A multilateral climate fund, the Climate Investment Funds (CIF), is planning to issue a rare bond in the capital markets to raise funds to invest in renewable energy and new technologies in developing economies. This move comes as governments are struggling to provide the necessary financing to reduce global emissions.
The CEO of CIF, Tariye Gbadegesin, stated that the bond issuance is aimed at maximizing the impact of their capital and generating significant multiplier effects. Multilateral climate funds are crucial as they collect funds from wealthier nations and distribute them to developing countries. However, the current national contributions are insufficient to combat climate change effectively.
Following the COP29 summit, where negotiators agreed on a new annual climate finance goal, the need for innovative financing structures that connect to capital markets is becoming more critical. The Capital Markets Mechanism of CIF, through which the bond will be issued, has received a high rating from Moody’s Ratings, indicating strong capital position and liquidity.
Bank of America Corp., acting as a lead manager for the bond issuance, highlighted the advantage of CIF in providing sovereigns with a faster channel to fund important causes. Private investors have shown interest in the bond, with some emphasizing the simplicity of the format for easier placement in mandates. However, emerging market fund managers are still assessing the suitability of the vehicle for their portfolios.
CIF’s existing funds have received contributions from countries like France, Germany, and the UK, supporting projects focused on clean energy and new technology. This new climate bond issuance will provide additional funding to meet the 2030 climate targets. Gbadegesin emphasized that CIF’s capital is willing to take on high-risk levels at a low price, enabling it to mobilize more funds effectively.
The CEO expects other multilateral funds, such as the Global Environment Facility and the Green Climate Fund, to follow suit in adopting similar financial engineering strategies. This innovative approach is seen as the future of climate financing. Leading financial institutions like BNP Paribas SA, HSBC Holdings Plc, and TD Securities are also involved as lead managers for the bond sale.
Overall, the bond issuance by CIF represents a significant step in leveraging capital markets to address the urgent need for climate financing in developing economies. It demonstrates a shift towards more innovative and sustainable funding solutions to combat climate change effectively.
