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
Climate
Change Helped Spark Syrian War, Study Says
http://news.nationalgeographic.com/news/2015/03/150302-syria-war-climate-change-drought/
http://news.nationalgeographic.com/news/2015/03/150302-syria-war-climate-change-drought/
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