Advisor, United Nations DP, and Co-Chair, LEDS GP Finance Working Group, introduced the audience to green bonds, or thematic bonds as UNDP terms them. She spoke of the issuance dynamics and market updates and explained UNDP’s added value of providing support and assistance for the analysis and feasibility of the issuance of thematic bonds.
Regarding the knowledge exchange that is possible between the Africa and Asia regions, she stated that “green bonds is an emerging area for Africa and there is a strong investment potential across the continent. However, there is also a need to balance the issuance of bonds with broader data management considerations.”
Megan Sager, Founder, Consulting for Sustainable Solutions, South Africa, presented on the lessons from a study conducted on green bond issuers in Kenya and India. She said that the Global South has captured less than 25% of the green bond investments to date and that this was partly due to the under-developed capital markets in the region. However, there are countries such as China, India, and Indonesia that have seen considerable success in attracting green bond investments.
While sharing lessons from the study, she stated that participation by the public sector is central to the success of the green bond market, including the provision of transaction support. Additionally, to establish a credible green bond market, countries need to balance demands for local flexibility with investor desire for integrity and compliance. This could be done by strengthening green bond institutional frameworks, including taxonomies and other external review measures, along with limits, and by explaining national divergence from international guidelines.
Among the key takeaways of the online discussion, which was attended by 20 experts and stakeholders, was that there are four cornerstones critical to the success of the green bond market: basic enabling policy and regulation; public sector support (including development finance institutions, multinational development banks, and international financial institutions); investor demand for green bonds; and moderate country risk. The public sector’s participation is central to the success of the green bond market, including the provision of transaction support. It was recommended that there should be more active participation by the public sector in India to signal sovereign commitment and enhance credibility. Green bond markets also need a steady supply of suitable green projects and the ability to absorb extra labelling costs.