2021

Sovereign Green,
Social, andSustainability
Bond Survey
The ultimate power totransform the market

This report was prepared by the Climate Bonds Initiative, produced with the kind support of HSBC

Introduction
This paper reflects the results of Climate
Bonds Initiative’s (Climate Bonds) first
Sovereign Green, Social, and Sustainability(GSS) Bond Survey based on conversations
with 19 sovereign issuers.
Vanilla sovereign bonds represent almost
half of outstanding bonds, and the current
size of sovereign bonds with at least one
year to maturity is USD45tn.1
Given the budget and resource allocation
responsibilities of most central
governments – especially for large-scale
infrastructure projects – sovereign issuers
have the power to scale up GSS investments
more than any other asset class.
For governments with access to domestic andinternational capital markets, sovereign GSS
bonds can attract the investment needed forsustainable development, as well as help tofulfil the greenhouse gas (GHG) emission
reduction objectives included in each country’s
Nationally Determined Contributions(NDCs) under the 2015 Paris Agreement.
Moreover, the ongoing COVID-19
pandemic and its ramifications have had
an unprecedented impact on the global
economy during 2020. We expect that thesubsequent recovery will be government-led.

Some major economies, including theNordic countries and Germany, have statedthat they will seek to preference green andsocial projects.

Contents
3 Survey Summary

As of November 2020, 22 national
governments had issued sovereign GSS
bonds totalling USD96bn.2,3 At least 14 othersovereign governments across the world haveindicated their intention to issue GSS bonds.4

4 Section 1: The decision
making processThis report covers 97% of issuance with
19 out of 22 issuers participating in the
project by sharing their experiences of
issuing GSS bonds: eight from Developed
Markets (DM), and 11 from Emerging
Markets (EM) as shown in TABLE 1.5,6
By mid-November 2020, these 19 issuers
had collectively printed 32 GSS bonds with anamount outstanding of just over USD93bn.

20 Section 4: Reflections
22 Turbo-charging thesovereign GSS market
23 Endnotes

5 Section 2: Preparation
12 Section 3: Issuance

Governments have a crucial role toenhance the growth of this market and the
preparation required differs from that ofprivate sector issuers.
The Climate Bonds Sovereign GSS Bond
Survey explored the different approaches
and experiences of issuers to enable a
broader understanding of this market andencourage others to join the sovereign
GSS club.

Table 1. The 19 Sovereign Green, Social, and Sustainability Bond Survey participants
Green bonds
Developed Markets(DM)

Emerging Markets(EM)

Sustainability bonds

FranceNetherlands

Germany

Luxembourg

BelgiumHong Kong

IrelandSwedenPolandNigeria

Seychelles

Kingdom of Thailand (Thailand)

Egypt

Indonesia

Chile

MexicoFiji

Lithuania

Hungary

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative2

Survey Summary
The survey was designed to explore
the steps, experiences, and challenges
embedded in the process of issuing
sovereign GSS bonds. For sovereign issuers,
the process of raising capital is different fromthe private sector and other types of entities,
particularly for thematic bonds.
The Climate Bonds Sovereign Green Bonds
Briefing published in 2017 described how
sovereigns can make a crucial contribution
to the GSS market beyond capital raising.7
Benefits extended to the issuing entity andthe broader market. The sovereign GSS bondsurvey explored the experiences of thosethat have issued thus far.

Sovereign GSS bonds havemarket changing potential
Catalysing or enhancing local markets
For most countries, a key motivation for
issuing a sovereign GSS bond was to support
the growth of a local green bond market.
Sovereign issuers can serve as role models
for other types of issuers. They can provide
investors with safe, liquid investment
opportunities which frees up capital for otherlower rated and less liquid securities.
Contributing to larger strategic initiatives
In most cases a wider strategic initiative
to achieve NDC targets, address SDGs,
and mitigate climate change and social
inequalities triggered the decision to issue.
These plans included policies designed toaddress emission reduction goals as well as
net zero ambitions.

Amplifying transparency
The process of issuing a sovereign GSS bondtypically involved a budget tagging exercise
and commitments to report on the allocationof proceeds and their impact. These audits
greatly increase transparency for ministries
and in parliament and extend to external
stakeholders such as investors.
Diversifying and increasing theinvestor participation
In most cases, a sovereign GSS bondbroadened and diversified the investor base,a key motivation for issuing. Sovereign GSS
bonds also encourage investors to initiate
dedicated GSS investment strategies.
Offering pricing benefits
A broader investor base can facilitate
tighter pricing. If this persists, we expect
domestic Debt Management Offices(DMO) to encourage governments to
identify and develop a pipeline of suitable
GSS expenditures.

Delivering benefits that outweighchallenges
Issuing a sovereign GSS bond is a largecommitment and presented challenges forsome respondents. For example, most were
not permitted to open additional accounts
to manage proceeds from GSS bonds. The
results of this survey suggest that there aretested solutions for these difficulties andthat most sovereign GSS issuers successfully
overcame hurdles.
Challenges and initial costs were usuallycompensated for by the benefits obtained
including increased visibility and reputational
benefits. There are multiple channels
of support from various organisations suchas development banks, structuring advisors,second party opinion (SPO) providers,and NGO’s such as Climate Bonds that
help to navigate the process from creating
the specific framework through to postissuance reporting.

Facilitating cross border collaboration andenhance visibility
Many respondents collaborated withDMO counterparts both pre and post
issuance, in knowledge forums and bilateralconversations. Even the use of proceeds bore
an element of international collaboration
through funds being used to finance projects
beyond the borders of the issuing country.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative3

Section 1: The decision-making process
Ministers drove the decision
to issue
CHART 1 The decision to issue a sovereign
GSS bond is made by ministers. DM
countries highlighted a range of ministers
as having a key role. In EM countries, theMinistry of Finance (MoF) was highlighted
as the most important contributor to
the decision. The Debt Management
Office (DMO) was ranked second for EM
countries and came third for DM countries.
Many countries established a green financeworking group to inform their decisionmaking process and/or bond issuingprocess; these groups tended to have more
influence in EM countries versus minimal
influence in DM countries. This could be
due to such working groups not being
established until after the decision had been
made to go ahead with the bond. In manycases those working groups were thensolely dedicated to the development andissuance of GSS bonds. Investors usually
did not play a crucial role in the decision toissue a sovereign GSS bond.

Curbing climate change andmarket development key
motivations
CHART 2 Curbing climate change andsupporting the growth of a local green
bond market were selected as the primaryreasons for issuing GSS bonds. Curbing
climate change received similar rankingsfrom EM and DM respondents while market
development was mainly driven by highscores assigned by DM. Galvanising a local
market was regarded as one of the highest
priorities for all but one DM country.
The decision to issue a GSS bond coincidedwith large strategic governmental initiatives
and policies amongst which one of themeasures was to issue a GSS bond. For
example, in 2016, Sweden set up an inquiry
to determine how it could promote growth in
the domestic green bond market, and issuinga sovereign green bond was one of therecommendations.
Cheaper pricing, the success of peers in
issuing, and financial flexibility were allassigned a higher priority by EM countries.
One respondent noted their desire to
explore alternative ways of capital raising.
DM respondents asserted that investors
played a part in their decision to issue a
GSS bond, and therefore investor pressure
as well as response to other stakeholder
expectations did contribute but were not
the main considerations.

EM countries tend to be influenced
more by external bodies. In Hungary’s
case their Central Bank offered strong
support, while in Fiji, the reserve bankplayed a crucial role.

France stated that it was a politicaldecision made jointly by the Ministryof Environment (MoE) and the Ministryof Budget after a careful assessment offinancial and reputational risks.

1. Ministers drove the decision to issue a GSS bond
Ministers
MoF or Eco Affairs
DMO
Investors
Working groups
NGO’s/civil society groups

EM
01
Average score

Charles Michel, the Belgian Prime
Minister announced the decision
to issue a green bond in 2017. The
impetus was the desire to develop
a local green finance market, andto show Belgium’s commitment
to its long-term ecological targets.
Belgium’s first green bond was
priced in February 2018.

2

3

DM
4

5

Hungary cited a desire to curb climate change
as its primary driver for issuing EUR and JPY
green bonds in 2020. The launch of the project
coincided with the Climate Protection Action
Plan in February 2020, which was the sourceof multiple eligible expenditures. The EUR deal
was priced as the Climate Action Goals were
presented to the parliament, as an amendment
to the current law of Environmental Protection.

2. Curbing climate change was the top reason to issue
Growth of local GSS market
Reputational benefits
Investor demandMarket signal
Financial flexibility
Curb climate change
Stakeholder expectations
Successful for peers
Cheaper pricing

EM
0
1
Average score

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

2

3

DM
4

5

4

Most established a GSS bondworking group
CHART 3 All DM respondents and 72% of
those from EM indicated that they had aworking group dedicated to their bond inwhich different ministries and other bodies
were represented. Working groups were
responsible for tasks such as identifying
green expenditures and supporting the
preparation of disclosure. They could also
represent a governance body and/or carry out
operational tasks. Respondents were asked
to name working group members. TABLE 2
includes a non-exhaustive list of the various
ministries and other groups named by at least
one respondent. The composition of working
groups varied from country to country.

