Green Bond Market in Georgia – a Growing Opportunity
Climate change is a threat to development in our lifetime. Studies show that poor people are more vulnerable in the face of climate change, as it would likely spark higher agricultural prices and could threaten food security in poorer regions. Climate change will also magnify many threats to health, as poor people are more susceptible to climate-related diseases.
Therefore, without more action to reduce extreme poverty, provide access to basic services, and build resilience, global warming could push an additional 100 million people into poverty by 2030. While there are many ways we can reduce our carbon footprint, finding the funding for that is often challenging, especially for governments with already pinched budgets.
To help address the challenge, new and innovative financing solutions need to be developed. One increasingly popular tool is the green bond, which marshals funds from private issuers, including commercial banks, to finance sustainable projects.
Green bonds aim to tap into the $80 trillion bond market. They are fixed-income, liquid financial instruments, and the funds that green bonds raise are dedicated exclusively to projects that help combat climate change. This provides investors with an attractive investment proposition as well as an opportunity to support environmentally sound projects.
The potential of these bonds is enormous. A study released in November 2016 by IFC, a member of the World Bank Group, shows that the historic global agreement on climate change adopted in Paris last year helped open up nearly $23 trillion in opportunities for climate-smart investments in emerging markets between now and 2030. The study found sectors like renewable energy, urban transport, and sustainable construction especially promising.
Green bonds could have a significant impact here in Georgia. The country has a very energy-intensive economy, using much more power than similar-sized European Union states. Green bonds could help change that by channeling investments into climate-smart projects. According to estimates, Georgia could support about $1 billion in investments in projects like those through 2020.
That's in part because the government of Georgia is committed to developing the renewable energy sector and improving energy efficiency. The National Energy-Efficiency Action Plan is currently being developed, and the energy sector has been shaped by a series of reforms undertaken in recent years. Financing has been identified as one of the key mechanisms needed to support further development of energy efficiency and renewable energy in Georgia. Green bonds offer an innovative solution, bringing needed resources for private issuers, including commercial banks, to finance sustainable projects across several sectors.
In December 2016, IFC hosted a seminar in Tbilisi, Georgia, on the state of the green bond market. Around 25 participants, including representatives of the National Bank of Georgia, the Georgian Stock Exchange and commercial financial institutions, discussed current market conditions and opportunities for climate financing. The event highlighted that there is potential for green bonds, especially given a recent push by the government to bolster the renewable energy sector and to encourage energy efficiency.
Examples of successful green bonds are abound. In Mexico, a series of bonds are financing the construction of a large-scale solar power facility. That does not require state subsidies and will meet the energy needs of 164,000 people, while creating jobs and reducing dependency on polluting diesel generators. In India, another green bond is helping a company recycle e-waste from computers, discarded mobile phones and other electronics that can be harmful to the environment and to peoples’ health.
Investing in climate business through green bonds offers advantages for issuers, including a positive image as well as the strong appetite from investors, which helps secure a good pricing for the debt. But partnership and coordinated action between government and business is needed, and by working together we can make it work for everyone’s benefit.
Jan van Bilsen, IFC Regional Manager for the South Caucasus