The green bond market is a growing source of finance that addresses climate change. UNDP is seeing remarkable momentum across the globe in terms of using public finance to catalyse private investments, which contribute to economic, social and environmental goals. Photo: UNDP

 

Climate Change is the defining challenge of our time. The current and projected impacts of climate change are already changing the lives of entire populations and threatening to reverse human development progress made during the last decades. Climate change impact also comes at a high cost. In 2017 alone, the economic costs of climate-related disasters led to a staggering US$320 billion loss. We should all be concerned and take actions. Leveraging untapped financial resources and innovative financing is a condition to address climate change and to achieve the Sustainable Development Goals (SDGs)

The green bond market is a rapidly growing source of finance with issuances coming largely from financial institutions, governments and municipalities.  

In March 2018, the Government of Indonesia. through the Ministry of Finance, issued the very first sovereign green sukuk (Islamic Bond), reaching an amount of $1.25 billion. The five-year issuance has successfully reached a broad range of investors including conventional, Islamic and green investors. In fact, the issuance was oversubscribed, signalling the growing market demand for sustainable and responsible investments. The green sukuk is an excellent example of the pioneering role of governments in leveraging private finance for green and sustainable development. With this issuance, the Government of Indonesia has made the bold decisions needed to place the Indonesian economy on the path towards low-carbon and climate-resilience growth.  

UNDP has worked hand in hand with the Government of Indonesia to build the best enabling environment to encourage innovation in financial and debt instruments, to encourage banks and corporate companies to support green financing and to design green investments that build the resilience of the nation. Since 2014, we have been proudly supporting the Ministry of Finance of Indonesia on sustainable development financing. Starting with the adoption of diagnostic tools such as Climate Public Expenditure and Institutional reviews (CPEIR), our support evolved towards developing tools and systems such as budget tagging, which is improving the management of public domestic finance.  

It was this work that led us to contribute to the issuance of the green sukuk. UNDP in Indonesia is also partnering with the World Bank in providing technical assistance and capacity building for post-issuance impact reporting. We understand the importance of producing a transparent and accurate impact report that clearly shows investors that the green sukuk proceeds are indeed being directed to the right investments and delivering on the country’s climate change response. We also recognize the need for capacity development to improve how government manages and monitors green investments across the various sector ministries.  

Indonesia’s green sukuk success demonstrates how Islamic finance can amplify financing the SDGs. As other illustrations of this potential, last year in Malaysia, RM250 million (US $64 million) in green sukuk was issued by Tadau Energy, and RM1 billion (US $236 million) by Quantum Solar Park, to fund solar energy initiatives.  

UNDP is seeing remarkable momentum across the globe in terms of using public finance to catalyse private investments that contribute to economic, social and environmental goals. We are therefore actively developing new services, tools and systems that support governments, private sector players and citizens to make effective contributions to the Sustainable Development Goals. This includes services that can help strengthen the bond market by:  

  1. Defining and measuring sustainability – i.e. demonstrating that private investments are indeed delivering on both economic and social objectives
  2. Assessing eligibility for green finance – this begins with designing new types of investment projects and leveraging UNDP’s extensive experience in designing and managing green projects through environmental global funds.
  3. Demonstrating impact – we are currently developing impact measurement frameworks for the green sukuk and other social impact investments.  

Green investments make good business sense both for economic and sustainability reasons. They have both a social and environment impact in the form of job creation and climate change resilience building while at the same time delivering healthy economic returns. The New Climate Economy report from the Global Commission on the Economy and Climate, for example, shows that for every dollar spent restoring degraded forests, as much as $30 can be recouped in economic benefits.  

The time for action is now. Governments, investors and corporates are increasingly recognizing those win-win opportunities and are investing for the SDGs. UNDP stands ready to work with all partners to expand financing opportunities for the SDGs. We can catalyse and scale up the green sukuk initiative for governments as well for the private sector. Building strong public-private partnerships is a good starting point. The SDGs offer opportunities to all of us to shape a different, better future. This is definitely worth investing in.

Talk to us: How can UNDP continue to support public action that catalyses private investments?

 

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