3. Most respondents established working groups
EM

Yes

DM

Yes
0

2

4

No

6

8

10

12

Number respondents

Table 2. Aggregated list of potential working group members
Internal

External

Involvement in selection andmonitoring of expenditures

Prime Minister’s Office

Attorney general

DMO/ Treasury/ Ministry of Finance

Bond Market Association

The selection and monitoring of eligible
expenditures was usually conducted byrelevant ministries, sometimes represented
through the working group. In addition
to working group members, various
other committees were involved in theprocess such as steering committees or an
independent council (external). Specificsectors were represented via the inclusion of
relevant stakeholders e.g. energy regulators
or national railways. Stakeholders outsideof governmental bodies such as structuringadvisors, reserve banks, and the UNDP, werealso involved.

Other government ministries

Central Bank

Agriculture

Housing

Reserve Bank

Development

Infrastructure

SEC

EconomicInnovation and Technology

Stock Exchange

Education and ResearchInterior

Development Bank

EnergyLabour

UNDP

Environment

Expenditure and Reform

FamilyPublic Works

HealthTransport

Section 2: Preparation
CHART 4 Sovereign GSS bonds financeexpenditures rather than projects, andthese expenditures are not usually newly
created. Most respondents told us their
GSS bond financed expenditures fromcurrent or previous budgets and only
Lithuania, Nigeria, Luxembourg, and the
Seychelles mentioned forward-looking ones.
Due to the nature of such expenditures,the use of proceeds differs from most GSS
bonds from other issuer types. Insteadof financing certain projects and assets
directly, common types of sovereign
GSS expenditures are tax credits, tax
expenditures, investment expenditures,subsidies, and grants.
Accordingly, it is common to include
intangibles among the eligible categories,
including research and innovation,scientific knowledge, and supporting
talent and organization.

4. Most respondents included expenditures from the preceeding two years
EM

New Projects

DM

New Projects + 2 years prior

New Projects + 2 years prior
0

2

4

Unknown

No restrictions
6

8

10

12

Number respondents

Most respondents did not need to introduce
new policies to support the projects
financed by GSS bonds. Usually, relevant
policies were already in place, and as one
respondent stated were complementary.
TABLES 3 & 4 denote examples of categories
of eligible expenditures for Chile (EM) andBelgium (DM) respectively.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

Nigeria introduced its sovereign green
bond programme to finance projects in
the Federal Government’s budget. Projects
included in the approved budget werereviewed for their green credentials andselected based on the amount set asideout of the approved domestic borrowing in
the budget, to be issued as Green Bonds.

5

Table 3. Examples of eligible expenditures: Chile
Tangibles
Transport

Investment in public infrastructure and assets enhancing modal shift, electric public passenger transport

Land Use & Marine Resources

Forestry

Buildings

Energy efficiency investments in public buildings which result in savings higher than 20%
Subsidies dedicated to energy efficiency improvements in housing
Public lighting improvements (e.g., replacement with LEDs)
Design and construction of public buildings certified under “Sistema Nacional de Certificación deCalidad Ambiental y Eficiencia Energética para Edificios de Uso Público”
Costs associated with retrofits to existing public buildings to meet “Certificación Edificio Sustentable”
or improve the current certification level

EnergyInvestments in projects from renewable non-fossil sources
Investments in solar / wind (onshore) energy projects that integrate energy generationand storage (batteries)

Water

Wastewater management: Installation or upgrade of wastewater infrastructure including transport,
treatment, and disposal systems
Water resources conservation: including protection of water catchment areas and prevention ofpollution affecting water supplies
Flood defence systems against riverine inundations: including construction of reservoirs for thecontrol of water flows

Intangibles
Transport

Subsidies or incentives to promote public transportation

EnergyTraining programmes to increase technical knowledge in vocational education centres for renewableenergy installation

Combined
Land Use & Marine Resources

Marine protected areas protection and surveillance (including research)

Water

Water distribution: Installation or upgrade of water efficient irrigation systems, construction, or
upgrade of sustainable infrastructure for drinking water (including research or studies)

Table 4. Examples of eligible expenditures: Belgium
Tangibles
Buildings

Tax credit for corporates investing in energy efficiency
Investments in Sustainable Real Estate Funds with Green Certification

EnergyFederal State’s support to renewable energy infrastructure

Land Use & Marine Resources

Investment expenditures for soil rehabilitation

Transport

Federal State’s support for investment and operating expenditures related to the extension, improvement
and maintenance of public transport and rail-related infrastructure
Tax credits in favour of electric vehicles

Waste

Tax expenditures for reusable packaging

Intangibles
Land Use & Marine Resources

Operating expenditures of academic research programmes in biodiversity, climate change and otherglobal environmental challenges
Investment in sustainable programs for climate change mitigation and adaptation in developing countries

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

6

GSS bonds issued as part ofwider strategic initiatives
All respondents except one described
their GSS bond(s) as part of a larger
strategic initiative. Multiple governments
have announced concrete plans to reduce
their carbon emissions to net zero carbon
over the coming decades while for others,
this remains a work in progress. The
commitments of survey respondents isreported in TABLE 5.
There are already many countries whereclimate impacts can be felt. This isreflected in various strategies which include
adaptation and resilience measures as well
as climate change mitigation.
These strategies included promoting
sustainable and green finance, overall
government agendas and legislation toreach the Paris Agreement goals, as well
as tackling all dimensions of sustainability
at once.
Thailand noted that environmental andsocial issues were interlinked, and thatclimate change and poverty should therefore
be addressed together. Meanwhile, thegovernment of Luxembourg’s intention was
to establish the country as a sustainablefinance hub.

“The Netherlands’ primary
motivation was to fit the green
instrument into the overall
green government agenda. We
decided to practice what wewere preaching by issuing agreen bond.”
Elvira Eurlings, Agent, DSTA,
The Netherlands

Table 5. Survey participants’ progress towards net zero emissions
as of November 2020
Country

Target year

Further comment

Chile

2050

Proposed legislation

Egypt

-

-

Fiji

2050

Proposed legislation

Hungary2050

In law (Law on Climate Protection)
95% compared to 1990

Indonesia--

Lithuania

2050

Support EU but no country-specific target.

Mexico2050

Under discussion

Nigeria--

Poland--Seychelles

2050

Under discussion

Thailand--Belgium

2050

80% to 95% compared to 1990
Under discussion

France2050

In law (Law no. 2019-1147 on Energy and the Climate)

Germany2050

In law
80% to 95% compared to 1990

Hong Kong

2050

Under discussion

Ireland2050

Proposed legislation
80% to 95% compared to 1990

Luxembourg

2050

Proposed legislation

Netherlands

2050

95% compared to 1990
Under discussion

Sweden2045

In law (the Climate Act)
85% compared to 1990

Sources: https://www.climatechangenews.com/2019/06/14/countries-net-zero-climate-goal/ and https://eciu.net/netzerotracker“The Seychelles’ sovereign
blue bond was an innovative
financing vehicle for one of
the key economic sectors of
the Blue Economy Road Map
and Strategic Plan. When it
came to discussions on how
the transition to sustainablefisheries could be achieved,
this was the starting point.”“Climate change issues affecting Hong Kong such as temperaturechanges and more frequent storms make the topic much more
relatable. Hong Kong’s main consideration in setting up a green
bond issuance programme was to demonstrate the government’s
support for sustainable development and to promote thedevelopment of a green bond market as there were no significant
funding needs. The government has placed huge priority on green
and sustainable finance aiming at the shift of financial flows tosustainable projects and to raise awareness, not just in the city but
also in the whole region. .”Jan Robinson, Project Manager,
Department of Blue Economy,
Seychelles

Grace Wong, Senior Manager, Market Development Division,
External Department, Hong Kong Monetary Authority

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative7

A framework sets the parameters for GSS bond issuance.
In the case of green bonds most entities
produce a single document that clearly
articulates the entity’s proposed approach
usually by applying the four Green Bond
Principles: use of proceeds, project
evaluation and selection, management

1. Get government approval
The decision to issue a sovereign GSS
bond is made by ministers.

of proceeds and planned reporting efforts.
Amongst other information the framework
can specify the eligible categories of projects
being financed or re-financed and an
exclusion list of expenditures (i.e. projects
prohibited from being financed with theproceeds). To verify the legitimacy ofthe document, issuers can, and usuallydo, obtain a second party opinion (SPO),
Certification or other types of third-party
reviews of their framework.

2. Establish a GSS bondworking group

3. Selection of eligible
expenditures

Responsibilities include identifying
and managing the pipelineof GSS expenditures,supporting disclosure,and allocating
operational tasks.

Suitable categories of expenditures
to be included in the sovereign
GSS bond are usually aligned withnational priorities.

