SOVEREIGN GREEN, SOCIAL ANDSUSTAINABILITY BONDS:

Unlocking the Potential for Emerging Markets
and Developing Economies

INSIGHTS BASED ON
WORLD BANK SURVEYS OF
PUBLIC DEBT MANAGEMENT OFFICESAND INTERNATIONAL INVESTORS

1818 H Street NW
Washington DC 20433
USA
Farah Hussain
Senior Financial Officer
Capital Markets and Investment Department
The World Bank Treasury
E fhussain@worldbank.org
T +1 (202) 473-2540
W http://www.worldbank.org/sustainablefinanceadvisory
SOVEREIGN GREEN, SOCIAL AND SUSTAINABILITY BONDS: Unlocking the Potential for Emerging Markets
and Developing Economies
October 2022
The report was designed by World Bank GSD Creative Services.
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Table of Contents
Acknowledgments .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . iv
List of Abbreviations .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . vForeword .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . vi
Executive Summary  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . vii
About the World Bank Group: Mission and Strategy  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . xAbout the World Bank Treasury  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . xi
About the World Bank Treasury Sustainable Finance and ESG Advisory Services  .  .  .  .  .  .  .  .  .  .  .  . xiii

1. INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. STATE OF THE THEMATIC BOND MARKET  . . . . . . . . . . . . . . . . . . . .  4
3. THE SURVEYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
3.1. Methodology  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2. Survey Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

4.	LESSONS LEARNED FROM SOVEREIGN THEMATIC BONDISSUANCES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5. CONCLUSIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
APPENDIX A. SELECT SOVEREIGN EXPERIENCES WITH
THEMATIC BONDS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
Benin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Chile  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Egypt  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Fiji . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .36Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Malaysia  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39     i

ii     Sovereign Green, Social and Sustainability Bonds

Mexico  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
Republic of Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

APPENDIX B. 2022 WORLD BANK SOVEREIGN DEBT
MANAGEMENT OFFICES SURVEY  . . . . . . . . . . . . . . . . . 44
APPENDIX C. 2022 WORLD BANK INVESTORS SURVEY . . . . . . . . . 48
References .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49

Sovereign Green, Social and Sustainability Bonds     iii

Table of Figures
Figure 1.

Global Thematic Bond Market, Annual Issuance 2012–2022 (USD Billion)  . . . . . . . . 4

Figure 2.

Emerging Market Thematic Bonds, Annual Issuance 2012–2022 (USD Billion) . . . . . 5

Figure 3.

Emerging Market Thematic Bonds, According to Issuer Type  . . . . . . . . . . . . . . . . . . . 5

Figure 4.

Sovereign Thematic Bonds, Annual Issuance, 2016–2022 (USD Billion) . . . . . . . . . . . 6

Figure 5.

Emerging Market Sovereign Thematic Bonds According to Currency,
2016–2022  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Figure 6.

Emerging Market Sovereign Thematic Bonds According to Size,
2016–2022 (USD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Figure 7.

Country Perspectives on Thematic Bond Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Figure 8.

Actions Being Undertaken to Support Sovereign Thematic Bond Transactions . . . . 9

Figure 9.

Reasons for Considering Thematic Bond Issuances . . . . . . . . . . . . . . . . . . . . . . . . . .  10

Figure 10.

Reasons for Not Considering Thematic Bond Issuances . . . . . . . . . . . . . . . . . . . . . .  12

Figure 11.

Financial Factors Investors Consider When Evaluating Sovereign Thematic
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

Figure 12.

ESG Factors Investors Consider When Evaluating Sovereign Thematic Bonds . . .  17

Figure 13.

ESG and Financial Challenges Investors Face . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

Figure 14.

Types of Thematic Bonds Being Considered  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

Figure 15.

Debt Management Offices’ Perceptions of Investors’ Bond Preferences . . . . . . . .  21

Figure 16.

Markets of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

Figure 17.

Expectations of Demand for Domestic Issuances  . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

Figure 18.

Exchanges Under Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

Figure 19.

Intended Currencies of Thematic Bond Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . .  25

Figure 20.

Intended Maturities of Thematic Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25

Table of Boxes
Box 1.

Thematic Bond Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Box 2.

Emerging Market Sovereign Thematic Bonds Issued as of September 2022 . . . . . . 7

Box 3.

The Green Premium or Greenium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

Box 4.

Costs of Issuing Thematic Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

Box 5.

Steps for Issuing a Sovereign Thematic Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

Box 6.

Taxonomies to Avoid Greenwashing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

Box 7.

Emerging Market Subnational Thematic Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19

Box 8.

Green and Sustainability-Linked Bonds: A Comparison . . . . . . . . . . . . . . . . . . . . . .  23

Box 9.

World Bank Technical Assistance for Emerging Market Sovereigns . . . . . . . . . . . .  30

Acknowledgments
The World Bank Treasury’s Sustainable Finance and Environmental, Social, and Governance Advisory Services for Emerging Markets prepared this report. Helena Dill and Farah Imrana Hussain
were the primary authors. The authors would like to thank Laurent Damblat, Rodrigo Silveira
Veiga Cabral, Jae Ho Kim and James Seward for significant contributions to the report, Eric
Bouye, Scott Cantor, Leandro Puccini and Tapiwa Sikipa for peer reviewing it, and Concepcion
Aisa, Amira Amat, Cinthia Guzman, Heike Reichelt, Fabio da Silva, and Ghislain Martial Yanou for
their valuable time and support in producing this report.
The World Bank Treasury would like to thank the public debt management offices that participated in the survey that served as the basis for this report, as well as the international investors
and intermediary banks that provided their perspectives about investments in emerging market
sovereign thematic bonds. We would also like to thank the EBS Business School for their help in
conducting the investor survey. The team also wishes to thank the countries that provided insights
on their experiences with the sovereign thematic bond issuances featured in this report.
Preparation of this report would not have been possible without the support of Jorge Familiar Calderon, Vice President and Treasurer; George Richardson, Director and Global Head of
Capital Markets; and Miguel Navarro-Martin, Manager, Financial Products and Client Solutions(World Bank).
The team thanks the World Bank GSD Creative Services for editing anddesigning the report.

iv     

List of Abbreviations
DMO

Debt management office

ESG

Environmental, social, and governance

EUR

Euro

GSS

Green, social, sustainability, and sustainability-linked

IBRD

International Bank for Reconstruction and Development

IDA

International Development Association

KPI

Key performance indicators

NDC

Nationally determined contribution

SDG

Sustainable Development Goals

SLB

Sustainability-linked bonds

SPT

Sustainability performance targets

USD

U.S. dollar

WBG

World Bank Group     v

Foreword
The World Bank Group is committed to tapping every opportunity to help member countries
achieve sustainable growth, promote inclusion, and strengthen the resilience of their economies.
Financing and promoting sustainable development and mobilizing investments of all kinds fromthe public and private sectors is at the heart of our work.
Our longstanding and constant presence in the capital markets and knowledge of emerging markets give us insights into new ways to increase the flow of sustainable finance into our member
countries. As a pioneer of the labeled green bond and the largest issuer of sustainability bonds
globally, it is our privilege to share the knowledge and experience we have acquired with ourmember countries. We hope they can build on the momentum generated over the past few years
and attract investors looking for new and innovative opportunities to contribute to sustainable
development and manage environmental, social, and governance risks.
The World Bank Treasury’s Sustainable Finance and Environmental, Social, and Governance
Advisory Services help develop sustainable capital markets and provide technical assistance topublic sector issuers to facilitate the issuance of green, social and sustainability bonds. We workwith regulators to create supportive policy environments in which projects that generate positivesocial and environmental benefits can secure access to deep and liquid markets.
This report focuses on the potential for emerging market sovereign issuers to tap these pools ofcapital, based on surveys of public debt management offices and investors. It also suggests how
to meet market and investor expectations, underpinning the importance of green, social andsustainable investing.

