"Climate change is not just an environmental challenge. It is a fundamental threat to economic development," Dr. Jim Yong Kim, former World Bank President
To protect the environment, it is time to work on an issue as green bond, which as a financial instrument is much safer than any other green instruments. Green bonds are usually issued to raise capital for solving a specific local or global environmental disaster and are usually backed by government institutions. In near future, it is expected that green bonds will be available in Bangladesh financial market as an investment instrument.
In 2008, the World Bank launched the 'Strategic Framework for Development and Climate Change' to help stimulate and coordinate public and private sector activity in combating climate change. African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter-American Development Bank, World Bank Group and the International Monetary Fund are vowed to work more closely with private and public sector partners to help mobilise the resources needed to meet the historic challenge of achieving the Sustainable Development Goals (SDGs).
Green bonds are often identical to traditional bonds in structure, risks and returns, except that the capital is raised from green bond funds for clean energy, energy efficiency, low carbon vehicle, smart grid, agriculture and forestry, natural resource mitigation or similar projects. These are marketed as 'green' at the time of issuance. Issuers are expected to provide a description of projects to be funded at the time of issuance and to ensure segregation of project funds and provide post-project reporting or verification about how the funds will be used.
The issuer of the green bonds can be banks, non-banking financial institutions, companies, SMEs and other financial institutions. On the other hand, the investors of green bond are typically institutional investors. Other buyers include investment managers, governments and corporate investors. The financing part of green bond should focus on the large-scale fund, capital-intensive green infrastructure projects, such as energy efficiency projects, transit, or renewable powers among many others, that can be repaid from steady, modest and long-term cash flows.
The bio-financing projects for green bond funds can be large bio-gas plants, bio-energy driven power generation plants etc. Solar-financing projects for green bond funds can be 1-mw or above solar PV plants, pumping through solar pumps, solar cooker assembly plants, solar water heater assembly plants, solar air heater and cooling assembly plants, solar driven cold storages. The other financing projects for green bond funds can be power switch assembly plants for power saving, hybrid cook stove assembly plants, LED light or tube light assembly plants, power generation from municipal waste, compost fertiliser generation from municipal waste, recyclable non-oven polypropylene yarn and baggage manufacturing, palm-oil production plants, supplying and purifying of surface water project, establishing green industry and ensuring work environment and safety in the textile and garment industries.
Climate change affects us all. But it is likely to hit the developing countries the hardest. Its potential effects on temperatures, precipitation patterns, sea levels rise and frequency of climate-related disasters pose risks for agriculture, food and water supplies. The recent gains in the fight against poverty, hunger and disease, and the lives and livelihoods of people in developing countries are at stake now. Tackling this immense challenge must involve urgent mitigation .Addressing climate change requires unprecedented global cooperation across borders.
The World Bank Group is providing support to developing countries and contributing to a global solution, while tailoring our approach to the diversified needs of developing country partners. We are strengthening and building climate change partnerships with our member governments and with a wide array of organisations. The World Bank Green Bond raises funds from fixed income investors to support World Bank lending on eligible projects that seek to mitigate climate change or to help affected people adapt to it. The product was designed in partnership with Skandinaviska Enskilda Banken (SEB) to respond to specific investor demand for a triple-A rated fixed income product that supports projects that address the climate challenge. Since 2008 till now, the World Bank has issued around $8.5 billion in green bonds through 100 transactions in 18 currencies. The World Bank Green Bonds are an opportunity to invest in climate solutions through a high-quality credit fixed income product. The triple-A credit quality of the green bonds is the same as for any other World Bank bonds.
Besides the World Bank initiatives, there are other fascinating examples of green bonds issued for environmentally focused projects around the world. In the US, federal institutions are pioneering the use of green bonds for re-development of brown field sites, following the adoption of the America Jobs Creation Act 2004 and, specifically, its amendment titled 'Brownfields Demonstration Program for Qualified Green Building and Sustainable Design Projects'. In Europe, in May 2007 the European Investment Bank issued Climate Awareness Bonds raising more than €1 bn with a 5-year maturity plan. The capital is to be invested in renewable energy and energy efficiency projects, aimed at bringing down green house gas emissions and protecting the climate. In Canada, there are serious proposals for issuing government-backed green bonds to stimulate the deployment of renewable energy production. In the context of Bangladesh, green bonds are certainly an area to look out for.
