ADB proposes SDG Accelerator Bonds

Published July 3, 2021, 9:00 AM

by Chino S. Leyco

The Asian Development Bank (ADB) has launched a guide that aims to help developing countries tap into global debt markets to support a green, resilient, and inclusive recovery from the pandemic and meet the sustainable development goals (SDGs).

On Friday, July 2, the Manila-based multilateral institution launched a new report entitled “Accelerating Sustainable Development after COVID-19: The Role of SDG Bonds,” which is a guide to using SDG bonds as a mechanism to attract global private financing.

The ADB report has proposed a new kind of SDG bond called “SDG Accelerator Bond” that could help countries reduce the perceived investment risk posed by an issuing entity, sector, or project with no track record on bond issuance.

The new bond proposes to combine exit guarantees and other credit enhancement structures with incentives to help countries meet SDG targets, ADB said.

As the pandemic slowed down the momentum for sustainable and equitable growth in most of developing Asia, Ahmed M. Saeed, ADB vice president said many countries are at risk of not meeting their SDG targets in climate resilience, gender equality, and human development.

“For countries looking to fund sustainable projects and programs on a large scale, capital markets represent an underused but viable mechanism to bring in SDG investments,” Saeed said.

In 2020, Southeast Asian countries issued a record $12 billion in green, social, and sustainability bonds, but their financing needs have only grown amid the COVID-19 pandemic.

The SDG Accelerator Bond builds on global best practices in project finance and aims to standardize the risk–return structure to ensure investor appetite and help local governments and new state-owned entities access funds.

The framework would allow variations in fund structure among countries and issuers of the accelerator bond or other SDG bonds.

The ADB report has showcased successful sustainability bonds issued in the region, including those supported by the ADB-managed Association of Southeast Asian (ASEAN) Catalytic Green Finance Facility (ACGF).

Established in 2019, the ACGF is an ASEAN Infrastructure Fund initiative.

ACGF is owned by all 10 ASEAN countries and ADB and supported by 13 partners, including the Sustainable Development Investment Partnership, a joint initiative of the World Economic Forum and the Organisation for Economic Co-operation and Development.

With $1.7 billion in cofinancing pledged so far, the ACGF is funding the financial design of more than 25 projects.

It is also helping some countries develop green recovery strategies, including policies, de-risking vehicles, and projects. The ACGF is also assisting in the issuance of green and sustainable bonds.

 
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