IFC invests $325m in EM green bond fund

The International Finance Corporation, the private-sector arm of the World Bank, is to invest $325m in a new green bond fund designed to support the financing of environmentally friendly projects in developing markets.

The IFC has partnered with Amundi, Europe’s largest listed asset manager, with the aim of raising up to $2bn from other international investors to create the biggest green bond fund dedicated to emerging markets to date.

The fund, which plans to be fully invested within seven years, is pitched at institutional investors including sovereign wealth funds, pension schemes and insurance companies.

Green bond issuance has accelerated following the signing of the Paris climate agreement in December 2015, when more than 190 countries committed to fight global warming.

Moody’s, the rating agency, is forecasting that green bond issuance this year will be nearly $120bn, eclipsing the record of $93.4bn set in 2016.

However, few banks in emerging markets have issued green bonds so far, creating a gap in the market the IFC and Amundi want to plug.

“This fund will essentially create a green bond market where there was none,” said Philippe Le Houérou, chief executive of the IFC.

He added that the IFC would create a dedicated team to provide training and technical support to financial institutions in emerging markets and that dozens of banks in developing countries had already been identified as potential partners.

In addition to its $325m investment, the IFC has also agreed to provide “first loss” protection — a type of insurance — that will lower the risk that investors in the fund will incur losses. This insurance facility is intended to help ensure the new fund can operate in the poorest countries and conflict-affected areas.

Xavier Musca, Amundi’s chairman, said the partnership with the IFC would prove a “game changer in accelerating the shift across emerging markets toward a green economy”.

Amundi, which will manage the new fund, has attempted to portray itself as a frontrunner in financing initiatives to fight climate change. In 2014, it partnered with EDF, the Paris-based energy group, to create a joint asset management company to raise €1.5bn to invest in renewable energy projects and energy-saving strategies.

Authorities in Argentina and Abu Dhabi both held their first green bond sales in the first quarter of 2017.

Argentina’s La Rioja province issued a $200m green bond in mid-February, which will finance an increase in the power-generation capacity of a wind farm. Argentina plans for renewable sources to contribute a quarter of its total energy needs by 2025.

The National Bank of Abu Dhabi issued the first green bond out of the Middle East in late March, raising $587m for a range of renewable energy, energy efficiency, transport and wastewater treatment projects.

“These landmark green bonds from Argentina and Abu Dhabi will encourage other issuers to come to the market,” said Henry Shilling, an analyst at Moody’s in New York.

Mr Shilling added that other governments in emerging markets that have announced or are reported to be considering green bond sales include Bangladesh, Morocco, Nigeria and Kenya.