4. Identification of suitable projects

5. Anticipate reporting

Budget tagging can be used to determine
which expenditures are suitable for inclusion.
Expenditures may also need to meet size
thresholds, and have measurable impacts.
Selected expenditures need to be clearlymarked to avoid other sources of funding
being allocated to them.

The frequency and nature of postissuance reporting needs to be
determined to establish a pattern of
disclosure to investors and parliament.

21

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative8

Establishing a bond working
group is crucial in developmentof frameworks

5. Green bond working groups were the norm

CHART 5 The establishment of working
groups played a crucial role in thedevelopment of the GSS framework, withfifteen respondents noting that thesegroups were involved in the process. Twelve
respondents analysed the portfolio pipeline
while six deployed a green finance roadmap
but with varied approaches.

EM

Yes

DM

Yes

Fiji established an oversight committee, andits portfolio was scrutinized with a climate
vulnerability assessment by the World Bank.
Hong Kong liaised with other stakeholders
and examined the GSS frameworks ofother countries.

Finance Ministries most involvedin framework development
CHART 6 Most issuers managed thedevelopment of their framework internally.
The DMO or MoF equivalent was central
to the process. The MoE was also often
closely involved. SPO providers ranked
second overall and were more common
in DM countries.
Structuring advisors also contributed theirexperience and expertise more notably in
DM. Development banks, stock exchanges,
and Climate Bonds Initiative were relied
upon more regularly in EM.

0

2

4

No

6

8

10

12

Number respondents

6. Most developed frameworks internallyInternally managed
Central bank
Development bank

EM

DM

Climate Bonds
Consultant
SPO provider
Stock exchange
DCM desk
0
1
Average score

2

3

4

5

The role of development banks in sovereign GSS bond issuance
Development banks can support EM
throughout the whole process of issuing
sovereign GSS bonds. For example,
Farah Hussein, Senior Financial Officer in theWorld Bank Treasury described the potential
involvement as follows:“The World Bank provides technicalassistance to EM public sector issuers
to develop sustainable capital markets,
facilitate sustainable market-based
solutions, promote sustainable investment,

and engage in dialogue on ESG issues for
all investments. The technical assistanceprovided by the World Bank Treasury tofacilitate the issuance of GSS bonds is partof the Bank’s broader work to promoteand finance sustainable development,
encourage transparency and supportive
regulation, drive resources towards national
environmental and social priorities, design
and implement better policies, strengthen
institutions, inform development strategies
and contribute to the global agenda.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

The World Bank Treasury serves as animpartial broker, sharing with issuers its own
knowledge and experience, including its
innovative market-based transactions suchas Green Bonds, Sustainable Development
Bonds and debt and risk management
practices, expertise in sustainability issues,
and relationships with market actors andconvening power. The Bank’s sustainablefinance technical assistance programme isgenerally funded by its own administrative
budget, donors, etc.”9CHART 7 Guidance as to what can be
defined as GSS is currently being addressedby multiple market participants andregulators. While initially based on voluntarystandards, both China and the EU have
put in place mandatory green definitionalframeworks, a major milestone in this space.
The EU Taxonomy regulation was enacted inJune 2020 while technical criteria providing
thresholds for definitions of green economic
activities will be put into legislation in early2021. Despite the technical criteria of the
EU Taxonomy still being under development,
four participants used it as a guide whenselecting eligible use of proceeds. Overall,
the process was mainly driven by alignment
with national policies which was indicatedby 68% of respondents, seven EM and six
DM. Ten out of 19 participants indicated thatthey were using the ICMA GBP in addition toother guidelines.

Similar spending rules for GSS
and vanilla bonds
Apart from being linked to specificexpenditures, most sovereign GSS bonds are
subject to the same rules of public spending
as vanilla bonds and therefore fall under acountry’s main public financing framework.
In almost two-thirds of the cases (63%)
this framework places restrictions on
earmarking revenues for specific uses.
In the corporate world it is a frequent
practice to open a separate account tomanage the funds raised from GSS bonds,
but most governments do not allow this.
The major concern for most sovereignissuers was “double counting”, meaning
they needed to prevent funding of the same
expenditures twice. This applied in cases
where other sources for example, the EU,
were financing certain GSS expenditures.

7. National policies dictated eligible use of proceeds
80%60%

Number of respondents
EM

DM

9

40%

6

20%

3

0

0
EU
Taxonomy

Other
Climatetaxonomy
Bonds
Taxonomy

The Seychelles created a Blue Economy
Roadmap which included an analysis of
the country’s portfolio pipeline as one of
the major tasks.

to open a dedicated account for the cash
inflow from their green bond programme.
Belgium made a slight amendment toexisting law. To circumvent the restriction
on earmarking proceeds for specific uses,
they drafted an allocation report making
federal entities aware that a green bond withcertain expenditures had been issued. Thiswas designed to highlight those expendituresand make sure they were not reused byother entities for green or sustainable bonds.
Ireland specifically mentioned they wanted
to avoid making a constitutional change andso worked on a notional equivalent basis.

Even though many governments were unable
to ring-fence money, only two out of 19
respondents made a legal change. One ofthem was Poland, which changed the law

The concept of notional equivalence refers to
a form of hypothecation which seeks to draw
a line between proceeds and how they areused without an actual physical separationfrom general-use proceeds. This notional
equivalence acts as a form of floating charge
on the general proceeds. This system isused so that all proceeds from debt funding
operations are added to the government’s
central fund - a single account held at theCentral Bank of Ireland.

The Seychelles is part of the IMF reform
programme which places very strong
conditions regarding specific uses ofrevenues. This needs to be consideredwhen issuing bonds for specific uses.

“According to German law all expendituresare subject to parliamentary decisionand therefore, our green bond issues aredesigned to finance expenditures thathave already been carried out”.

Legal changes rare

12

SPO
providerNational
policyNumber of respondents

Eligible Use of Proceeds werealigned with national priorities

Climate
Bonds
Certification

Ireland created a roadmap andcarried out a shadow price for carbon,
evaluating fossil fuel divestments andother similar scenarios and engaging
with different government departments
and state agencies.

The Climate Bonds Certification
Scheme is the first and only international
science based Certified labelling scheme
for green bonds and loans. It sets market
best practice in terms of ambitious
climate action, reporting and disclosure.
Developed together with stakeholders
across the market, it incorporates
independent verification and assurance
against an open standard, and evidencebased eligibility criteria which screens forthe types of infrastructure investmentsaligned with the Paris Agreement.
The Scheme has provided Certification
to hundreds of debt instruments,
which amount to over USD150bn asof October 2020.
Nigeria, Netherlands, Chile, andThailand have all issued Climate Bonds
Certified sovereigns.

Alexandra Beust, Head of Investor
Relations, Deutsche Finanzagentur,
Germany

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative10

CHART 8 Most (89%) respondents
indicated that, having decided to issue a GSS
bond, it took less than a year to price it. In
fact, most said it took less than nine months.
Nevertheless, the time taken to receive thegreen light should not be underestimated.

8. Governments can issue GSS bonds in less than a year
EM

One year or lessDM

One year or less0This involved speaking to primary dealers,
investors, and internal debates. Some
respondents also mentioned that thepressure of getting deals done was partially
imposed by election dates.

2+ years

24

1-2 years6810

After appointing arrangers, Thailand
took three to four months to issue its
sustainability bond. However, making thedecision to issue took a couple of years.

This implies that the concept, procedures,and frameworks need to be robust enough towithstand a potential change in government.

Germany spent at least nine months
analysing whether a green bond wouldbe economical. This was one of theconditions that needed to be satisfied
before the green light could be given.

Roadshows generated in depth
discussion

9. How sovereign GSS roadshows differ from usual set-ups

CHART 9 Local currency sovereign bonds
are traditionally issued through an auction
process. Foreign currency sovereign bonds,
and bonds from all other types of issuers
are syndicated meaning the bond sales aremanaged by a group of banks. Occasionally,
local currency sovereign bonds are syndicatedand all DM European issuers except theNetherlands utilised this route for theirfirst GSS bond. Issuing through syndication
usually involves a roadshow. For sovereign
GSS bonds the setup differed from “normal”
roadshows, with 79% of respondents notingthat questions from investors went into
greater depth than usual. Anticipating suchengagement can extend preparation time,and in 63% of the cases, members of otherministries were part of the team deployed torespond to these questions.

100%

Budget tagging and eligible
expenditure definitions

Through the budget tagging exercise,issuers became familiar with the systemof classifying expenditures according togreen and social taxonomies, the dataneeded to make those assessments, anddifferences among various standards. Future
expenditures could be tagged as part of theapproval process thus streamlining the workrequired for future GSS bond issuances.

Most issuers went through a budget
tagging exercise to determine exactly which
expenditures were suitable for inclusion. In
most cases, this involved scrutinising eachbudget line and identifying whether it could
be classified as green or not. The process
was often accompanied by discussions withministers, working groups and cabinets
as well as supported by third parties suchas structuring advisors and underwriters
who could contribute expertise on what
investors considered green and what
constituted market best practice. Projects
were also selected based on their size andmeasurability foreseeing potential issues
with post-issuance reporting and making
sure that not too many expenditures were
included.

