ENVIRONMENT

Product Innovation

Investors and financial institutions taken an early lead with the introduction of sustainable finance products and innovations that channel capital flows into sectorial activities that align with sustainability objectives. In 2008, the World Bank issued the first green bond that has led to the creation of the blueprint for sustainable investing in the capital markets. While green bond remains the most developed instrument, today the concept is being replicated in the development of other sustainability-related financial tools.

Products or business models innovated towards addressing environmental challenges include, but are not limited to:

Products Description

Green bonds

Green bonds were developed to fund projects that have positive environmental or climate benefits.

 

Relevant framework:

Climate bonds

Climate bonds are used to finance – or refinance - projects needed to address climate. Examples include wind farms, solar, hydropower plants and building sea walls in cities threatened by rising sea levels.

 

Relevant framework:

Transition bonds

Transition bonds are focused at industries with high greenhouse gas (GHG) emissions also known as “brown industries”. This bond will provide them with the opportunity to finance the goal of becoming less brown and decarbonising business operations.

Blue bonds

Blue bonds are utilised by island and coastal nations to reinvest in their natural resources by refinancing their national debt in a way that secures funding for conservation work that also benefits their economies.

Green loans, syndicated loans and credit lines

Provide lending to encourage market development in climate-aligned sectors line with the Climate Bonds Taxonomy and compliance with the Green Loan Principles. Interest rates are based on borrower credit scores or an ESG score assigned by an ESG rating agency.

 

Relevant framework:

Investment trusts

Use of proceeds to fund a portfolio of green projects. A publicly traded vehicle consisting of pools of long-term cash-generating green assets may have tax advantages.

Low carbon ETFs

Low carbon exchange traded funds (ETFs) are listed equity like instruments that invest into companies that meet’s the fund low carbon emission criteria.

Private equity renewable energy infrastructure fund

Private equity renewable energy infrastructure funds are unlisted, closed-end funds investing solely in solar, wind and hydro infrastructure projects.

Sustainable commercial paper

Sustainable commercial papers are short-term, unsecured debt issued by companies with high ESG performance ranking.

The list above names some of the many financial instruments available. There are more financial instruments under broader categories namely equity, credit enhancement mechanism and risk transfer sharing mechanisms.

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