What’s Happening in Sustainable Finance: Innovative Finance Instruments Breaking Ground, Use of Proceed Bonds Back in Vogue, and More
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Episode Summary  Hosts: 

• Winnie Chung, Senior Associate, Corporate Solutions 

• Nicholas Gandolfo, Vice President, Corporate Solutions

Growing Innovation with Sustainable Finance Instruments 

In this episode, Nick and Winnie chat about the latest news and transactions in the sustainable finance space. With a focus on innovation, they discuss the new ways in which issuers are leveraging sustainable finance instruments to fund their green and social projects. For instance, the World Bank’s recent bond issuance will forgo investor coupon payments, instead using the funds to finance a project manufacturing water purifiers in Vietnam. Using purifiers will replace biomass burning (traditionally used to boil water to make it safe to drink), resulting in lower carbon emissions. The carbon emissions saved will be turned into carbon credits and sold to fund a coupon payment to bond investors. Nick also notes innovation picking up in the areas of blue bonds and the maritime economy as well as biodiversity-focused finance activities.   

Investors Swing Back to Use of Proceed Instruments 

Winnie and Nick also touch on the growing ambivalence towards sustainability-linked instruments. In 2022, sustainability-linked bonds and loans seemed to lose some of their appeal as scrutiny of targets and performance indicators intensified and accusations of greenwashing arose. Adding to the discontent – slipping targets. Analysis from Barclays finds that nine out of 12 SLBs with target measurement dates in 2023 are off track to hit those targets. Consequently, we’re seeing a swing back toward traditional use of proceed instruments. This is particularly true within the green bond market which took less of a hit compared to other types of labelled bonds in 2022. With more green bond disclosure guidance and regulations expected from more jurisdictions, such as India, Bolivia, EU and Latin America, investors will likely continue to seek security in the more structured green bond market.  

Key Moments

0:02:20 

Market overview 

0:02:37 

Expected market rebound 

0:03:15 

Innovative structure from World Bank 

0:04:03 

Swing back to use of proceeds? 

0:04:23 

Innovative structure from ENEL 

0:05:10 

Blue and biodiversity activity 

0:05:31 

Continued scrutiny of SLLs and SLBs 

0:06:40 

ASEAN developments 

0:07:34 

New CBI reports 

0:08:04 

SLB and SLL overview 

0:11:52 

Green bonds overview 

0:17:35 

Green loans overview 

0:17:57 

Audience questions 

0:21:05 

Social bonds and loans overview 

0:22:03 

Labeled products, transition bonds and regulatory updates 

Links to Select Resources

• Bloomberg – ESG Bond Sales Hit 12-Month High; Debut Deals Pile Up) 

• Environmental Finance – Sustainable Bonds Insights 2023 Published)

• Environmental Finance – World Bank Issues ‘Unique’ Carbon Credit-Linked Bond)

• Environmental Finance – IFC adds ‘Blue’, Biodiversity Projects to Green Bond Framework)

• UN Environment Programme – Countries Search for Financing to Counter Biodiversity Crisis) 

• Responsible Investor – SLB Issuers ‘Likely to Miss Majority of 2022 and 2023 Targets’)

• Environmental Finance – SLB Issuers ‘Lose Their Halo,’ says HSBC)

• LSTA – Drafting Guidance for Sustainability-Linked Loans (Feb 17, 2023))

• Environmental Finance – Philippines Opens Consultation on Sustainability-Linked Bonds Standards)

• Financial Times – Sustainability Bond Market Stumbles as Investors Get Picky)

• CarbonCredits.com – JBS “Green Bonds” and GHG Emissions Under Investigation) 

• Bloomberg – Barclays Sees Real Greenwashing Risk in ESG Debt-Swap Market)

• Climate Bonds Initiative – Sustainable Agriculture Brief)

• Climate Bonds Initiative – Scaling Credible Transition Finance – ASEAN Edition)

• Capital Monitor – Why Japan Embraces Transition Bonds) 

• Business Standard – SEBI Asks Issuers for Additional Disclosure in Guidelines on Green Bonds)

• ESG Clarity – Mandatory Climate Finance Disclosure ‘Evens Playing Field’ for Australia)

• Sustainalytics SPOs:

• Nokia Sustainable Finance Framework Second Party Opinion)

• State Bank of India ESG Financing Framework Second-Party Opinion)

• Hertz Green Finance Framework Second-Party Opinion)

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