12

Number respondents

Number of respondents
EM

16

DM

75%

12

50%

8

25%

4

0

0
More
international
marketing

Representationof government
ministries

Indonesia described a two-tierprocess. Firstly, the Fiscal Policy Office
put tags on the budget lines basedon predetermined categorisations.
Secondly, the MoF examined eachtagged line to determine eligibility.
Fiji looked at its budget and split it into
three shades of green.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

Greater depth
questions

Number of respondents

Short time frames from decision
to issuance

Corporateissuerparticipation

France assigned a green coefficient
to each budget line according to how
green the expenditure was relative tothe six environmental priorities of the EU
Taxonomy: climate change mitigation,
climate change adaptation, water
management, circular economy, pollution,and biodiversity. This exercise has now
been integrated into the budgeting process.
The Netherlands wanted their bond to be‘dark green’. This was a risk management
measure to avoid controversy. There
were different rationales behind eachcategory of eligible expenditure. For
example, housing was chosen as it isvery tangible and ‘down to earth’, whiletransport was selected for its size.
The list was kept short for simplicity.

11

Investors probed on policyalignment and expenditures
Questions asked at roadshows forconventional bonds tend to revolve around
liquidity and credit, but these topics were
not the primary focus of sovereign GSS
roadshows, which typically involved deeper
engagement. Investors wanted to know
about the government’s strategy and theactual expenditures that the GSS bondwould finance.

84% of respondents agreed that investors
wanted more information on the use ofproceeds, followed by the link to national
policies (74%) and, in a few cases, emission
reduction (42%). Only two issuers – bothfrom EM countries – had corporate issuersparticipating in their roadshow to learn
more about the process. Roadshows
provided a forum for investors to clarify
any ambiguities in advance such as double
counting and to guide expectations on
allocation and impact reporting.

Lithuania issued its green bond via
auction and spoke to investors bilaterally
instead of road showing it. Investor
feedback regarding tenors and expectedparticipation in auctions were gauged
through contact with primary dealers.

The Belgian roadshow lasted much
longer than is customary and had
a focus on institutional investors.
Representatives from the MoE joined
to answer investors’ in-depth questions
regarding certain expenditures/ line
items, which would usually not occur.

There were also questions on thecommitment to issue on a regular basis,
liquidity management, and whether there
was any ambition to create a green curve.

Section 3: The issuance
The cost of funding throughsovereign GSS bonds is similar
to or less than for vanilla bonds.
CHART 10 The consensus among
respondents was that the cost of issuing
GSS bonds was either less than, or similar
to vanilla bonds when comparing yields likefor-like. One EM issuer did not have a pointof comparison (N/A), and one DM issuer
described the costs as being greater including
the peripheral expenditures required.

10. The cost of funding GSS bonds was similar to or lessthan vanilla equivalents
EM

Less

DM

Less

The organisation and administration costs
need not be a barrier to entry for EM sovereign
GSS issuers. Some of the costs can be met
through programmes funded by the IFC, IMF,
ADB, IDB, UNDP and equivalent institutions.
Most EM respondents received technicalassistance, often from multiple sources. Suchcollaboration can offer an additional layerof comfort to investors strengthening thetransparency and validity of the endeavour.

02

Similar

Greater
4

N/A

Similar

6

8

10

12

Number respondents
UNDP provided an alignment letter on
Mexico’s framework, praising its uniquefeatures, including the use of the SDGs
as an entry point, and an eligibility
criteria that included collecting spatial
data to identify the most deprived
communities. UNDP will also provide an
opinion on the impact report.

The Asian Development Bank (ADB)
collaborated with Thailand on the
preparation of their first sustainability bondin 2020. ADB advised on multiple aspects
including best practice for the reporting,stock exchange listings, and the criteria
for the selection of assets for subsequentissues. The involvement of ADB provided
additional rigor to the issuance process
which boosted investor confidence.

Examples of technical assistance:
Thailand

Chile

Inter-American
Development
Bank

UNDP

MexicoIndonesia

Nigeria

Seychelles

Fiji

Netherlands

The WorldBank

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

Asian Development
Bank

Egypt

IFC

12

Sovereign GSS bonds tend to
attract higher book cover

11. Book cover was similar to or greater for GSS bonds compared to vanilla

CHART 11 Respondents said that demandfor GSS bonds was similar to, or greater thanfor vanilla equivalents. In some cases, suchas Sweden, Hong Kong, and the Seychelles,
there was no like-for-like benchmark.

EM

HigherDM

To give context to the discussion of demand,some comparisons are given in CHART 12.
These are averages of the bid to cover ratioor book cover for the three prior auctions ofvanilla securities with similar characteristics
to the GSS bond. Acknowledging thatdemand dynamics vary according to theprevailing economic and geo-political
backdrop as well as size and maturity ofdifferent securities, the results neverthelessindicate that more often than not, there
is increased demand for sovereign bonds
bearing a GSS label.

Lower

HigherSimilar

Similar

0

2

N/A

N/A

4

6

8

10

12

Number respondents“ESG investors were two thirds of theorder book which reached EUR7.5bn.
The book cover was much higher thanfor our prior deal.”
Zoltan Kurali, CEO, Government Debt
Management Pte, Hungary

12. Book cover of sovereign GSS bonds compared to the three prior auctions of vanilla bonds from the same issuer
8
GSS bond

7

Average of prior three auctions

6

4
3
2
1

20
35

20
28
a

Hu
ng
ar
y

49

ua
ni
th
Li

Po
l

an
d

20

20
29

Po
l

an
d

20
26

Po
l

an
d

20
21
an
d

ur
bo

Po
l

g

20
32

20
25
xe
m
Lu

rm
Ge

an
y
rm

an
y

20
30

0
04
s2

la
nd
th
er

Ge

20
31
nd
la
Ne

Ire

iu
m
lg
Be

Fr
an
ce

20
33

0

20
39

Number of times oversubscribed

5

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

13

Greenium and sovereign
GSS bonds
A new issue premium is the extra yield that abuyer gets, and a seller pays for a new bondcompared to where seasoned bonds fromthe same issuer are trading in the secondary
market at the time of issuance. This is astandard feature of the bond market.
Occasionally, however, a bond may be
issued with a higher price, and lower yieldcompared to existing debt and will priceinside its existing yield curve. When this newissue concession is present in green bonds,
we call it a greenium.8
Yield curves were available for 23 individual
sovereign GSS bonds issued by respondents(some have issued multiple bonds inmore than one currency), and the pricing
outcomes are shown in TABLE 6.9

Table 6. Sovereign GSS bonds tend to price on their curves
or with a greenium
IssuerPricing date Original Original Currency
size
size
(bn local) (bn USD)

Pricing outcome

France 2039

24/01/2017

7.0

7.5

EUR

Greenium

Belgium 2033

26/02/2018

4.5

5.5

EUR

On the curve

Ireland 2031

10/10/2018

3.0

3.5

EUR

On the curve

Netherlands 2040

21/05/2019

6.0

6.7

EUR

Greenium

German Bund 2030 02/09/2020 6.5

7.7

EUR

Greenium

Luxembourg 2032

1.8

EUR

New issue premium

07/09/2020 1.5

German BOBL 2025 04/11/2020

5.0

5.9

EUR

Greenium

Poland 2021

12/12/2016

0.8

0.8

EUR

New issue premium

Poland 2026

31/01/2018

1.0

1.2

EUR

On the curve

Four bonds in our sample exhibited a normal
new issue premium, with nine and ten bonds
falling into the greenium and on the curve
categories respectively.

Indonesia 2023

22/02/2018

1.25

1.25

USD

On the curve

Lithuania 2028

30/04/2018 0.02

0.02

EUR

New issue premiumIndonesia 2024

12/02/2019

0.75

0.75

USD

On the curveThis suggests that, broadly speaking, there
is a supply/demand imbalance pointing toa shortage of sovereign GSS bonds. Thisis consistent with the results of the Climate
Bonds Green Bond European Investor Survey,
in which investors said they would like to buy
more green bonds from sovereign issuers.10

Poland 2029

28/02/2019

1.5

1.7

EUR

On the curve

Poland 2049

28/02/2019

0.5

0.6

EUR

New issue premium

Chile 2050

17/06/2019

1.4

1.4

USD

Greenium

Chile 2031

25/06/2019

0.9

1.0

EUR

On the curve

Chile 2040

21/01/2020

1.3

1.4

EUR

On the curve

Investor focus on sustainable investment
has further increased since the Investor
Survey was published in 2019. The numberof dedicated investors has grown rapidly as
the COVID-19 pandemic has illuminated therole the investment community must play toachieve a sustainable and green recovery.

