How IFC Offered a Green Path for Emerging Markets
Investors often lack the tools necessary to finance green growth initiatives in developing countries. International Finance Corporation (IFC), in partnership with Amundi, has addressed this issue with its successful green bond fund.
The World Bank became operational in 1946, after being conceived by delegates at the Bretton Woods Conference. In 1950, senior executive, Robert L. Garner proposed the establishment of a new institution designed to allow private businesses to play a role in international development. This idea of an international corporation working with the World Bank, investing in private enterprises, without accepting guarantees from governments, without managing those enterprises, and in collaboration with third party investors, led to the creation of IFC.
Today IFC has more than half its staff in developing countries, is mobilizing more funds from third party sources than ever before and is devising new solutions to tackle some of the biggest challenges facing those parts of the world – green concerns being chief among them.
The IFC Green-Fund
To tackle the discrepancy between the desire for investors to be able to bet their money on green solutions for developing countries, IFC and Amundi created the world’s largest green bond fund dedicated solely to emerging markets. The fund, launched in 2017, is a $2 billion initiative which will unlock private funding for climate-sensitive projects.
(Image source: amundi.lu)
This follows in the wake of years of climate conscious initiatives, using proceeds from green bonds to support investments into eco-friendly projects in emerging markets, put into place by IFC. For example, 35 IFC investments received green bond financing, which was funnelled into projects with a predicted environmental impact of reducing greenhouse gas emissions by the equivalent of 1.3 million tons of carbon dioxide per year. The carbon footprint of approximately 275,000 cars.
Two components of the new green bond fund are set to make it a particularly attractive prospect for investors. The combination of impact reporting and third-party second opinions will allow for transparency into the outcomes of these projects and, therefore, increase investor confidence in the funding program. IFC will achieve this via its own environmental impact assessments, and in collaboration with the Center for International Climate and Environmental Research.
“This landmark transaction with IFC contributes to Amundi’s innovative and leading role in the climate finance space,” said Directeur Général d'Amundi, Yves Perrier. “Leveraging on Amundi’s emerging market debt investment capabilities, our commitment to ESG, and IFC’s unique outreach in emerging countries, Amundi Planet is a one-of-a-kind example of the potential that public private partnerships can bring to investors and to the society.”
A Closing Success
One year later and IFC has successfully closed the fund. Dubbed the Amundi Planet Emerging Green One (EGO), the fund has closed at $1.42 billion, and is now set to deploy $2 billion in funding into its target emerging markets. The fund will carry this mission out over the next seven years, with a $256 million cornerstone commitment from IFC themselves.
The fund has successfully brought together a large and diverse network of investors from all across Europe and the Middle East and is expected to have a significant impact on the scale and pace of climate finance in emerging markets by both crowding together capital from investors and creating brand new markets.
The success of the EGO fund and its positive reception has demonstrated what IFC suspected all along – that there is a hunger among investors for innovative opportunities in the climate conscious market.
As the world moves into the third decade of the 21st century, the damage which has been done to the planet by human activity will yield ever more keenly felt effects. It’s therefore the responsibility of all industries, including financial, to devise ways to incentivize climate-friendly growth.
Nowhere is this need felt stronger than in the developing world. As many countries go thorough their own industrial revolutions, the impact on the environment can be significant. Corporations in already developed parts of the world have a responsibility to support these countries in a way which reduces the environmental impact of their developments, without impeding their industrial progress.
“The global market for green bonds has expanded rapidly in recent years—totalling more than $155 billion in 2017,” said IFC Chief Executive Officer, Philippe Le Houérou. “But few banks in developing countries have issued such bonds. IFC and Amundi expect this new fund to encourage more local financial institutions to issue green bonds, by increasing global demand and building local markets.”