Jorge Familiar
Vice President and Treasurer
World Bankvi     

Executive Summary
The dramatic impacts of climate change are being felt worldwide, and most countries havecommitted to take action to avoid its worsening and adapt to its unpreventable consequences.
In particular, countries signed and adopted the Paris Agreement on climate change in 2015 anddesigned ambitious nationally determined contributions (NDCs) to implement adaptation andmitigation actions. The NDCs require substantial funding and are part of an even more significant
financial need to meet the United Nations Sustainable Development Goals (SDGs). It is estimatedthat between U.S. dollar (USD)5 trillion and USD7 trillion is required around the globe to financeand meet the SDGs (UNCTAD 2014). In developing countries alone, SDG investment needs
range from USD3.3 trillion to USD4.5 trillion for basic infrastructure, food security, climate change
mitigation and adaptation, health, and education (UNCTAD 2014).
Mobilizing such large amounts requires creative alternatives to traditional forms of financing.
Thematic bonds, which include green, social, sustainability, and sustainability-linked bonds, areemerging as a central financial solution for the NDCs and SDGs. Many governments are turning tosuch bonds to raise funding for critical investment needs. The thematic bond market started in 2008
with the issuance of the first labeled green bond by the World Bank. Since then, the market has     vii

viii     Sovereign Green, Social and Sustainability Bonds

grown exponentially, and in 2021, USD1.15 trillion was issued globally. The outstanding amountof thematic bonds reached USD3.5 trillion in September 2022. Investors, shareholders, and regulators are increasingly pushing action on climate change, so demand for thematic bonds ispoised to grow even more rapidly. As policy makers enact new rules and regulations on financial
sector reporting, stress testing, and risk management for climate-related issues, financial institutions will continue to move into thematic instruments. In addition, shareholders are demandingthat their investees move to net zero and focus on sustainability, which will also pressure financial
institutions to seek thematic assets. This momentum is a significant opportunity for emerging
market issuers seeking to access this strong demand for thematic bonds, which can diversify theinvestor base, signal commitment to sustainability goals, and achieve better pricing.
Despite the market momentum and opportunities, sovereigns represent a small fraction of thethematic bond market (nine percent of the total issued until September 2022), and emerging
markets represent a small fraction (15 percent) of the total amount issued. Therefore, to better understand the barriers and challenges to sovereign thematic bond issuance, in 2022, theWorld Bank conducted two surveys. The first was a quantitative survey of 32 debt management
offices (DMOs) in emerging markets and developing economies that answered multiple-choicequestions about their perspectives, arguments for and against such transactions, challenges they
face, and potential characteristics of future issuances. The second was a qualitative survey of 12international investors and intermediary banks with USD20 trillion in assets under management,
who provided insights into the main reasons for investing in emerging market sovereign thematicbonds; concerns and challenges; financial, environmental, social, and governance (ESG) factorsthat they consider before investing; and bond characteristics that are of interest to them.
This unique survey data yielded interesting results. First, 75 percent of surveyed DMOs intend
to issue thematic bonds. These DMOs saw the following benefits of tapping the thematic bondmarket (in rank order): diversifying the investor base, signaling a commitment to sustainability,
building a local market to motivate private sector issuers, and attracting international investors.
The possibility of raising funds at cheaper rates to gain a “greenium” was the last ranked rationale
for issuing thematic bonds, which is counter to many reports and anecdotal evidence from thethematic bond market. The survey also revealed that DMOs face various challenges potentiallypreventing them from considering thematic bond issuances. The main challenges that DMOs
cited were (in rank order): cost of arranging such issuances, complications of the issuance process, and difficulty identifying eligible expenditures and projects.
Investors expressed strong interest in emerging market sovereign thematic bonds, including issuances by subnational entities, states, and municipalities. Investors highlighted several reasons for their interest in thematic bonds, including achieving ESG impact, developing the thematic bond market, diversifying their portfolios, and serving the directbusiness interests of their investors and shareholders. These surveyed investors
seek to promote a just transition from fossil fuels to clean energy and meet their
SDGs and climate goals. Investors view sovereigns as critical to thematicbond market development. When investing in emerging market sovereign thematic bonds, investors evaluate the usual financial aspectsof the bond and ESG-related factors, such as the issuer sustainability strategy, the robustness of the bond framework, transparency in allocation of proceeds, and impact monitoringand evaluation (to ensure there is no “greenwashing”).
Among the challenges investors reported confronting

Sovereign Green, Social and Sustainability Bonds     ixwhen considering emerging market sovereign thematic bonds were weak bond frameworks, lackof institutional capacity of the issuing governments to identify and monitor eligible projects, andlimited data availability. The underlying credit aspects are an overarching consideration for investors, as is the case for any debt issuances by a sovereign.
The results of both surveys reveal a convergence of the supply and demand sides regarding thematic bonds. While sustainability-linked bonds have gained significant interest from corporate
issuers, most sovereigns are interested in the traditional use-of-proceeds bonds (green, social,and sustainability bonds) rather than sustainability-linked bonds, in line with the reported preference of investors. Sovereigns are open to issuing in hard and local currencies, aligning withinvestor interests. The preference of some DMOs for issuances in the domestic market and local
currency indicates that countries view such issuances as a way of developing their domestic capital
markets, which is also a goal of many international investors.
The surveys show strong alignment between issuers and investors that thematic bonds can beessential instruments to finance the vast investments required to meet NDC and SDG ambitions.
DMOs must carefully assess the feasibility of thematic bonds in the context of the overall debt
management strategy, including government priorities, financing gaps, and other sources offinancing available (including concessional and nonconcessional) before embarking on thesetransactions. A better understanding by emerging market DMOs of the thematic bond market
and its requirements will increase the ability and willingness of emerging market sovereigns
to issue. This enhanced knowledge will also increase the confidence of investors in thematicbond issuers. International financial institutions such as the World Bank can play a critical rolein assisting DMOs with capacity building and integrating thematic bonds into their overall debt
management strategy.

About the World Bank Group:
Mission and Strategy
The International Bank for Reconstruction and Development (IBRD), an international global development institution owned by 189 member countries, was established in 1944 and is the original
member of the World Bank Group (WBG). As the largest development bank in the world, it supports the mission of the WBG by providing loans, guarantees, risk management products, and advisory services to middle-income and creditworthy low-income countries. The IBRD and International
Development Association (IDA), which was established in 1960 and lends to low-income countries,
are known collectively as the World Bank and share the same leadership and staff. The IBRD and the
IDA issue bonds in international capital markets to support the development mission.
At the heart of the WBG’s strategy are two goals that its Board of Governors endorsed in 2013:◾
◾

END EXTREME POVERTY: Reduce to 3 percent the proportion of people living on less than
USD1.90 a day by 2030.
PROMOTE SHARED PROSPERITY: Foster income growth for the bottom 40 percent of the
population in every developing country.

To deliver on the twin goals and support the SDGs, the WBG’s management and shareholders
have agreed on three main priorities for our work with developing countries, including thoseaffected by fragility, conflict, and violence: accelerate sustainable and inclusive growth, invest in
human capital, and strengthen resilience.
This overarching strategic framework rests on four pillars: serving all clients in low- and middle-income countries; creating markets, mobilizing finance for development, and expanding the useof private sector solutions; leading on global issues; and improving how we do business to beagile, efficient, and closer to clients. The WBG is committed to bringing together the international
community in the urgent task of achieving the goals by 2030. They can be reached only throughthe collaboration of all partners, including countries, other institutions, civil society, and the private
sector.
The WBG consists of five organizations: the IBRD, IDA, International Finance Corporation, Multilateral
Investment Guarantee Agency, and International Centre for Settlement of Investment Disputes.

x     

About the World Bank
Treasury
The World Bank Treasury ensures the long-term financial sustainability of the World Bank (IBRD
and IDA).
The World Bank Treasury manages the Bank’s finances to enable all operations and lending by:◾
◾
◾

Proactively managing our balance sheet to safeguard our triple-A ratings and our strong
financial position
Strategically and cost-effectively raising funds from global capital markets and providing
financing to our borrowing clientsManaging and administering assigned internal and external portfolios effectively and delivering targeted excess returns within approved risk limits

The World Bank issued the first labeled green bond in the world in 2008 and has issued 196 green
bonds in 24 currencies to raise USD16.5 billion (as of June 2022) for middle-income countries.
The Treasury also helps member countries maximize finance for development and support financial stability and resilience by:◾
◾
◾

Developing innovative sustainable financing solutions to help our clients finance climate,pandemic, refugee crisis, and infrastructure development, among other priorities
Offering mechanisms to reduce risks and promote private sector investment
Applying international best practices to managing our clients’ assets and reserves

xi     

     xi

xii     Sovereign Green, Social and Sustainability Bonds

PIONEERING THE ISSUANCE OF LABELED THEMATIC BONDS
In 2008, the World Bank issued the first-ever labeled green bond to support the financing of projects
addressing climate change. This bond became the standard for a market focused on increasing transparency and investing for purpose and was designed to engage investors in the positive contribution theWorld Bank was making in climate change. This experience in thematic bonds and helping build sustainable capital markets is shared through the World Bank Treasury Sustainable Finance and Environmental,
Social, and Governance Advisory Services Program for emerging markets.
The World Bank Treasury continues to issue green bonds as a part of its Sustainable Development
Bond program, which also includes sustainability bonds. Both thematic issues follow the International
Capital Markets Association’s principles and guidelines. All bonds that the World Bank issues are issued
under the Sustainable Development Bond program because its development operations are designed
to achieve positive environmental and social goals and outcomes consistent with the World Bank Group’s
twin goals of ending extreme poverty and advancing shared prosperity. The World Bank takes a portfolio
approach to issuing sustainable bonds, which means it supports a variety of sustainable development
sectors and the range of SDGs and does not allocate bond proceeds for individual sectors or projects.
Although green bonds draw attention to the World Bank’s climate activities, the World Bank uses its
sustainable development bonds to raise awareness of certain SDGs and development challenges,
using World Bank projects as examples. In dedicated impact reporting that covers its entire portfolio, theWorld Bank provides investors with information on how their funds support the financing of education,
health, sustainable transport, gender equality, health and nutrition of women and children, water andoceans, and sustainable cities, among other development themes. The World Bank is the largest issuerof sustainability bonds as identified by Bloomberg.