Chile 2032

22/01/2020

0.75

0.75

USD

Greenium

Hungary 2035

02/06/2020 1.5

1.7

EUR

On the curve

Indonesia 2025

16/06/2020 0.75

0.75

USD

Greenium

Thailand 2035

13/08/2020

0.975

THB

Greenium

Egypt 2025

29/09/2020 0.75

0.75

USD

Greenium

The greenium has become more pervasivein the latter half of 2020 but cannot be
guaranteed for every GSS bond. Beyond thegreen label normal bond market dynamics
can and do influence pricing outcomes.

Mexico 2027

09/14/2020 0.75

0.9

EUR

On the curve

Among the DM issuers, the delivery of alarge, liquid asset in EUR, the local currencyof most dedicated green investors has helpedto achieve either a greenium, or pricing on theyield curve for all except Luxembourg.
Luxembourg generally has low fundingneeds, and indeed has just over EUR11.8bn(USD13.7bn) in total outstanding bonds
with a maturity of 1-year or more, compared
to for example Germany which has close
to EUR1.2tn (USD1.3tn). The combinationof an established investor base and socially
responsible investors can really help tosqueeze yields for sovereign GSS issuersin DM.

30

In EM, where liquidity is typically lower, threebonds priced with a new issue premium.
Historically, the majority of dedicated GSS
investment has been concentrated in DM,
since that is where most of the investible
opportunity set has been. A combination of
more investment opportunities (facilitatedby more sovereign issuance), a low yieldenvironment, and the increased focus on
GSS investment strategies should give rise to
more dedicated mandates. Each government
can contribute to the growth of the market
by greening its own investments, forexample, making GSS mandates the default
choice for public sector pension funds.
Those in DM can allocate a portion of theirinvestment portfolio to bonds originatingfrom EM.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

Lithuania noted that GSS bonds add
responsibility and extra work throughreporting which is not required for vanillabonds. These efforts need to offer atangible benefit in addition to the soft
reputational rewards. A difference inpricing would be helpful and this shouldarise from a dedicated investor base.

“If investors attribute a value to theadditional green element and the fulltransparency it provides, they may well
accept a slightly lower yield.”
Alexandra Beust, Head of Investor
Relations, Deutsche Finanzagentur,
Germany

14

2.0
1.5

2.5

2.0

1.5

1.0

1.0

0.5

0.5

0.0

0

0

0
Durationbox continues on page 16

15

-0.4
-0.6
-0.8
-1.0

20

25

25
30

20

Sustainability bond

5

10

15

20

25

30

5

10

15

20

25

30

15. German Bobl 2025 EUR - greenium

0-0.2

15

Source: Frankfurt Stock Exchange

On-the-run yield curve as of 02/09/2020

0DurationOn-the-run yield curve as of 04/11/2020

Germany repeated this exercise on the
4th November, issuing a green twin
5-Year (BOBL). The DMO operates toa strict calendar of issuance, and thedate coincided with the US Presidential
election, hence press coverage was more
muted. However, the green BOBL priced
with a 1.5bp greenium, and as of lateNovember 2020, had remained inside thevanilla curve.

10 10

14. German Bund 2030 EUR - greenium00
0.0
On 17th June 2020, the German
-0.1
-0.2
Finanzagentur (DMO) issued a EUR5bn-0.2(USD5.6bn) vanilla Bund (10-year). Thiswas subsequently reopened multiple times, -0.3
-0.4
reaching EUR30.5bn (USD34.1bn) by
20th November 2020. On 2nd September, -0.4
the DMO also printed a EUR6.5bn
-0.5
-0.6
(USD7.28bn) green Bund sharing the samecharacteristics as the vanilla one except for -0.6
the use of proceeds, which the DMO has
-0.7
-0.8
termed the ‘green twin’. In effect this is a
-0.8
non-fungible tranche that will continue to
Although the green twin is smaller, thetwins share the same cash flows so we
can determine whether investors attacha value to the green label. The DMO
has promised to exchange the green
twin for the vanilla twin at any time, so
the difference in size should not affectliquidity. The green Bund priced with agreenium, and as of late November 2020
had remained inside the vanilla curve.

55

Vanilla bonds

maintain a separate identifier until maturity.

Source: Bloomberg

2.5

5

10

15

20

25

30

5

10

15

20

25

30

-0.4

-0.6

Source: Frankfurt Stock Exchange

Germany took a unique approach toissuing green bonds with its ‘twin’ bondstructure.

13. Thailand 2035 THB - greenium

Yields as of 13/08/2020

On August 13th, 2020 The Kingdomof Thailand priced the first sovereign
sustainability bond in the ASEAN region withthe support of ADB. The total size of the bond
was THB30bn (USD975m) divided into two
tranches. Each tranche had a different
settlement date as required by Thai bondmarket regulation for dual tranche bonds
with different uses of proceeds. The smaller
THB10bn (USD300m) tranche was allocatedto low carbon transport green expenditures
and the remaining THB20bn (USD600m)
to the social component, composed of
expenditures pertaining to a COVID-19
rehabilitation package. Investors submitted
a single indication of interest and received
allocations of each tranche proportionally.
The order book exceeded THB60bn(USD1.9bn) and the bond priced inside its
yield curve close to the existing 15-year bondwhich is three times larger.11 CHART 13

-0.8

-1.0
0
Duration
New issue green bonds

Vanilla bonds

Seasoned green bond

Vanilla bonds issued on the same day as the green bondPrices are Bundesbank reference prices from Frankfurt stock exchange recorded around noon daily. Since auctions typically close at 11.30
am, this is the closest possible match in terms of timing.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative15

continues from page 17
As of 18th November 2020, the green
Bund had recorded slightly lower pricevolatility than its vanilla twin on both a
ten and 30-day basis. The DMO retainedsome of the bond for market intervention
which could be contributing to the relative
stability. Regardless of the reasons, allthings being equal, investors prefer lower
volatility instruments which, if detected insovereign GSS bonds, could help investors
to justify a primary market greenium totheir asset owners.13

Sovereign GSS bonds attract
new investors.
CHART 16 For many EM and DM sovereignissuers such as Indonesia, Hungary, andLuxembourg attracting new investors wasa stated objective of the GSS label. Some
respondents noted that GSS segments of
their traditional investors got involved in
the deal, and several reported that multiple
investors tried to convince them of theirgreen credentials such was their desire to be
included in the allocations. Smaller issuerssuch as Fiji and the Seychelles had a handfulof both domestic and international investors,
including those new to the credits.

Respondents identified four benefits
arising as a consequence of capturing
new investors• Diversification –sovereign GSS bonds
tend to introduce
a broader range ofinvestors from different
geographic regions including moreinvestors in the buy and hold category• Proof of concept –attracting newinvestors to GSS
labelsTable 7. The green Bund exhibited slightly lower price volatility
compared to its vanilla twin.
Price volatility

Green Bund

Vanilla Twin

10 day6.73

6.77

30-day4.39

4.41
Source: Bloomberg

16. GSS sovereign bond attract new investors
Yes

EM

No

Yes

DM
0

2

No
4

6

8

10

12

Number respondents“Our Blue bond had been discussed atseveral international events, and we
actively engaged with investors we had
met there regarding their interest in
participating in the deal. 100% of thedeal was placed with impact investors”.

“The intention was to gain new investors
for the green market more than newinvestors for the issuer Germany.”
Alexandra Beust, Head of Investor
Relations, Deutsche Finanzagentur,
Germany

Jan Robinson, Project Manager,
Department of Blue Economy,
Seychelles

At the end of September 2020, Egypt
became the first sovereign with a B rating
to issue a green bond. The 5-year bondwas originally intended to raise USD500m.
The order book reached USD4.93bn close
to ten times covered, and the deal was
upsized to USD750m. Almost half wasallocated to investors with a GSS mandate,suggesting that there is growing appetite
within the GSS investment community
for non-investment grade issuers. This isconsistent with the results of the Climate
Bonds Green Bond European Investor Survey.12
Respondents to that survey indicated thatthey would like to increase their holdings in
EM sovereign green bonds.

• Messaging –communicating themessage to a broader
audience• Greenium – interest
from more investors canhelp to squeeze yields

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative16

On average, 44% of GSS deals
were allocated togreen investors
CHART 17 Fifteen respondents disclosed
how much of their GSS bond was allocatedto investors describing themselves as green.
The average was 44% and the range was
13% to 100%.
Efforts are currently being made tostandardise the definition of a green
investor. From 1st January 2022 European
investment firms describing their products
as green, or socially responsible will be
required to disclose the percentage of theirinvestments in compliance with the EU
taxonomy, i.e. consistent with a net zeroeconomy by 2050.
This will give green bond issuers a clear
benchmark to measure the relevant
credentials of bidders and offer asset
owners more transparency in the manager
selection process.

Green investors tended to gain
preference
Eleven respondents actively gave preference
to investors describing themselves as
green or socially responsible. Several
mentioned that investors were very keen to
demonstrate their green credentials in thehope of getting better allocations.
One DM issuer noted that the advantage
of issuing through a syndicate as opposed
to directly through the DMO meant that
allocations could be made using different
considerations than normal.

