Tuesday, September 27, 2016

Green My Money


Development in any sector hinges on adequate financing. Be it the financing for sustainable developmental goals to mobilize billions to trillions, as the World Bank puts it, or be it using traditional financial instruments.  We are familiar with the Social Impact Bonds, an approach for expanding successful social programs in which private investors provide capital for nonprofits to scale up and the government pays only if the program succeeds. I want to draw the audience of this forum’s attention to the innovative Green Bonds. Fresh from last evening’s US Presidential debate where both the candidates agreed on the reality of climate change and the dire need to tackle it, green bonds seem to offer a lucrative option.

Not so Rosy
Climate change is expected to hit developing countries the hardest. It has potential effects on temperatures, precipitation patterns, sea levels, and frequency of weather-related disasters. It risks eroding all the current effort in other fields of development as well. Don’t think it’s that serious? Well, according to studies, the ongoing Syrian Crisis is expected to be fueled largely by climate change. The report compiled statistics showing that water shortages due to a severe drought in the Fertile Crescent in Syria, Iraq, and Turkey killed livestock, drove up food prices, sickened children, and forced 1.5 million rural residents to the outskirts of Syria's jam-packed cities.


Fertile for Funding
In lieu of the global cooperation required to tackle this challenge, the World Bank launched the ‘Strategic Framework for Development and Climate Change’. It helps stimulate and coordinate public and private sector activity to combat climate change. The World Bank Green Bonds raises funds from fixed income investors to support WB lending for eligible projects that seek to mitigate climate change or help affected people adapt to it. The product was designed in partnership with Skandinaviska Enskilda Banken (SEB) to respond to specific investor demand for a triple-A rated fixed income product that supports projects that address the climate challenge. Since 2008, the World Bank has now issued over USD 9 billion equivalent in Green Bonds through more than 120 transactions in 18 currencies.

Creative Credit Elsewhere
In ‘A New Approach to Funding Social Enterprises’, the authors stress that financial engineering can be a powerful force for change. I hope that taking this course helps individuals like you and I think more about creative ways to mobilize finance and structure new instruments. I spent two years working at a global investment bank and strongly believe that our global goals are achievable with support from private sector players. Addressing inequalities and challenges across the globe is not only a responsibility but also an opportunity. I remember suggesting the bank to create a Sustainability Investment Fund to foray into helping its clients invest in projects that are profitable for them and at the same time have an impact towards societal development. Investing in projects related to infrastructure, education, environment, health in nations that are devoid of it would serve a triple purpose of profit for investors, jobs for the natives and development for the area. Imbibing this blend of impact investing would be a critical step forward in building a sustainable future for all. What other instruments can you think of? Can we use a system of social credits analogous to carbon credits? As Rangan, Appleby and Moon conclude in their article, impact investing is not a panacea or replacement for philanthropy but instead a potential source of net-new capital working in concert with philanthropy and market-based approaches to support social change.

References:
World Bank Green Bonds
Financing for Development Post-2015

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