This blog explores how innovative carbon finance strategies can have an impact on supply chains, and therefore, help curb the emissions embedded in the consumed products.
A recent webinar jorganized by UNDP’s NDC Support Programme, Carbon Partners Asiatica, Climate Mundial and Natural Eco Capital, explored how green bonds can enable emerging markets to attract more consistent investments from international debt capital markets. Discussions covered how aggregation of project assets and refinancing through proceeds of green bonds can accelerate NDC implementation. In addition, participants explored various bond structures for replication as well as design challenges regarding transparency requirements for the Paris Agreement and environmental integrity.
Three inspiring examples of investment structures for green and climate-themed bonds were presented with the aim to showcase standardized approaches for rapid scaleing-up of NDC actions.
Here are some key takeaways:
- Green bonds provide private sector long-term debt financing but no equity or grants, noted Mr. Junji Hatano, CEO at Carbon Partners Asiatica. NDC goals must be achieved through many small projects (in addition to large ones) and in order to reduce the costs of implementation of such small projects, they can be aggregated for bonds. Such aggregation not only reduces costs but also mitigates risks for investors and will help to crowd in more capital.
- The Paris Climate Bond (PCB) concept, an innovative spin on the traditional bond, provides cost-effective, long-term debt funding for projects and programs in emerging markets. PCB introduces a contractual mechanism by which the ex-ante volumetric mitigation outcome estimates, including CER delivery, are enforced and provide certainty to investors that projects are delivering climate and sustainable development benefits. But in order to benefit from PCB financing, projects and programs have to be registered with current and future mechanisms of the UNFCCC, including the Clean Development Mechanism (CDM), said Mr. Daniel Rossetto, CEO of Climate Bonds.
- Presenting the Nigerian Maiden Sovereign Green Bond, Mr. Eugene Itua, CEO at Natural Eco Capital, explained the key requirements, the selection process, the Nigerian Bond guidelines, and how proceeds are used to ensure sustainability of the finance instrument. In order to ensure the sustainability of the Nigerian Bond, the funds are credited to a sub-account and then move to sub-project portfolios. This is tracked by the issuer and attested to by a formal internal process linked to the issuer’s lending and investment operations for Green Projects. The warehousing of the funds is consistent with the Nigerian Green Bond Principles/Guidelines which does not allow comingling of funds.
Participants were actively engaged and keen to understand not only the structural difference between private sector-driven international green bonds and sovereign bonds but also the environmental integrity expectations of green bonds. To read our summery of Q&A or access more materials, visit the page here>.
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