17. 44% was allocated to GSS investors on average
GSS investors

Other
Average 44% was allocated to GSS investors

0%

25%

50%

75%

100%

Luxemborg
Egypt
Thailand
Seychelles
PolandGermany
MexicoHungary
Netherlands
Indonesia
IrelandHong Kong
Chile
BelgiumIndonesia issued a green Sukuk in 2018,2019, and 2020, each with a 5-year tenor.
The MoF had a stated ambition to attract
new investors with their green Sukuk. In
each case, Indonesia collaborated with

its lead managers to ensure the highest
possible participation of green investors.
The green investor participation
increased from 29% in 2018 to 34%
in 2020.

The Dutch State Treasury Agency(DTSA) endorsed a formal declaration
by offering priority allocation of its firstgreen sovereign, Netherlands 2040, to‘real money’ (unleveraged) bidders willingto verify their green credentials. Investors
were invited to confirm that they met atleast three of the four criteria formulated by
the DSTA with a letter signed by their headof compliance. The four criteria were:

3. It aims to potentially purchasegreen bonds offered by the State of
the Netherlands either for full or partial
inclusion in a specific green (bond) fundor to take the purchased volume into
account for a specific target on green bonds
amounts;

1. A dedicated team within its
organisation, which performs ESG analyses
for its respective investment universe;
2. Specific ESG requirements and criteria
related to green bonds (e.g. reporting),
which need to be met in order to be able toinvest in a green bond;Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

4. It intends to transparently report on its
investments in green bonds in its annual
report or specific sustainability/responsible
investment report.
Thirty-two investors registered this status,
and they collectively received 29% of theallocation.

17

New issuance and reopening
foreshadowed
TABLE 8 Among the 19 respondents, six
had already issued at least two bonds andsix had reopened bonds. This suggests that
there is a pipeline of projects available forfinancing through GSS bonds, and perhaps
GSS bonds can catalyse governments intoa more focused approach to prioritisingexpenditures designed to tackle climate andsocial issues. Twelve respondents statedtheir intention to issue more bonds, four said
they planned to increase the size of their
existing instruments (two said they planned
to do both), and five did not know. For some
respondents like Sweden and Luxembourg,
funding requirements do not need to be met
through borrowing, and there is less urgency
to reissue.
Germany, Poland, Chile, and Hong Kongplan to build a steady and reliable pipeline,
while others including Thailand, andBelgium, will concentrate on enlarging their
existing bond first.

In June 2019, Chile became the first
GSS bond issuer from the Latin America
and Caribbean (LAC) region with a
USD1.42bn Climate Bonds Certified
green bond. A week later, this wasfollowed by a EUR861m (USD973)
green bond.
On 21st January 2020, a new EUR1.27bn(USD1.4bn) bond was printed, and theexisting bond was tapped for EUR693m(USD765m). The following day, a
USD750m was added, and the originalbond was tapped for USD900m. The
USD bonds priced with a greenium,
while the EUR bonds priced on theiryield curves.
Chile indicated its intention to issue
more and tap its existing stock aspart of a national strategy to financeprojects that contribute towards Chile’s
NDC targets.

Table 8. Actual and intended repeat issuance of sovereign GSS bonds
Country

Pricing dateof originalbond

Outcome to 20/11 2020

Future Intention

RepeatIssuerRepeatIssuerIncreasedsizeFrance24/01/2017

7 times

Belgium

26/02/2018

5 times

Ireland

10/10/2018

Twice

Netherlands

21/05/2019

TwiceHong Kong

21/05/2019

Sweden01/09/2020

Undecided

Undecided

Germany

02/09/2020

Luxembourg

07/09/2020

Undecided

Undecided

Poland12/12/2016

Fiji

31/10/2017

Unknown

Unknown

Nigeria

20/12/2017

Indonesia

22/02/2018

Lithuania

30/04/2018

Unknown

Probably not

Seychelles

29/10/2018

Unknown

UnknownChile

17/06/2019

Hungary

02/06/2020

Thailand13/08/2020

Mexico14/09/2020

Egypt

29/09/2020

Increased
size

Twice

In January 2017, France became thefirst DM sovereign GSS bond issuer
with a EUR7bn (USD7.55bn) 22-year
instrument. This bond was subsequently
tapped ten times, increasing to a total
size of EUR27.4bn (USD29.5bn), by
July 2020 making it the single largest
GSS bond. The bond is now comparable
in size to other OAT and France will
introduce a new tenor in 2021.

“The Fijian Government’s perceptionof climate centric capital markets,
confidence and financial awareness inthe climate finance space has evolved
substantially since 2017 along with theglobal market for GSS bonds. While
there is no immediate intention to issue
more or reopen the existing green bond,
we are exploring options to issue blue,
sustainable, gender and catastrophebonds as and when the opportunity
arises in a conducive macro-economic
environment.”
Vineil Narayan, Acting Head of Climate
Change and International Cooperation,
Ministry of the Economy, Fiji

Twice

Once

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative18

Tenor selection, liability andinvestor choice
TABLE 9 The selection of tenor is a criticaldecision because it can influence appetite forthe bond, and appetite for a particular tenor
can vary according to market and currency.
Sovereign GSS issuers must carefullybalance their existing redemption profile,the duration of chosen projects, and investor
appetite. Several European respondents said
that they considered the tenors that their
GSS cohort had issued to give investors morealternatives.

Table 9. GSS sovereign debt issued at each tenor
EM

DM
Chile 2050

31-Year
30-Year

Poland 2049

Longer tenors tend to attract insurancecompanies and particularly pension funds
seeking to match long dated liability cashflows. This intersects with the source ofmost of the dedicated green investment.

France 2039

Netherlands 2040
France intended to issue EUR10bn
worth of green bonds in the first year
and selected a 22-year maturity. Since
most GSS corporate debt has a five toten-year maturity, the choice of a longer
tenor would not crowd out that part ofthe curve.

Fiji issued a dual tranche bond with afive and 13-year tenor. The shorter tenor
was designed for domestic banks withshorter funding needs while the longer
tenor filled a gap in the yield curve andthat was better suited to insurance andpension funds.

22-Year21-Year
20-Year
Chile 2040

Belgium 2033

Thailand 2035
Hungary 2035 (EUR)
15 YearLuxembourg 2032

Chile 2031
(EUR&USD)
13 YearFiji 2030
Chile 2032
(EUR&USD)

12 Year

10 Year

Poland 2029

Seychelles
2028
8.5 Year
7-YearIreland 2031

Lithuania 2028

Hungary 2030 (JPY)
Poland 2026

Sweden 2030

Hungary 2027 (JPY)

Germany2030

Mexico 2027

6 -YearNigeria 2026

5-YearPoland 2021
Fiji 2022
Nigeria 2022

Egypt 2025
0
Tenor

Hong Kong
2024

Germany 2025

Indonesia 2023,
2024, and 2025

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

19

Section 4: Reflections
Confidence and profile boosted;sovereign curves unmoved
More respondents than not said that
their GSS bond(s) had not impacted theirsovereign curve. Belgium, for example,
has close to EUR410bn (USD460bn) in
outstanding liabilities and its EUR8.2Bbn(USD10.1bn) green bond is a tiny part of thatprofile. Germany made a concerted effort
to separate its green bond programme fromits other debt with the twin bond concept
and stated that it did not want its green
programme to impact its vanilla issuance.
Egypt mentioned that the success of hardcurrency GSS bonds had provided the impetus
to explore issuing such instruments in its
local currency. Fiji responded that their green
bonds had not impacted its overall sovereign
curve, there was an acknowledgement thatit had created substantial market awarenessand it had been encouraged to explore similar
opportunities as a result.

Boost in cross-bordercollaboration
GSS bonds afford issuers greater visibility
and press coverage compared to vanillaequivalents the benefits of which can extend
to other regions. This is particularly true forsovereign issuers, especially EM issuers,
where the visibility and scrutiny are greater,
and the impact can be much more powerful interms of messaging and scale.

Germany’s green bond framework
embedded international cooperation
into its eligible expenditures to reflect
the global impact of climate change.
The objective defined in the framework
was to “assist emerging market anddeveloping countries in their transition
towards a more environmentallyfriendly economy and support
international cooperation in that field(i.e. mitigation of and adaptation toclimate change, transition towards
more renewable energies, protection of
habitats and biodiversity, sustainable
use of natural resources and energy
including developing renewable energy
generation facilities and sustainableagriculture).”In September 2020, Sweden became
the first country from the Nordic region
to issue a sovereign green bond. The
SEK20bn (USD2.3bn) 10-year was
issued by the Kingdom of Sweden
under the EMTN programme as a
Swedish Government International Bond(ticker SWED), and not as a Swedish
Government Bond (ticker SGB). The
green bond was thus not part of theregular issuance backed by primary
dealer contracts and standing repo
facility. The government instructed theSwedish DMO to execute one bond. The
bond will be evaluated for the long-term
cost and risk to determine whether itshould be repeated. The green bond was
a complement to regular SGB issuance.

