Asia Development Bank proposes new type of SDG bonds

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New report suggest innovative accelerator bonds to help developing nations access green finance.

The Asian Development Bank (ADB) has proposed a new kind of bond – the Sustainable Development Goal (SDG) Accelerator Bond. It hopes this new finance tool will help developing nations and regions access capital markets for green finance as they recover from the pandemic.

The new SDG bonds are intended to help reduce the perceived investment risk posed by any country or institution with little track record of issuing bonds. It would do this through a combination of exit guarantees and other credit enhancement structures alongside incentives to help countries meet the UN’s SDG targets.

ADB vice-president Ahmed M. Saeed explained: “The Covid-19 pandemic has slowed down the momentum for sustainable and equitable growth in most of developing Asia and many countries are at risk of not meeting their SDG targets in climate resilience, gender equality, and human development. For countries looking to fund sustainable projects and programmes on a large scale, capital markets represent an underused but viable mechanism to bring in SDG investments.”

His concerns are well-founded. Southeast Asian countries issued a record $12bn in green, social, and sustainability bonds in 2020 – suggesting there is demand out there for reliable funding for green and social outcomes. But financing needs have far outgrown those levels as a result of the pandemic and the ADB itself has set a goal of 75% of its projects addressing climate change by 2030.

The proposed SDG Accelerator Bond aims to address that by establishing standardised risk–return structures to meet investor appetite by helping local government and new state-owned entities access funds for the first time – greatly expanding the projects that could be funded.

This innovative funding mechanism is set out in the report ‘Accelerating Sustainable Development after COVID-19: The Role of SDG Bonds’, which you can read here.