About the World Bank
Treasury Sustainable
Finance and ESG Advisory
Services
The Treasury’s Financial Products and Client Solutions team works with policy makers, ministries
of finance, regulators, central banks, supervisors, and World Bank project teams to develop sustainable financial systems by:
◾
◾
◾
◾
◾

Advising on green financing strategies and action plans
Helping borrowers consider sustainable financial instruments
Facilitating issuance of thematic bonds
Building the capacity of borrowers to engage with investors who incorporate
ESG considerations into investment decisions
Publishing knowledge products to share good practices and guidelines.

     xiii

xiv     Sovereign Green, Social and Sustainability Bonds

Introduction

1

Sustainable development and climate mitigation and adaptation challenges have called multiple
stakeholders to action. Efforts in that direction have intensified globally with adoption of the United
Nations 2030 Agenda for Sustainable Development and the Paris Agreement, both in 2015.
Countries have set ambitious goals to reduce greenhouse gas emissions, adapt to the adverse
consequences of climate change, improve health and education, reduce inequality, and promoteshared growth. Significant resources are required to achieve such goals. It is estimated that
U.S. dollar (USD)5 trillion to USD7 trillion is needed globally to finance the United Nations Sustainable Development Goals (SDGs) (UNCTAD 2014). In developing countries alone, investment needs
range from USD3.3 trillion to USD4.5 trillion for basic infrastructure, food security, climate change
mitigation and adaptation, health, and education (UNCTAD 2014). Mobilizing such large amountsof financing will require creativity and innovation in developing alternatives that complement moretraditional funding sources.
Labeled green, social, sustainability, and sustainability-linked bonds, collectively known asthematic bonds1, are alternative financial solutions that can help borrowers access private
sector financing to address those challenges (Box 1).

1

Thematic bonds include green, blue, social, gender, sustainability, and sustainability-linked bonds. Thesebonds are also collectively known as GSS; GSS+; environmental, social, and governance (ESG); or
sustainable bonds.

     1

2     Sovereign Green, Social and Sustainability Bonds

BOX 1. THEMATIC BOND DEFINITIONSThematic bonds are fixed-income securities issued in capital markets to raise financing for projects andactivities related to a specific theme, such as climate change, education, housing, ocean and marine
conservation, and the Sustainable Development Goals. For the purposes of this report, such sustainablefinance instruments include green, social, sustainability, and sustainability-linked labeled bonds. Bluebonds2 are considered a subcategory of green bonds and gender bonds a subcategory of social bonds.
Thematic bonds are also known as GSS; GSS+; environmental, social, and governance (ESG); or sustainable bonds.
Green bond proceeds are designated to finance projects and activities that are expected to have a positive environmental impact (World Bank 2015). Blue bonds finance projects aimed at ocean and marine
conservation (UN Global Compact 2020).
Social bonds raise funds for projects with expected positive social outcomes, helping issuers address
societal inequalities. Social project categories include affordable basic infrastructure (clean drinking
water, energy, sanitation); access to health, education, and financial services; affordable housing; employment generation; and food security (ICMA 2021). Gender bonds focus exclusively on gender equality(ICMA, IFC, and UN Women 2021).
Sustainability bond proceeds support a combination of green and social projects or activities.
Green, social, and sustainability bonds are usually referred to as use-of-proceeds bonds, given that
resources raised through these securities are earmarked for specific projects designed to generate theintended impacts.
Sustainability-linked bonds do not earmark proceeds for specific projects or expenditures. Instead, theissuer commits to meeting predefined key performance indicators within a timeline for defined sustainability policies and actions (ICMA 2020). Such indicators can be related to environmental or social objectives and must be verifiable and ambitious. In most linked structures, if the key performance indicators
are not met, the borrower must increase (step up) the coupon payment to investors.
Thematic bonds are expected to follow the voluntary standards that the International Capital Market
Association established in close consultation with international financial institutions and key market participants. To issue such bonds, the issuer must establish a governance framework. In the case of use-ofproceeds bonds, the issuer discloses the types of projects that will be financed and the processes established to identify eligible assets and expenditures, tracks the allocation of bond proceeds, and reports the
allocation of bond proceeds to eligible projects and the environmental impact of the projects supported.
As with any other debt instrument, the transaction should be aligned with the borrower’s overall debt
management strategy (Hussain 2022). The current stage of market development and market readinessfor these types of bonds are also relevant factors to evaluate when considering such issuances (Boitreaud
et al. 2020).

2

Blue bonds are a developing concept and there is increasing demand for commonly agreed references. Apart from using a use-of-proceeds structure,they can also be issued under a sustainability-linked bond framework (UN Global Compact 2020a).

Sovereign Green, Social and Sustainability Bonds     3These financing instruments allow investors to use their capital to contribute to climate goals andSDGs and to manage ESG-related risks in their portfolios. For issuers, thematic bonds provide an
opportunity to highlight their commitment to and progress made in sustainability, differentiatethemselves from their peers, and diversify their investor base by attracting a range of investors
with ESG objectives integrated into their investment frameworks.
Given the role of thematic bonds in mobilizing private sector funding for sustainable development, the World Bank conducted two surveys in early 2022, one with public debt management
offices (DMOs) and one with international investors, to gauge the potential for increasing sovereign thematic bond issuances in emerging markets.3 DMOs of emerging and developing countries provided their perspectives, arguments in favor of and against such transactions, challenges
they face, and potential characteristics of future issuances. Investors and intermediary banks
responded to questions about the main reasons for investing in emerging market sovereign thematic bonds, concerns and challenges, financial and ESG factors they consider before investing,and bond characteristics of interest to them.
This report presents an analysis of both surveys and explains how to explore the potential of thesovereign thematic bond market in emerging markets and developing economies. It identifies
gaps in knowledge and governments’ capacity that must be addressed to improve the qualityof thematic bond transactions and thus maximize investor interest in generating environmental,
economic, and social outcomes. Moreover, it builds on previous sovereign thematic bond issuances to extract lessons learned.
This report is divided as follows. Section 2 presents the status of emerging market thematicbonds, focusing on sovereign issuances. Section 3 explains the survey methodology andpresents the findings, including issuer and investor perspectives of sovereign thematicbond transactions. Section 4 captures the experience of emerging market sovereign
thematic bond transactions. Section 5 provides the main conclusions. An overview of select sovereign thematic bonds from emerging market issuers isprovided in Appendix A.

3

For the purposes of this report, the expressions “emerging markets and developing countries” and “emerging markets” are usedinterchangeably and include World Bank Group client countries.

2State of the Thematic
Bond Market
The thematic bond market has grown tremendously since the World Bank first issued a labeledgreen bond in 2008. The total amount of bonds associated with a thematic label reached USD3.5
trillion in September 2022, with green bonds representing the largest portion (64 percent). New
issuances reached a record USD1.1 trillion in 2021, up from USD8 billion in 2012 and USD602
billion in 2020 (Figure 1).

FIGURE 1. Global Thematic Bond Market, Annual Issuance 2012–2022(USD Billion)
1,151

730

602

Social

373

8

18

46

60

2012

2013

2014

2015

111
2016

196

214

2017

2018

Sustainability
Sustainability-linked

2019

2020

2021

Jan–Sep
2022

Source: World Bank, based on data from Bloomberg 2022.