Inclusion in dedicated bond indicescan help to increase the profile of theissuer. Indonesia is a case in point as
its bonds were included in the MSCI
green bond index resulting in moreinternational interest.

Respondents specified four areas inwhich GSS bonds involved cross boardercollaboration:
1. Other DMOs – respondents mentionedthat they collaborated with their counterpartsat other DMOs both before, to ask for advice,
and after, to share experiences.
2. Stock exchanges – sovereign GSS
issuers can register their green bonds
on stock exchanges to give them more
visibility. Stock exchanges can support
issuers with guidance on frameworks
and reporting, and improve access forinvestors by acting as central repositories
for documentation and reporting.14

3. Invitations to shareknowledge at debt
forums, panel invitations etc.
4. Development banks and otherorganisations – working together to get the
GSS bond fit for purpose, and then sharing
the message with other potential issuers
afterwards. EM issuers work with multiple
organisations, e.g. Nigeria collaborated with
FSD and Climate Bonds.

The Kingdom of Thailand listed several
cross-border collaboration opportunities
arising from its sustainability bond.
While designing the framework, it
studied those of other countries.
Since the launch of the bond, it hasreceived multiple panel invitations toshare details of the experience. Several
development banks have expressedinterest in learning more, and Thailand
will discuss the bond at ASEAN debt
forums when the opportunity arises.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative20

Issuance encourages local
market growth

Respondents identified five ways thatsovereign GSS bonds can encourage
green market creation

The transition to a low-carbon, climate
resilient, and equal global economy requires
all types of issuers to engage in the GSS
bond market. Given that sovereigns makeup almost half of the volume of the global
bond market, their leadership role is critical.
Sovereign GSS bonds support growth in local
markets by attracting investors and in turndemonstrating investor demand, setting
precedent, and increasing visibility.

1. Attracting new investors – the profileand scale encourages investors to
implement dedicated strategies.
2. Creating space for other issuers supporting the local green bond market witha large, riskless asset enables investors todiversify towards more risky or less liquid assets.
3. Establishing best practice – thecreation of a blueprint for disclosure,transparency, and procedure.

By boosting issuance volume in local
markets, they can both increase liquidity andfacilitate the growth of the essential market
infrastructure and technical skills necessary
for the development of a green bondmarket. This includes verifiers, specialist
underwriters etc. Sovereign GSS bonds cantherefore assist in green market creation, andfor many respondents this was a motivation
for issuing. Such market creation includes
the private sector and regional governments.

“Going through the process of issuingourselves, from creating the framework,
asset selection, post issuance reporting
etc. has helped us understand more about
the process so we can be more credible.
This experience has also helped to ensure
there are no hurdles from the regulatoryor legal / taxation perspectives.”

In Belgium for example, the sovereign green
bond encouraged the region of Flanders to
issue a sustainability bond.15

Grace Wong Senior Manager, Market
Development Division, External Department,
Hong Kong Monetary Authority“All the additionality arguments on market
development were Hong Kong’s reasonsfor issuing green bonds. We did it topromote development of a green bondmarket and to highlight the government’s
commitment. Those were our primaryreasons, not our additional ones.”

Sovereign GSS bonds offer
multiple additionalities
CHART 18 GSS bonds must, by definition, havea use of proceeds that contributes to the goalsof the Paris agreement (green bonds) and/or
clearly defined social projects (sustainability/
social bonds). While such expenditures could
be funded using unlabelled debt, GSS labels
bring sovereign issuers other advantages thatwould not have otherwise happened.

“For the first time, parliament will get
metrics to see the impact of the investments
they authorize. Historically, the importanceof government projects is measured by
how much money is allocated to themrather than the outcome. Performance
metrics for government spending is adifferent approach to budgeting.”
Lennart Duschinger, Advisor for
Sustainable Finance, Ministry of
Finance, Luxembourg.

5. Highlighting the priorities ofgovernment – communicates a strong
message that the government is working
to resolve social inequalities and/or
mitigate the impacts of climate change.

The Seychelles’ blue bond, issued in
October 2018, developed understandingof the fishery and ocean conservation
space. The transaction piqued theinterest of numerous countries in theregion and elsewhere, leading to acontinuous stream of inquiry. Everymonth there are bilateral meetings withother countries to share lessons learned.
The required level of ocean conservationnecessitates funding on a scale larger
than grants or aid packages can support.
The blue bond demonstrates how theissue can be addressed at scale.

“Fund managers tell us they went into thegreen impact fund market and tried to raisemoney when sovereigns became activein the market. The market simply was
not big enough before. This is evidence
that sovereigns catalyse private money.”
Elvira Eurlings, Agent, DTSA,
Netherlands

18. Sovereign GSS bonds bring multiple additionalities
100%

EM

DM

Number of respondents

16

75%

12

50%

8

25%

4

0

0

Number of respondents

When asked to select from a list ofadditionalities beyond the expenditures,
respondents mostly selected enhanced
collaboration with different stakeholder
groups, the opportunity for investors to haveextra visibility into public spending, and thecreation of a green bond market.

Grace Wong Senior Manager, Market
Development Division, External Department,
Hong Kong Monetary Authority

4. Provision of areference benchmark– an anchor for pricing
other GSS instruments.

New
Transpar- Greening Enhanced
Extra
GSS bond Delivering
projects
ency
strategy collabora- scrutiny on market
NDCs
tion
spending creation

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

21

Moving from a fraction of the market to the majority: seven steps toturbo-charging the sovereign GSS market
More GSS
sovereign bonds
neededEvery country will need to
rapidly increase expenditure
on climate friendly infrastructure, the energy
transition, adaptation measures, and climate
resilience to meet the goals of the Paris
Agreement and achieve net zero by 2050.
The OECD estimates that for infrastructurealone, the required investment is at least
USD6.9tn a year.16 Meanwhile, the IEA
highlighted that total cumulative spending on
renewable energy and energy efficiency to2030 should increase to USD13.5tn.17
While these figures seem astronomical,
the core sovereign bond market, at
USD45tn outstanding, is big enough toabsorb a substantial proportion of thisneed. Ultimately, to avoid catastrophic
climate change, almost all government
expenditures should be linked, in some way,
to the transition to the low carbon economy– whether directly through infrastructure
provision or indirectly by helping
communities to adapt and build resilience.
This could, in turn, be financed by a muchgreater issuance of sovereign GSS bonds.
Fortunately, the results of this survey
indicate that, for sovereign issuers, theprocess of issuing GSS bonds is a journeythat brings numerous rewards.

A large and liquidsovereign GSS
market will:…catalyse system-levelchangeSovereign bonds wield the ultimate powerin the GSS market because of their size andvisibility. Governments must use that power
to create a blueprint for other issuer types
such as corporations, local governments,and state-owned enterprises in their local
markets. Existing sovereign GSS issuers
demonstrate that these bonds can beadapted to accommodate the smallest to thelargest of funding needs.
…create investor impact
A sovereign GSS bond offers investors alarge, high profile, liquid instrument which
attracts new investment. Labelled GSS bonds
can be easily identified and accelerate thegrowth of capital committed to green andsocial investment strategies. Dedicatedmandates will give other types of issuers
more reason to come to the market.

…set a precedent in green budgeting andtransparency
The preparation and reporting required
for a sovereign GSS bond sets precedents
in rigour and transparency. This benefits
multiple stakeholders within the government
including parliament as well as external
stakeholders such as investors and enhances
the visibility of the whole GSS market.
…enable a larger and more diverse groupof issuers – the GSS market is the financial
consequence of what is happening in thereal economy. As the sovereign GSS market
grows, it will pave the way for the growth anddiversification of the corporate GSS market
in a number of countries. At the same time,
corporate issuers will become more adept
at addressing GSS challenges and transition
their business models away from potential
stranded assets towards better alignment
with the goals of the Paris Agreement. The
development of transition bonds will broaden
the range of sectors in the GSS market andmake it more reflective of the real economy.

