What’s Happening in Sustainable Finance: Innovative Finance Instruments Breaking Ground, Use of Proceed Bonds Back in Vogue, and More

Growing Innovation with Sustainable Finance Instruments 

In this episode, Nick and Winnie chat about the latest news and transactions in the sustainable finance space. With a focus on innovation, they discuss the new ways in which issuers are leveraging sustainable finance instruments to fund their green and social projects. For instance, the World Bank’s recent bond issuance will forgo investor coupon payments, instead using the funds to finance a project manufacturing water purifiers in Vietnam. Using purifiers will replace biomass burning (traditionally used to boil water to make it safe to drink), resulting in lower carbon emissions. The carbon emissions saved will be turned into carbon credits and sold to fund a coupon payment to bond investors. Nick also notes innovation picking up in the areas of blue bonds and the maritime economy as well as biodiversity-focused finance activities.   

Investors Swing Back to Use of Proceed Instruments 

Winnie and Nick also touch on the growing ambivalence towards sustainability-linked instruments. In 2022, sustainability-linked bonds and loans seemed to lose some of their appeal as scrutiny of targets and performance indicators intensified and accusations of greenwashing arose. Adding to the discontent – slipping targets. Analysis from Barclays finds that nine out of 12 SLBs with target measurement dates in 2023 are off track to hit those targets. Consequently, we’re seeing a swing back toward traditional use of proceed instruments. This is particularly true within the green bond market which took less of a hit compared to other types of labelled bonds in 2022. With more green bond disclosure guidance and regulations expected from more jurisdictions, such as India, Bolivia, the EU and Latin America, investors will likely continue to seek security in the more structured green bond market.