Emerging markets represent a small fraction—15 percent of the total amount issued (based ondata from Bloomberg (2022))—but interest is growing. In 2021, emerging market issuers issued
USD182 billion in thematic bonds, more than triple the amount issued in 2020. In the first ninemonths of 2022, emerging markets issued USD131 billion in thematic bonds, more than double
the amount issued during all of 2020 (Figure 2). Emerging market green bond issuances areprojected to reach USD150 billion annually by 2023 (Amundi Asset Management and IFC 2022),
a substantial increase from the USD109 billion registered in 2021.

4     

Green

Sovereign Green, Social and Sustainability Bonds     5FIGURE 2. Emerging Market Thematic Bonds, Annual Issuance 2012–2022(USD Billion)
182
131
Green
Social
37
0.3

0.7

1.5

3.5

2012

2013

2014

2015

2016

45

43

2017

2018

50

48

2019

2020

Sustainability
Sustainability-linked

2021

Jan–Sep
2022

Source: World Bank, based on data from Bloomberg 2022.

In emerging markets, financial institutions havedominated thematic bond issuances (41 percent
of total amount issued up to September 2022), followed by corporates (37 percent). Public sector issuers such as sovereigns made up 13 percent of thetotal amount issued and subnational governments(regional and local), government agencies, anddevelopment banks eight percent (Figure 3).
Sovereign thematic bond issuances started with
Poland’s first green bond in 2016.4 Even though
sovereigns represent a small fraction of the thematic bond market (nine percent of the total issued
up to September 2022), interest in such instruments
has grown. In 2021, sovereign issuances reached
USD124 billion, more than triple the USD45 billion
issued in 2020 (Figure 4).

 IGURE 3. Emerging Market Thematic
F
Bonds, According to Issuer Type

Corporates, 37%

Sovereigns, 13%

Financials, 41%

Projects, 1%
Subnationals, gov. agencies, developm. banks, 8%

Source: World Bank, based on data from Bloomberg 2022.
Note: Data up to September 2022.

As of September 2022, 40 sovereign borrowers had issued USD308 billion in thematic bonds.
Eighteen of those are emerging markets, with a total issuance of USD70 billion (Box 2). Chileleads among emerging market sovereigns as the largest sovereign issuer of thematic bonds andthe only one to have issued a variety of thematic bond types (green bonds, social bonds, sustainability bonds, and the first sustainability-linked bond issued by a sovereign).
Emerging market sovereign thematic issuances have mostly been denominated in hard currencies such as the U.S. dollar, euro, and Japanese yen, which account for 74 percent of bonds todate (Figure 5) and 76 percent of the amount issued. However, an increasing share of sovereignissuers are issuing in local currency, with the equivalent of USD17 billion issued (24 percent of thetotal amount) in Colombian peso, Chilean peso, Fijian dollar, Malaysian Ringgit, Mexican peso,
Nigerian naira, Thai baht, and Uzbekistani som.

4

More information can be obtained at https://www.gov.pl/web/finance/issues-international-bonds.

6     Sovereign Green, Social and Sustainability Bonds

FIGURE 4. Sovereign Thematic Bonds, Annual Issuance, 2016–2022 (USD Billion)
124

85
Green
Social

45

11

0.8
2016

2017

18

2018

Sustainability
Sustainability-linked

25

2019

2020

2021

Jan–Sep
2022

Source: World Bank, based on data from Bloomberg 2022.

About 74 percent of sovereign thematic bonds issued to date by emerging markets are benchmark-size of at least USD300 million, and 41 percent are at least USD1 billion (Figure 6). Benchmark-driven investments are playing a growing role in emerging bond markets because inclusion
in major indices provides greater access to external financing.
Seventy-six percent of emerging market thematic bonds have been issued in international markets
and 24 percent in domestic markets (based on data from Bloomberg (2022)). One was a private
placement (the Seychelles blue bond). Indonesia and Malaysia used the Sha’riah-compliant sukuk
format. The Seychelles blue bond and the Ecuador social bond were credit enhanced with WorldBank and Inter-American Development Bank guarantees, respectively.

FIGURE 5. Emerging Market Sovereign
Thematic Bonds According toCurrency, 2016–2022

FIGURE 6. Emerging Market Sovereign
Thematic Bonds According to Size,
2016–2022 (USD)

Others, 14%
US dollar, 38%

Fijian dollar, 6%

500 million –1 billion, 26%
1–5 billion, 41%

Chilean peso, 6%Japanese yen,13%
Up to 100 million, 17%Euro, 23%
Source: World Bank, based on data from Bloomberg 2022.
Note: Data up to September 2022.

100–300 million, 9%

300–500 million, 7%

Source: World Bank, based on data from Bloomberg 2022.
Note: Data up to September 2022. Size at first issuance, not considering reopenings.

Sovereign Green, Social and Sustainability Bonds     7BOX 2. EMERGING MARKET SOVEREIGN THEMATIC BONDS ISSUED
AS OF SEPTEMBER 2022
1. Benin issued a euro (EUR)500 million sustainability bond in July 2021 in the international market.
2. Chile has issued 21 thematic bonds for a total of U.S. dollar (USD)32.9 billion since 2019. Social bonds accountfor the largest share of Chile’s thematic issuances (11 bonds that raised USD16 billion), followed by sustainability bonds (five bonds with a total amount of USD7.5 billion), green bonds (four bonds with a total amountof USD7.4 billion), and a sustainability-linked bond (one issuance of USD2 billion). Eighty-one percent of its
thematic bonds were issued in the international market and 19 percent in the domestic market.
3. Colombia issued a Colombian peso 750 billion (equivalent to USD195 million) green bond in September
2021 in the domestic market. It had three reopenings since then, raising additional Colombian peso 1.72
trillion (USD423 million).
4. Ecuador issued a USD400 million social bond in January 2020 in the international market.
5. Egypt issued a USD750 million green bond in June 2020 in the international market.
6. Fiji issued its green bond with a total of Fijian dollar 40 million (USD28.9 million) in November 2017 withtranches both in the domestic and international markets. With three reopenings between December 2017 andJuly 2018, the green bond raised additional Fijian dollar 60 million (USD28.8 million).
7. Guatemala issued a USD500 million social bond in April 2020 in the international market.
8. Indonesia issued a USD1.25 billion green sukuk in March 2018, a USD750 million green sukuk in February
2019, USD750 million green sukuk in June 2020, a USD750 million green sukuk in June 2021, a EUR500
million sustainability bond in September 2021, and a USD1.5 billion green sukuk in May 2022, all of themin the international market.
9. Malaysia issued a USD800 million sustainability sukuk in April 2021 in the international market and a Malaysian ringgit 4.5 billion (USD 970 million) sustainability sukuk in September 2022 in the domestic market.
10. Mexico issued a EUR750 million sustainability bond in September 2020 and a EUR1.25 billion sustainability
bond in July 2021, both in the international market, a Mexican peso 20 billion (USD977 million) sustainability
bond in May 2022 and a Mexican peso 15 billion (USD730 million) sustainability bond in July 2022, both in thedomestic market, and a USD2.2 billion sustainability bond in August 2022 and a Japanese yen 75.6 (USD549
million) sustainability bond in September 2022, both in the international market.
11. Nigeria issued a Nigerian naira 10.69 billion (USD29 million) green bond in December 2017 and a Nigeriannaira 15 billion (USD41 million) green bond in June 2019, both in the domestic market.
12. Peru issued a USD3.25 billion sustainability bond in October 2021 and a EUR1 billion social bond in
November 2021, both in the international market.
13. Philippines issued a USD1 billion sustainability bond in March 2022 and a Japanese yen 70.1 billion(USD559 million) sustainability bond in April 2022, both in the international market.
14. Poland issued a EUR750 million green bond in December 2016, a EUR1 billion green bond in August 2018,
and a EUR2 billion green bond in March 2019, all of them in the international market.
15. Serbia issued a EUR1 billion green bond in September 2021 in the international market.
16. Seychelles issued a USD15 million blue bond in October 2018 through private placement with international investors.
17. Thailand issued a Thai baht 30 billion (USD964 million) sustainability bond in August 2020 in the domestic
market. Through 12 reopenings, the bond has raised a total of USD6.6 billion. In September 2022, thecountry issued its second sustainability bond with an amount of Thai baht 35 billion (USD956 million) in
the domestic market.
18. Uzbekistan issued a Uzbekistani som 2 trillion (USD235 million) sustainability bond in July 2021 in theinternational market.
Source: World Bank, based on data from Bloomberg 2022.

