Locations
The transition to a sustainable global economy requires countries to promote and incentivise investments that provide environmental benefits. With growing pressure on governments to cut greenhouse gas emissions and reduce all types of pollution, so-called green finance has taken on an important role, providing various financial instruments to governments, banks, and businesses to support the development and implementation of projects leading to sustainability impacts. In other words, green finance uses the power of markets and finance to allow investors and businesses to make money while also saving the planet.
Introducing green bonds in Kazakhstan
One of the most mature of green financial instruments – green bonds – are celebrating their debut in Kazakhstan, having been listed at the Astana International Exchange (AIX) in August 2020. Developed with guidance from Climate Bond Initiative (CBI) experts, the AIX’s green bond rules that are guiding this financial instrument on the Kazakh market are based on the Green Bond Principles as well as on the Climate Bonds Standard. The instrument and its underlying criteria and principles are unique among all CIS[1] countries.
The instrument debuted in Kazakhstan under the full-sized project De-risking Renewable Energy Investment (DREI), which is being implemented by the Ministry of Energy and supported by United Nations Development Programme (UNDP) under funding from the Global Environment Facility (GEF), with the objective of promoting investment in renewable energy in Kazakhstan.
The DREI project supported the green bond issue in partnership with Damu Entrepreneurship Fund JSC, which is a major state-chartered fund supporting business development. Damu issued the green bonds on the AIX. The UNDP-GEF project is subsidizing most of the bond coupon rate. Damu then makes the proceeds from the bond sales available at reduced interest rates to second-tier commercial banks and microfinance organizations, which add their margin and then pass the low interest rates along in lending to eligible renewable energy projects. The banks accept the lending risk.
Around US $500,000 worth of investment was attracted by the Damu Fund in this initial green bond issue. In the future, the Damu Fund expects to expand green bond activity, to cover activities in energy efficiency, biodiversity, waste management and many other areas of environmental protection and sustainable use of natural resources in Kazakhstan.
Supported by UNDP, the green bond issuance is another stepping-stone in the country’s efforts to transform its economy from a fossil fuel-based into a greener model, and specifically helping to make concrete progress toward national environmental goals, including increasing the share of alternative and renewable energy sources to 50 percent of total energy production by 2050.
Green bonds beyond Kazakhstan
Green bonds represent a rapidly expanding investment opportunity, as countries around the world are heading toward a low-carbon future. Globally, the market for green bonds has demonstrated significant strength, scalability and robustness, with more than 5,000 green bonds having been issued globally by the end of 2019, and a record issuance worth US$ 167.3 billion in 2018.
A 7-year SDG bond worth US$ 890 million was issued in September this year in Mexico. The resources will be provided by private funds to finance SDG-oriented programs, as the bond issue proceeds will finance green initiatives and projects. In 2019, Ecuador debuted a 5-year green bond to support projects with measurable environmental benefits related to energy efficiency, renewable energy, clean production (manufacturing), construction, sustainable transport and waste management. A green bond supporting innovation can be found in Indonesia where the very first sovereign green sukuk, so called Islamic Bond, worth US$ 1.25 billion and intended for emissions reduction and innovations. In Ghana, Green Bonds Initiative (GBI), an international investor-focused non-profit organization working on mobilizing the $100 trillion bond market for climate change solutions, was invited to host a “Green Bond Bootcamp Training” for more than 30 international governmental officials.
Green investment is a win-win-win approach
When applied properly, green bonds create strong positive alignment of market forces and policy goals, driving investments away from maladaptive practices and toward activities that have a direct positive impact. Moreover, aside from advancing sustainability, climate change mitigation, and energy transition, the successful introduction of green bonds in Kazakhstan and around the world can also help generate greater financial flows for climate change adaptation and accelerate introduction of other financial instruments of a similar kind, including social impact bonds, natural disaster bonds, among others.
Green bonds are a winning proposition for all parties involved. They provide reliable returns, while also satisfying the increasing appetite of the international investor community for socially responsible investments. They can lead to scaled-up impacts with relatively small allocations of donor funds and government support. They help banks to expand their business and their client base. Most importantly, they help individuals and businesses to develop and expand their delivery of sustainable goods and services, lifting people’s livelihoods while also helping to reduce threats to our planet.
