Global Climate Deal Would Increase Green-Bond Issuance, IFC Says

  • Private-sector arm of World Bank issues $500 million bond
  • IFC treasurer says challenge is finding `bankable' projects

A global deal to reduce greenhouse-house gas emissions at talks beginning this month in Paris would boost issuance of so-called green bonds linked to projects that combat climate change, according to the World Bank Group’s International Finance Corp.

“A binding global agreement in Paris would certainly make a market-based approach to solving climate investment issues much more viable,” Jingdong Hua, the IFC’s vice president and treasurer, said in a telephone interview Tuesday. “It will certainly give us a much more enabling environment for green financing.”

The IFC on Tuesday is issuing a $500-million, three-year green bond in London. The sale brings to $4.4 billion the amount of green bonds the institution has issued over the last five years, according to the IFC.

Bonds labeled “green” generally channel their proceeds into renewable energy resources and other technologies that help the environment. In the IFC’s case, projects funded with the proceeds must combat climate change by reducing greenhouse-gas emissions, removing greenhouse gases from the atmosphere or improving resilience against climate-change risks.

Bloomberg New Energy Finance estimates the value of new green-bond lending may exceed $40 billion this year. While that would top the record $38.8 billion in 2014, it would also mark a slowdown in the market’s annual growth rate. Last year, issuance more than doubled.

The “pause” is likely due to the challenge of finding “bankable” climate-related projects, rather than a lack of interest from investors, Hua said. Having a binding global target for reducing carbon emissions would provide a financial anchor for such projects.

Global Ambition

“When you look at the infrastructure financing needs and the climate financing needs, $40 billion is nowhere near the global ambition,” said Hua.

The COP 21 climate summit is due to begin Nov. 30, when leaders from around the world will meet in Paris to attempt what a 2009 summit in Copenhagen failed to do: reach a global agreement with binding targets on how to cut fossil-fuel use. Countries have already submitted so-called Intended Nationally Determined Contributions, pledging the scope of emissions cuts.

The IFC committed $1.15 billion in the fiscal year ended June 30 to 38 projects that combined will reduce carbon emissions by almost 2.5 million tons -- equivalent to taking about 500,000 cars off the road.

The projects include a solar-power facility for the mining industry in Chile, a wind-power plant in Panama and a hydro-power plant in Pakistan.

The security issued Tuesday is a bullet bond denominated in U.S. dollars. While most IFC green bonds fall under that category, it has also issued debt in Turkish lira, Brazilian real and Chinese yuan since it began the program in 2010.

The IFC is the arm of the World Bank that focuses on lending to the private sector, with the goal of ending extreme poverty worldwide. The IFC finances nearly all its lending by issuing bonds.

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