The Surveys
3.1. METHODOLOGY
Given the growth of the thematic bond market and its role in mobilizing private sector funding
to promote sustainable development, the World Bank conducted two surveys in early 2022, onewith sovereign DMOs and one with international investors and intermediary banks, to gauge thepotential for expanding sovereign thematic bond issuances in emerging markets.
The sovereign DMO survey contained multiple-choice questions sent by electronic mail to emerging countries served by the World Bank Group around the globe. Between January and March, 32
DMOs completed the questionnaire, including countries in Africa; Europe; Latin America and the
Caribbean; and East, South, and Central Asia. The DMOs provided their perspectives, arguments
in favor of and against such transactions, challenges they face, and potential characteristics offuture issuances.
The investor and intermediary bank survey was done in collaboration with the EBS Business
School to determine investor perspectives and interest in emerging market thematic bonds. The
survey contained open-ended questions sent by electronic mail to institutions that actively invest
in emerging markets. Surveyed investors collectively manage USD20 trillion in assets. Investors
and intermediary banks responded to questions about the main reasons investors invest in
emerging market sovereign thematic bonds, concerns and challenges, financial and ESG
factors they consider before investing, and bond characteristics that are of interest tothem.
Both surveys capture what lies ahead for emerging market sovereign thematicbonds, challenges, and perspectives for new issuances. An important difference between the methodologies of the two surveys is that the DMO
survey included closed-ended questions with pre-populated answer
choices to provide quantifiable data, whereas the investor andintermediary bank survey was exploratory, consisting of openended questions intended to collect the full range of opinions. The surveys were meant to complement each other,
providing insight into the barriers and challenges to increasing emerging market transactions in support of climate actions
and sustainable development. Appendixes B and C reproduce thesurveys.
This section of the report analyzes the results of both surveys and, in the context of the technical assistance that the World Bank Treasury provides, highlights
the potential of the sovereign thematic bond market. It also identifies gaps in knowledge and government capacity that must be addressed to improve the quality of thematic bond transactions and thus maximize investor interest in generating environmental,
economic, and social outcomes.
8     

3

Sovereign Green, Social and Sustainability Bonds     93.2. SURVEY FINDINGS
Most DMOs Intend to Issue Thematic Bonds
Twenty-four of 32 surveyed countries are considering thematic bond transactions. They are establishing working groups or steering committees to make strategic decisions and undertake assigned
tasks related to the transactions, developing supporting policies and bond frameworks, identifying
eligible projects and expenditures, identifying performance indicators, including such bonds ingovernment funding options, or exploring new issuances. Eight of the 24 countries have alreadytapped the market at some point with thematic bonds. Another eight have already established atimeline for issuance, seven of them in 2022. Eight respondents are not currently consideringthematic bonds (Figures 7 and 8).

FIGURE 7. Country Perspectives on Thematic Bond Issuances
Considering issuance7

Not considering issuance89Developing policies, framework, and identifying
eligible projects and/or KPIs
Thematic bonds are included in the funding
options
Exploring the potential

8
0

4

8

12

16

20

24

N = 32
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

FIGURE 8. Actions Being Undertaken to Support
Sovereign Thematic Bond Transactions

Task force

Framework

Taxonomy

10 countries have established atask force to explore thematicbond issuance options.
Reported arrangements varyfrom technical committees andworking groups to more formal
authorities and institutions.

11 countries have developed aframework for thematic bondissuances.

Nine countries have developed ataxonomy to identify eligible
activities; another seven are
considering it.

Source: 2022 World Bank Sovereign Debt Management Offices Survey.

10     Sovereign Green, Social and Sustainability Bonds

There are many reasons why a country may consider thematic bonds as a funding
option. The leading motivation in favor of such bonds for survey participants was diversification of their investor base. Eleven of 32 countries identified the potential to diversify their investor base as the most important reason for considering thematic bonds.
A second motivator is that these bonds present the opportunity to signal the issuer’s commitment
to sustainability and raise awareness about progress being made in achieving Paris Agreement
goals and SDGs. They are also a tool to access resources needed to finance sustainable investments and mitigate the impacts of climate change. Helping build a domestic market to encourage private sector issuances and attracting international investors are also motivating factors.
Surprisingly, given the amount of debate on green premium or “greenium” in the public sphere(Bachelet, Becchetti, and Manfredonia 2019; Hachenberg and Schiereck 2018) (Box 3), the possibility of raising funds with thematic bonds at lower cost than conventional bonds does not appear
to be a primary focus (Figure 9).

FIGURE 9. Reasons for Considering Thematic Bond Issuances
11

Diversifying the investor base2

Signalling commitment to sustainability

1
4

Building a local market to motivate private sector issuers 1

Promoting transparency 10

Reason number 2

1

Reason number 3

3
2

3

Reason number 1

1

4

Raising international funding 1 1

Cheaper funding

5

5

Attracting international investors to domestic market 1

2

9

3

Raising the funding needed to sustainable investments

5

1
1
5

N = 24
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

10

15

20

Sovereign Green, Social and Sustainability Bonds     11BOX 3. THE GREEN PREMIUM OR GREENIUM
Green premium, or greenium, refers to the negative difference in spreads between green and nongreen
bonds with the same financial characteristics (currency, tenor) issued by the same issuer, suggesting thatgreen bonds have a pricing advantage to the issuer over conventional bonds. The presence of the greenium can be more clearly visualized through the “twin bond” mechanism that Germany introduced to themarket in 2020 and that Colombia then used (Figure B3.1). Because the bonds are financially identical bydesign, except for the green commitment, and issued on the same date, the pricing differential can be
attributed to supply and demand effects.

FIGURE B3.1. Colombia Green Treasury Bonds 2031 in Secondary Market,
as of April 6, 2022
40

33

20
10
0

25-May-22

11-May-22

27-Apr-22

13-Apr-22

30-Mar-22

2-Mar-22

16-Mar-22

16-Feb-22

2-Feb-22

19-Jan-22

5-Jan-22

22-Dec-21

8-Dec-2124-Nov-21

10-Nov-21

Volume in COP, Green TES 2031
Greenium (pbs)
Average–10–16
27-Oct-21

Greenium (pbs)

30

9.8

13-Oct-21

90
80
70
60
13
50
40
30
20
10
0

29-Sep-21

COP billion

Greenium (pbs)–20

Source: Colombia Deputy Directorate of Domestic Debt; Deputy Directorate of Internal Financing calculations with data from the Electronic
Trading System.

According to the Climate Bonds Initiative (2022), green bonds experience greater spread tightening
during the pricing process than conventional bonds, as seen in U.S. dollar- and euro-denominatedloans. Hachenberg and Schiereck (2018) matched a sample of similar green and conventional bonds
and found that green bonds trade marginally more tightly than same-issuer conventional bonds. Basedon secondary market data, Amundi Asset Management and International Finance Corporation (2022)
found that the average greenium for emerging market issuers was about 3.4 basis points. Bachelet,
Becchetti, and Manfredonia (2019) analyzed a sample of 89 matched green and conventional bonds
and found that institutional green bonds issuers such as sovereigns, local government, and supranationals face a greenium. Further research is needed to provide clearer evidence of a greenium asother technical elements, such as the difference in the investor base for both bonds and the volume
outstanding, could also play a role and help explain the pricing difference.

12     Sovereign Green, Social and Sustainability Bonds

Additional Costs and Complexity Are Holding Back Sovereign
Thematic Bond Transactions
Countries also pointed out the drawbacks of thematic bond issuances. Costs associated withpreparing issuances are the main reason that public DMOs might not consider such transactions(Box 4). Other deterrents include the process to label the bond and identify eligible projects(Box 5). For use-of-proceeds bonds, some issuers highlighted challenges with identifying eligible
expenditures and reported small eligible portfolios that are inconsistent with the size of bondsthat they prefer to issue and investors prefer to buy (Figure 10).

