The New Development Bank (NDB), established by the BRICS grouping in 2014, has issued its first “green” bonds in U.S. dollars (USD). According to a press release, the three-year “green” bonds, which are part of a $50bn Euro Medium Term Note Program registered in December 2019, were placed on international capital markets amounting to $1.25bn. The proceeds raised from the investment will be directed towards “green” projects aligned with NDB’s sustainable financing policy framework. The bank’s Vice President and Chief Financial Officer Leslie Maasdorp said the bank would use the funding from the sale of the bond to finance a robust green and sustainable projects in all its member countries.
The NDB’s issuance represents its return to the international capital markets and is also the first USD Green Bond issued by the bank, demonstrating its commitment to sustainable capital markets. The bank, headquartered in Shanghai, finances sustainable development projects in the five member states of the BRICS bloc namely Brazil, Russia, India, China and South Africa, and other developing nations seeking infrastructure development. With a starting capital of $100 billion, the bank has approved nearly 100 projects for $32.8 billion in areas such as transportation, water supply, clean energy, digital and social infrastructure, and urban construction alongside sustainable development projects.
The NDB’s green bond was placed with what the bank considered to be “high-quality investors,” with 78% of the final allocation going to central banks and official institutions, while bank treasuries and asset managers took up the remainder. The bank said that the geographically diverse book had in excess of 50 investors from Asia, Europe and the Americas. Citi, Crédit Agricole CIB, HSBC, and ICBC acted as joint lead managers to the issuance, and CACIB acted as the Green Structuring Advisor.
In December 2020, the NDB received a Green Evaluation score of 92/100 from independent research company CICERO Shades of Green, reflecting its commitments to aligning itself with the Objective 13 of the UN Sustainable Development Goals. The bank has also received AA+ credit ratings from Fitch Ratings and S&P Global Ratings.
Green bonds is an innovative mechanism to create funding for sustainable projects to fight climate change. The bonds are usually structured like traditional bonds while channelling funding to the groups who are trying to transition to net-zero carbon emissions. Green bonds are increasingly popular as a way of raising funding for “green” projects, for instance, corporations and governments issued over $288bn in green bonds globally in 2020. As of the end of 2020, the global green bond market size stood at $1.05tn, up from $259bn at the end of 2015, reports indicate.
At a time where the world is grappling with climate change, green bonds will play a significant role in raising funds towards combating climate change. For example, some of the initiatives that can be funded through green bonds include renewable energy, energy efficiency and conservation, green building, sustainable water management, pollution prevention and control, environmentally sustainable management of living natural resources and land use, as well as clean transportation. The NDB’s green bond debut, therefore, sets the pace for other development banks to consider launching similar initiatives.
However, as with any emerging trend in finance, a lot remains unclear about the practical implications of green bonds. For instance, it remains unclear if the green bond proceeds are genuinely sustainable or impact the environment in the intended ways, while their absence of clear standards, on the other hand, may raise concerns on the greenwashing of projects. It is, however, expected that there will be continued advocacy and engagement to ensure that the green bond investment lives up to its promise.