Seven steps toturbo-charge thesovereign GSS
market
The current sovereign
GSS market (USD96bn) is not even 0.2%of the USD45tn worth of government
bonds outstanding. Meanwhile, the OECDestimates that USD6.9tn of infrastructure
investment is needed each year to 2030
to meet the goals of the Paris Agreement.
All new government expenditure should beapproved through a GSS lens.
Building on the results of this survey, sevenconduits have been identified for sovereignissuers to move the GSS bond market forwards:
1. Stimulating investor demand throughsupply – corporate and other types oftreasurers will be more inclined to issue GSS
bonds if there is a dedicated pool of capital.
Sovereign issuers should consider benchmark
size where possible to add liquidity and scale
to the market and encourage more dedicatedinvestment mandates.
2. Assuming the role of green investor andenabler - governments must assume therole of investor and enabler by actions suchas GSS mandates for public sector pension
funds and investing public sector money in
GSS labelled investment.
3. Governments must create more
expenditures – sovereign GSS bonds offer

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

more flexibility to DMOs by introducing
a broader investor base which can offer
numerous benefits including tighter pricing.
This can energise policy priorities and createa culture of suitable projects being developed
to facilitate repeat issuance for example,
build a hospital or school and make it green,create parks, or add cycle lanes. Enhanced
taxonomies which extend to adaptation
and resilience will give ministers additionalsources of eligible expenditures for green
bonds. Both the EU taxonomy and the China
Green Bond Endorsed Project Catalogue
are being extended to encompass a broader
range of potential assets. Taxonomies arealso being extended to include social assets.
4. Fund high-profile projects – sovereign
GSS bonds should channel capital towards
necessary projects of national importance todraw attention to the potential of GSS bonds
and the types of projects they can finance.
This can also help to get political buy-in for
future bond issuance
5. Develop and promote best practicestandards - giving the financial sector clear
definitions will encourage market development
without being too restrictive. Government
initiatives to establish clear and transparent
green definitions such as the China
Catalogue and EU Taxonomy have helped
to provide rigour and clarity to the market
while also helping to avoid greenwashing.
The International Platform on Sustainable
Finance (IPSF) includes both the EU andChina as members and offers opportunities
for countries around the world to learn fromeach other on the process of creating andharmonising green criteria and definitions.
6. Work collaboratively on sovereign GSS
bonds - GSS bonds offer opportunities
for finance ministries to collaborate withenvironmental and other ministries, and withsupranational organisations. This is vital - thetransition from theoretical climate targets
to actual implementation and financing of
those targets cannot happen without thoserelationships developing. Going throughthe process of issuing sovereign GSS bonds
can inform government contributions tomeaningful discussions on regulation.
7. Prepare for whole economy transition- to meet the goals of the Paris Agreement
requires, not just the greening of afew sectors but the transition of entire
economies to a pathway that is in line withnet zero carbon by 2050. The sovereign GSS
market is one key to facilitating an economy
wide transition.

22

Advice for issuers considering a GSS bondRespondents were asked to share thewisdom of their experience with otherpotential sovereign GSS issuers. The notionof simplicity was a common message, andsuggestions encompassed five categories.
1. Get a clear mandate fromgovernment – to ensurecollaboration between
all stakeholders and give
credibility to the enterprise.
2. Design a robust andsimple framework choose indicators that theinvestment community
is familiar with to ensure
broad acceptance. A solid framework
will facilitate continuous commitment
regardless of changes in government aswell as simplify the reporting process.

3. Choose a few high-profile
projects - to maximise
impact and streamline thereporting process.
4. Implement budgetary
reporting standards - tosimplify the identification ofeligible expenditures.
5. Prepare for the reporting
process - inform eachdepartment of their expected
contribution well in advance.
The results will be closely
scrutinised.

“Act now to save the planet. Do thebest you can to contribute to resolving
climate change issues. Issuing green
bonds is a good testimony to theinstitution. Anyone ignoring the climate
crisis will eventually go bankrupt, as
investors will not embrace those risks.”
Luky Alfirman, Director Generalof Budget Financing and Risk
Management, Ministry of Finance,
Indonesia“We were surprised by the amount ofeligible expenditures that we were able
to identify. Any government looking
into it may also discover there is a lot
more (green expenditure) they could
take into account for their prospective
green bonds.”
Zoltan Kurali, CEO Debt Management
Office AKK, Hungary“Invest time in talking to colleagues from other ministries. A green bond is a strange
animal for them. Invest in those relationships and get them involved so they can beambassadors for the project”
Elvira Eurlings, Agent, DTSA, Netherlands

Table 10. Just two of the ten largest issuers have joined
the sovereign GSS bond club
Issuer rank

Country

Amount USD tn

Amount USD sovereign
GSS bonds

1

United States

13.5

0

2

Japan

8.6

0

3

UK

2.5

0. Indicated 2021

4

China

2.4

0

5

Italy

2.0

0. Indicated 2021

6

France1.9

29.5bn7

Germany

1.3

13.6bn8

Brazil

1.2

0

9

India

1.2

0

10

Spain

1.0

0. Indicated 2021

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative

Endnotes
1. Bloomberg as of 20/11/2020, based on BICS Level 2 classification= sovereign; total size of bond market = 89.5bn
2. Exchange rates used throughout this paper are taken from
Bloomberg close of business on 20/11/2020
3. This figure does not include state and/or regional governmentissuance.
4. DM: Canada, Denmark, Italy, Spain, UK. EM: Bhutan, Brazil,
Colombia, Cote d’Ivoire, Ghana, Kenya, Peru, Uzbekistan, Vietnam
5. Those who did not participate were invited to do so but did not
respond.
6. Based on MSCI market classifications https://www.msci.com/
market-classification
7. https://www.climatebonds.net/files/reports/sovereign_briefing2017.pdf
8. Harrison, Caroline, Partridge, Candace and Aneil Tripathy. 2020.
What’s in a Greenium: An Analysis of Pricing Methodologies andDiscourse in the Green Bond Market. The Journal of Environmental
Investing 10(1), Available at http://www.thejei.com/journal/.,Available at SSRN: https://ssrn.com/abstract=3684927
9. Yield curves require a minimum of four securities sharing similar
characteristics to the subject bond in terms of currency, size, andcoupon type (index linked bonds cannot be compared with bullet
bonds for example).
10. https://www.climatebonds.net/files/reports/gb_investor_
survey-final.pdf
11. On 24th November 2020, Thailand reopened the 2035
sustainability bond for THB20bn (USD600m), raising the total
liability to THB50bn (USD1.6bn). Subsequent taps will eventually
increase the bond to THB100bn (USD3.2bn).
12. https://www.climatebonds.net/files/reports/gb_investor_
survey-final.pdf
13. More work needs to be done over a longer time horizon todetermine the credibility of this data with regards to sovereign GSS
bonds. Ulf G Erlandsson of Anthropocene Fixed Income Institutehas written on the topic of green bond secondary market volatility
by https://anthropocenefii.org/afii-research
14. https://www.climatebonds.net/files/files/RoleStock%20
Exchanges.pdf
15. Flanders (ticker FLEMSH) issued sustainability bonds in 2018,2019, and 2020. The total amount outstanding was EUR2.8bn(USD3.1bn) as of November 2020.
16. policy-highlights-financing-climate-futures.pdf (oecd.org)
17. IEA 2015a23

The Sovereign GSS bond landscape 2020

Luxembourg
Netherlands
Belgium
United Kingdom

CanadaIrelandFranceSpain
Italy

MexicoDM

Denmark
SwedenGermany
Lithuania
PolandHungary
Egypt

GuatemalaColombia
EcuadorDM intent to issue
EM

Peru

Uzbekistan

ThailandNigeria

Brazil

Kenya

South Korea
Hong Kong
Vietnam

Seychelles

Fiji

Indonesia

Chile

EM intent to issue
EM not part of survey

Climate Bonds would like to thank the following institutions for their kind participation in the survey
Public Debt Department, Ministerstwo
Finansow, Republic of Poland

Ministerio de Hacienda (Hacienda),
Republic of Chile

Secretaria di Hacienda Y Credito Publico(SHCP), United Mexican States

Agence France Tresor, Ministere del’Economie et des finances, French RepublicState Treasury Department, Ministry of
Finance of the Republic of Lithuania

Public Debt Management Office, Ministryof Finance, Government of Thailand

Belgian Debt Agency, Kingdom of Belgium

National Treasury Management Agency,
Republic of Ireland

Ministry of Finance,
Kingdom of Sweden

Hong Kong Monetary Authority,
Hong Kong SAR

Deutsche Finanzagentur,
Federal Republic of Germany

Dutch State Treasury, Ministerie van
Financien, The Kingdom of the Netherlands

Ministere des Finances,Grand Duchy of Luxembourg

Government Debt Management Agency(ÁKK), Hungary

Capital Markets and Debt Management Unit,
Ministry of Finance, Arab Republic of Egypt

Ministry of Economy, Republic of Fiji
Department of Blue Economy,
Republic of Seychelles
Debt Management Office,Federal Republic of Nigeria
Ministry of Finance, Republic of Indonesia

Produced with the kind support of HSBC
Suggested citation: Harrison, C., and Muething, L., Sovereign Green, Social, and Sustainability Bond Survey, Climate Bonds Initiative, January 2021
Authors: Caroline Harrison, Lea Muething
Editors: Bridget Boulle, Andrew Whiley
We thank the following individuals for their input: Miguel Almeida, Bob Buhr, Lionel Mok, Clodagh Muldoon
Design: Godfrey Design
Climate Bonds Initiative © January 2021 www.climatebonds.net
Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content
on external websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this document should be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributesof the use of proceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest inanything is solely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual ororganisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication.

Sovereign Green, Social, and Sustainability Bond Survey Climate Bonds Initiative24