FIGURE 10. Reasons for Not Considering Thematic Bond Issuances
Cost of arranging issuances

5

Process is too complicated3

Difﬁculties in identifying eligible expenditures

3

Value added is not clear
1

Small green project portfolio

1

3
1

2

No contribution to yield curve or market liquidity

4

1

2

Reason number 1
Reason number 2

2

Reason number 3

1

1

2

Difﬁculties in identifying eligible projects

1
0

2

4

6

8

10

N = 24
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

BOX 4. COSTS OF ISSUING THEMATIC BONDS
Issuers of thematic bonds are required to set up governance processes distinct from conventionalbonds. These additional steps require additional time and monetary and non-monetary resources andclose collaboration between the debt management office (DMO), line ministries and other government
departments. The process is unfamiliar and unusual for DMOs. Many DMOs, mainly smaller debt management offices and infrequent issuers of international bonds consider the process complicated, time
consuming, and resource intensive. In the absence of a significant price difference and the governanceprocess involved in thematic bond issuances, they do not see the value of diverging from their usual
funding practices.

Sovereign Green, Social and Sustainability Bonds     13In response to another question about the challenges in issuing thematic bonds following internationally accepted principles, DMOs mentioned lack of knowledge of the financial instrument
itself and the international standards they must comply with (Box 5).

BOX 5. STEPS FOR ISSUING A SOVEREIGN THEMATIC BOND
Issuance of thematic bonds involves steps that are not required for conventional bonds. In preparation for
the issuance of a thematic bond, the issuer must adopt a framework that sets the basis for identification,
selection, verification, and reporting of the expenditures or projects eligible to be financed by the bondand management of such proceeds. The framework should follow internationally accepted standards suchas the International Capital Markets Association Green Bond Principles, Social Bond Principles, and Sustainability Bond Guidelines. Diligently following these steps is important to ensure that the bond can be identified as a labeled thematic bond. Although the time required from start to finish varies, a first-time issuer can
expect to take at least 6 months for the entire process.
It is recommended that debt management offices establish a dedicated task force or steering committeewith members from different departments in ministries of finance and relevant line ministries to develop athorough understanding of the requirements, discuss the value proposition, conduct a detailed analysis ofeligible expenditures, and design a work plan.
For example, in preparing for the issuance of its inaugural sovereign green bond, the government of Egypt
formed a green finance working group consisting of the ministries of Finance; Planning and Economic
Development; Environment; Transportation; Housing, Utilities, and Urban Communities; and Electricity
and Renewable Energy New and Renewable Energy Authority; Egyptian Electricity Transmission Company; and Construction Authority for Potable Water and Wastewater. The Vice Minister of Finance was thechair of the working group.

14     Sovereign Green, Social and Sustainability Bonds

Investors Are Interested in Emerging Market Sovereign Thematic Bonds
Surveyed investors provided various reasons for their interest in emerging market sovereign
thematic bonds that can be classified in three main categories: ESG impact, market development,
and business interest. The motivations of some investor and intermediary banks are aligned withthose of DMOs. The supply and demand sides agree that sovereign thematic bonds signal a
country’s commitment to climate goals and that sovereign transactions help develop the ESG market
by motivating other issuers. Both sides seek diversification—of their investor base in the case ofsovereign issuers and of investment portfolios in the case of investors—which is mutually beneficial.

ESG Impact
Promote just transition: Investors and banks see emerging market thematic bonds as an opportunity to contribute to the transition to a low-carbon economy effectively and equitably. They
help promote the economic and social changes necessary to meet climate goals and SDGs while
protecting workers and communities and ensuring a more socially equitable distribution of benefits and risks. Sovereign thematic bonds contribute not only tothe decarbonization efforts of these economies, but also to theJust transition is key social and governance challenges they face.
Sovereign thematic bond issuances signal a country’s climate commitment: Investors believe that sovereign thematicbonds reflect a country’s sustainability strategy.
Proceeds earmarked for green and social projects have apositive impact: The fact that proceeds are earmarked for
eligible projects and expenditures with positive environmental
and social impacts attracts clients. Some investors report thatclients with a strong preference for thematic bonds are willingto pay a premium to hold these securities.

Emerging markets need tobalance decarbonization
efforts, whilst mitigating theimpacts on local communities.
INVESTOR

Emerging countries areclearly a segment where
investors’ investment can bevery impactful, as emerging
countries need to act quickly
and massively to tackle not
only climate change, but alsosocial and governance issues.
INVESTOR

Sovereign Green, Social and Sustainability Bonds     15Market Development
Sovereigns are key for ESG market development: Sovereigns can be the main source of liquidity for investors andstimulate thematic bond issuances of other public and private institutions. Sovereigns are seen as leaders in the transition to a low-carbon economy and in setting standards forother issuers in a country.
Taxonomies, regulations, and standards have enhanced
credibility: Some mention development of taxonomies
and other improvements in regulations and standards,
which increase the credibility of the thematic bond market(Box 6).

There is a huge signaling
effect from a sovereign ESG
bond in terms of a country’s
commitment to net zero. For
the local capital markets,
sovereign ESG bonds typicallytrigger positive spillover effects
to the local bond market. They
are the starting point for many
corporate, financial, and otherpublic sector issuers in theirjourney to own ESG issuance.
INVESTOR

BOX 6. TAXONOMIES TO AVOID GREENWASHINGThe objective of a green taxonomy is to increase the flow of capital toward activities with substantial benefits
for the climate and the environment (Network for Greening the Financial System 2022). A green taxonomy
is a classification of economic activities considered to be environmentally sustainable in a certain context.
It provides standardized definitions of green investments that will help a country or jurisdiction achieve
priority environmental or sustainability goals. By funding eligible projects aligned with the relevant green
taxonomy, green bond issuers can avoid the risk of mislabeling nongreen activities as green (often calledgreenwashing) and help investors identify investment opportunities in line with their mandate. It is recommended that taxonomies follow
internationally accepted design
FIGURE B6.1. Colombia Green Taxonomy
principles to enhance comparability and interoperability acrossEnvironmental objectives
jurisdictions and reduce investors’
Climate change mitigationtransaction costs. Various emerg Do no signiﬁcant harm
Climate change adaptation
ing markets (and jurisdictions),
to any of the other ﬁve
including Bangladesh, China,
Protection and restoration of biodiversity and ecosystems
environmental objectives
Colombia, Costa Rica, Chile, Indo CoherenceLand use management
Does not contradict pre-existingnesia, Malaysia, Mexico, Russia,
Water management
deﬁnitions used in public andSingapore, and South Africa, areprivate investments addressing
Pollution prevention and control
environmental issues
developing or have developed
Circular economy
green taxonomies (Figure B6.1)

16     Sovereign Green, Social and Sustainability Bonds

Business Interest
Provide portfolio diversification and better returns: Investors and intermediary banks believe thatsovereign thematic bonds allow investors to diversify their portfolios. For investors exploring emerging markets, thematic bonds may be a more attractive holding than conventional bonds. Thematicbonds also complement investors’ conventional bond underwriting business.
Address client interest in supporting environmentally sustainable investments: Some institutions view thematic bond investments as critical to serving their clients because of the growing
awareness of environmental challenges and interest in such instruments.
Support environmental sustainability as part of the institution’s strategy: Some investors and intermediary banks havebroad environmental concerns and have included sustainability as part of their strategy and agenda. They are committed
to supporting the Paris Agreement and intend to make theirinvestments a driving force for change. Some cite high internalsustainable finance targets.

[We are] committed to the goalsof the Paris Agreement, and weare focused on supporting ourclients in pursuing more green
and sustainable financing.

Complement previous experience in issuing or assisting
INVESTOR
with thematic bond issuances: The fact that some institutions have experience issuing or assisting with sovereign
thematic bond issuances is also a reason for investing in suchbonds. Some have issued thematic bonds as part of a financial
strategy for their own company. Others have provided services for the private sector and sovereigns to structure thematic issuances around the globe, including framework development andengagement with second-party opinion providers. This exposure provides them with greater
knowledge about regulations and standards in emerging markets and give them more confidence in the credibility of sovereign thematic bonds.

Investors Consider Financial and
ESG Factors When Investing in
Emerging Markets
Investors cite usual credit fundamentals and risks asprime considerations because thematic bonds are
fixed-income securities with risks and returns similar
to those of conventional bonds (Figure 11).
In the ESG spectrum, investors want to ensure that
their resources are contributing to the environmental or social agenda. “Greenwashing” is one of the
major concerns that investors and intermediarybanks reported in the survey. Greenwashing refers
to channeling, intentionally or unintentionally, proceeds from thematic bonds to projects or otheractivities that have insignificant or even negativeenvironmental or social impacts. To be able toallocate a larger portion of their portfolios in such

FIGURE 11. Financial Factors
Investors Consider When Evaluating
Sovereign Thematic Bonds
FINANCIAL
Credit proﬁle and macroeconomic outlook
Political risks
Currency
VolumeLiquidity
Risk and return of the investment
Pricing characteristics and comparison with existing bonds of the issuer and peers
Source: 2022 World Bank Investors Survey.

Sovereign Green, Social and Sustainability Bonds     17First and foremost, investors care about seeing framework and second-party
opinion confirming alignment with ICMA [International Capital Markets
Association] principles. Second, they focus on governance — robustness ofprocess for eligible project evaluation and selection, management of proceeds
and allocation to eligible projects, as well as ability for there to be transparency
in annual allocation and impact report. Then each investor has their own ESG
integration criteria where they may screen out issuers with exposure to certain
industries or with negative media (e.g., human rights abuses or lack of Paris
Agreement commitment).
INVESTOR

markets, investors and banks need a structure that
ensures the credibility of the commitments and theuse of proceeds.
In evaluating ESG aspects of thematic bonds, surveyed investors pay attention to the issuer’s overall
environmental strategy, bond framework, transparency, and controversies related to human rights andenvironmental and governance risks (Figure 12).

FIGURE 12. ESG Factors Investors
Consider When Evaluating Sovereign
Thematic Bonds
ESG
Issuer’s overall sustainability strategy, roadmap, and commitments
Type of bond
Bond framework

Sustainability-Linked Bonds (SLBs)
Receive Greater Scrutiny
from Investors
Key performance indicators (KPIs), level of disclosure,the ambition of sustainability performance targets,and impact reporting are even more relevant in theevaluation of investing in SLBs than use-of-proceeds
bonds. Investors consider the following additional
factors when considering SLBs:◾

◾
◾

An independent, external review of baseline
data for sustainability performance targets (SPTs)
and performance
A dedicated assessment framework for SLB
Standardized KPIs.

Overall quality, alignment with international
principles, quality of second-party opinion
Criteria and deﬁnition of eligible expenditures categories
Level of ambition, credibility, and relevance of selected key performanceindicators and sustainability performance targets, their alignment withinternational goals, and their effective measurements
Strength in the use-of-proceeds governance process,eligible project selection and evaluation
Transparency in allocation of proceeds and impact report
Controversies related to human rights and environmental and governance risks
Source: 2022 World Bank Investors Survey.

18     Sovereign Green, Social and Sustainability Bonds

The usual SLB factors: Are KPIs relevant, core and framework material in
the context of the ESG issues facing a country and its Paris Agreement
contributions; are Sustainability Performance Targets ambitious and go
beyond ‘business as usual’ for the country and will doing the bond facilitateachievement of those SBTs; does testing timing make sense in the context of thebond structure so there is the meaningful penalty if SBTs aren’t met; is coupon
step-up material. They would also look at what external verification an issuer
has undertaken to evaluate its SPTs in the context of its Paris commitments.
INVESTOR

Credit Fundamentals Remain Essential to Investment Decisions
Some investors and intermediary banks note growing demand
for thematic bonds, especially for those with use of proceeds,
and investor preference for labeled products over traditionalbonds. Nevertheless, credit fundamentals remain essential toinvestment decisions. Investors and intermediary banks perceive that thematic bonds in general need more than just thelabel to maintain their value in times of market volatility and to
be considered a safer investment than other bonds or stocks.
Although some mention the outperformance of such bonds
when markets are volatile, others argue that overall performance seems to be aligned with market direction.

It’s clear that demand is greaterthan supply in the ESG bondmarkets. However, investors
will still look at the credit
metrics and pricing of the bonds
when making an investment
decision. They do prefer to buy
ESG bonds over conventionaltransactions, however [they]
will not compromise on theirrisk/return metrics. [ . . . ] It is
not clear however that ESG
bonds are necessarily a safe
haven investment, the spreads
may be more stable due tobeing less liquid, but theiroverall performance tends to bealigned with market direction.
INVESTOR

Sovereign Green, Social and Sustainability Bonds     19There Is Some Market Appetite for Subnational Emerging Market
Thematic Bonds
Investors and intermediary banks perceive an interest in thematic bonds that emerging market
subnational and subsovereign entities issue. Subsovereigns who already issue conventionalbonds and are well known to investors are more able to attract
investors for thematic bonds issuances, especially because of
There is interest, but it depends
the important role they play in countries’ energy transitions.
Nonetheless, some investors and intermediary banks are lessinterested. Similar to sovereign thematic bonds, investor interest depends on the quality of the bond framework and transparency. Investors cited challenges associated with expanding projects to reach benchmark size to access markets.
These subnational actors often play a key role in implementing the nationally determined contributions to reduce greenhouse gas emissions, building resilience to climate change,
and meeting SDGs. Some emerging market cities and municipalities, state-owned enterprises, and national banks havesuccessfully issued thematic bonds (Box 7).

on global location, regulation,framework and transparency.
Some countries will not havethe necessary transparency
infrastructure for an investor
to feel information will be
reliable.
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BOX 7. EMERGING MARKET SUBNATIONAL THEMATIC BONDS
Although most subnational borrowers in emerging markets do not have the autonomy or authority necessary to make decisions about accessing financing or the capacity or the credit strength to borrow from capital markets, some regularly issue bonds in the domestic market, and others have issued in international
capital markets. Despite restrictions, many have the capacity to increase borrowing and thus finance muchneeded infrastructure development (S&P Global Ratings 2022). In July 2017, City of Cape Town issued its
first green bond (South African rand (ZAR)1 billion). The response from the market was overwhelmingly
positive, with 29 investors making offers totaling ZAR4.3 billion for the ZAR1 billion bond. The bond was
eventually sold at 133 basis points above the ZAR186 government bond.
Emerging market state-owned enterprises and national companies also play important roles in implementing government policy objectives. These state-owned enterprises are often among the world’s leading emitters of greenhouse gases. Energy and water utilities and national banks and nonbank financial
institutions that finance infrastructure projects can help governments reach climate targets and achieve
the Sustainable Development Goals related to affordable and clean energy (Goal 7) and sustainable cities and communities (Goal 11). The government of the Republic of Indonesia, along with the World Bank
Group, Asian Development Bank, and other multilateral institutions, established PT Indonesia Infrastructure
Finance in 2010 to help close the country’s large infrastructure gap by financing commercially viable infrastructure projects and reallocating resources from carbon-intensive to low-carbon and climate-resilient infrastructure. In January 2021, PT Indonesia Infrastructure Finance issued a USD150 million sustainability bond, listed on the Singapore Stock Exchange, which investors oversubscribed by 2.6 times andwas priced at a yield of 1.75 percent and a coupon of 1.5 percent.

20     Sovereign Green, Social and Sustainability Bonds

Evaluating Sovereign Thematic
Bonds Is Challenging for Investors
Investors also reported challenges in investing inemerging market sovereign thematic bonds. The
challenges cited can be divided into two broad
categories: related to ESG aspects and related tofinancial factors (Figure 13). The challenges related
to ESG factors that investors emphasized are similar
to the difficulties that DMOs faced. Investors perceive that many emerging market sovereign issuerslack the institutional capacity to structure crediblelabeled bonds.

FIGURE 13. ESG and Financial
Challenges Investors Face
ESG

FINANCIAL

Weak frameworks

Macroeconomic andmarket conditions

Lack of institutional capacity

Transaction costs inlocal currency issuances

Poor data availability

Low liquidity

Source: 2022 World Bank Investors Survey.

ESG-Related Challenges
Weak frameworks: Investors and banks perceive a need forstronger frameworks that support sovereign thematic bondissuances in emerging markets to increase credibility regarding
the use of proceeds. Frameworks following international standards (International Capital Markets Association principles)and allowing comparability across countries would facilitatesuch investments.

Some caveat advanced
by investors is around therobustness of issuanceframeworks and the higher
risk of greenwashing seenin countries where thegovernance is seen as poor.

Lack of institutional capacity: Some financial institutions
express concerns related to the governance process of thematic bonds. There are many steps involved in sovereign thematic bond issuances: establishing the framework; identifying
INVESTOR
eligible projects; implementing, monitoring, and evaluating
projects and expenditures; reporting the use of proceeds andrespective impacts. All these activities require coordination between multiple agents and institutions within a government, as well as technical expertise, which is often lacking in emerging
markets.

Limited data availability: Some emphasize that, despite improvements in recent years, emerging economies must disclose more reliable climate- and project-related data in post-issuanceimpact reports to enable tracking of performance indicators.

Financial Challenges
Macroeconomic and market conditions: General macroeconomic and market conditions ofemerging economies, such as high risk of default and market volatility, make investments riskier
and may prevent transactions.
Transaction costs with local currency issuances: Some argue that issuances in local currency
have higher transaction costs, which decreases returns of international investors.
Low liquidity: The small number of sovereign issuers limits the liquidity of the bonds when investors need to make portfolio changes. A wider range of countries issuing thematic bonds would
provide greater diversity and more investment options.

Sovereign Green, Social and Sustainability Bonds     21Intended Characteristics of Thematic Bond Issuances
Sovereign Issuers Prefer Use-of-Proceeds Bonds
Sovereigns are prioritizing use-of-proceeds bonds.
Green, social, and sustainability bonds are the most
preferred types of thematic bonds under consideration (Figure 14).
The types of thematic bonds sovereigns are considering correspond to their perceptions of investor appetite. According to public DMOs, investors
express more interest in green, social, and sustainability bonds than in blue bonds or SLBs (Figure 15).
Investors and intermediary banks reported interestin the same types of bonds as sovereigns. According
to the investor survey, investors prefer use-of-proceeds
bonds rather than SLBs because there is greatertransparency on allocation of resources (Box 8).
Prevalence of use-of-proceeds bonds in the market
also influences their decision.
One investor suggested a level of discomfort with
SLBs because of the double burden—environmental and financial—that may be imposed on society
if the issuer fails to meet its environmental performance-related targets and must pay a higher interest rate to bondholders. Another one questioned
the suitability of a structure that may result in a coupon increase for a sovereign when a public DMO
is mandated to minimize cost of funding for thegovernment.
Nonetheless, a few investors are optimistic aboutsovereign SLBs and see such bonds as complementing use-of-proceeds bonds in meeting a country’s environmental and social commitments. The
instrument is also seen as an intermediary step for

FIGURE 14. Types of Thematic Bonds
Being Considered
Green

25

Sustainability

21

Social

20

Blue

6

Sustainability-linked

6

Sukuk

1

N = 28Source: 2022 World Bank Sovereign Debt Management Offices Survey.

FIGURE 15. Debt Management
Offices’ Perceptions of Investors’
Bond Preferences
Green

20

Social17

Sustainability

15

Blue

4

Sustainability-linked
Sukuk

3
1

N = 24
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

SLBs are a really important way for countries that are either: (a) fiscallyconstrained or (b) lack a sufficient project pipeline to justify green bond to tap
into sustainable funding sources. Obviously, it is critical that the structure isgood, targets are ambitious, plans well-articulated and the government has theex-ante capacity to execute on environmental/SDG objectives. If those boxes
are checked, SLBs are a very useful tool.
INVESTOR

22     Sovereign Green, Social and Sustainability Bonds

countries that do not have enough projects in the pipeline tojustify a standalone use-of-proceeds bond. As a forward-looking
instrument, SLBs can complement the more backward-looking
use-of-proceeds issuances, although investors emphasizedthat the level of ambition of sustainability performance targets
and a good issuance structure are key.
When asked about SLBs with a step-down coupon, investors’
views diverged. Some had no preference for a step-down
or a step-up. Others said that this type of mechanism would
be difficult to price for investors and therefore have limited
attraction.
Investors and intermediary banks report a general interest in
all types of projects, including projects that support climatechange mitigation versus adaptation, biodiversity conservation, dark green5 and transition projects, social projects, etc.,
as long as the governance structure is robust.
Some investors highlighted that mitigation projects will growin relevance given their increasing importance as the impact ofclimate change worsens. Interest in investing in biodiversity conservation is also expected to grow, especially when connectedto the protection of oceans. Some see demand for ocean related
SLBs with clear targets and action plans. For transition projects,
some feel that there is a movement toward re-evaluating positions on nuclear energy and natural gas, with the former playing
an important role in the energy transition and the latter being
considered more negatively.
For social and biodiversity bonds, some investors perceive
the need for further improvements in standards to stimulate
demand: solid KPI measurements and a clearer explanation of
how supported expenditures can be distinguished from thebusiness-as-usual expenditures in the sovereign budget.

The investor would need toassume that the issuer would
meet its SPT (otherwise theinvestor would be betting
against the sovereign’s ESG
strategy), in which casethey would need to pricein the coupon step-down
when thinking about yield tomaturity, meaning to meet
any yield hurdle they’d haveto start with a higher coupon
or deeper discount than theywould have if there had notbeen a step-down. This isn’t
positive for the issuer.
INVESTOR

As long as the issuer is suitable
and the framework is alignedwith market standards andprinciples, we would haveappetite for the formats
listed . . . Social bonds are asmaller part of the market andare well supported. There isalso increasing focus aroundbiodiversity and conservation,
while there few bonds to date,
we see this as an interestingdevelopment/growth for themarket.
INVESTOR

5

Dark green refers to projects and solutions that are in line with the long-term visionof a low-carbon, climate-resilient future (Cicero Shades of Green 2022).

Sovereign Green, Social and Sustainability Bonds     23BOX 8. GREEN AND SUSTAINABILITY-LINKED BONDS: A COMPARISON
Sustainability-linked bonds (SLBs), for which the coupon paid to investors depends on the issuer’s performance against measurable targets, are a newer type of debt instrument than use-of-proceeds bonds likegreen and social bonds. Despite the strong interest in the corporate market, only one sovereign (Chile)
has attempted an SLB.
In the case of use-of-proceeds bonds (green, social, and sustainability bonds), the issuer commits to using
the funds exclusively to finance environmentally sustainable projects or activities. As such, the size of
eligible green projects constrains green bond transactions, although green bonds are well recognized andwell accepted. The use of proceeds is easy to track, and the annual reporting of expected environmental
impact is relatively simple.
SLB proceeds, on the other hand, can be used for general purposes. This flexibility allows issuers that may
not have enough green or social capital expenditure to access sustainability focused investors. Labeling abond as an SLB can be more complex than labeling it as a use-of-proceeds bond. The issuer must selectkey performance indicators (KPIs) and one or more sustainability performance targets (SPTs) according
to key performance indicators. The KPIs should be material to the issuer’s core sustainability strategy,
measurable or quantifiable, and externally verifiable. Moreover, the level of the SPT’s ambition is assessedby benchmarking to the issuer’s own performance or its peers’ performance over a minimum of 3 years
or systematic reference to science-based scenarios. Third-party auditors are appointed to assess the relevance, robustness, and reliability of KPIs, the rationale and the level of ambition of the proposed SPTs,
and the credibility of the strategy. Identifying KPIs and SPTs that are ambitious but realistic is challenging forsovereigns.
Moreover, sovereign SLBs face two major challenges. First, debt management offices (DMOs) are mandated to raise the required funding at the lowest possible cost and at a prudent degree of risk. The
potential step up in the coupon is therefore not acceptable to some DMOs. Second, many investors areunwilling to accept coupon step downs. Investors do not like the optics of profiting from a country’s failure
to achieve sustainability related targets.
Nevertheless, on March 2022, the Republic of Chile issued a 20-year USD2 billion SLB that was welcomedby the market. The bond was supported by a robust framework. Chile’s SPTs aim to:◾
◾
◾

achieve annual greenhouse gas emissions of 95 metric tons of carbon dioxide equivalent by 2030
(SPT1a)achieve a maximum greenhouse gas budget of 1,100 metric tons of carbon dioxide equivalent
between 2020 and 2030 (SPT1b)
derive 60 percent of electricity generation from nonconventional renewable sources by 2032 (SPT2)

If both SPTs are not satisfied, Chile will increase the coupon by 25 basis points (8 years fully accrued payment; equivalent to potential total penalty of 200 basis points).

24     Sovereign Green, Social and Sustainability Bonds

Issuers and Investors Are Willing to Consider a Range of Bond Sizes
DMOs expressed interest in a variety of bond sizes ranging from USD200 million to USD500
million. Issuances in an index-eligible benchmark size of USD500 million or more would benefit
issuers because they would attract funds and portfolio managers who focus on index-eligible
securities for liquidity benefits.
Smaller private placements, from smaller economies and island states, for instance, are an optionthat some investors consider for such reasons as liquidity or exposure needs; mandates; andinterest in ESG topics related to island states, such as clean oceans and biodiversity. Sizes vary
greatly because of the tailored nature of such transactions; amounts from USD5 million to USD10
million are cited for niche currencies and USD50 million to USD250 million for hard currencies.
A liquidity premium would be charged for such issuances. Other investors and intermediarybanks are less inclined to participate in such smaller private placements because of liquidity
constraints and constraints on their research capacity.

Potential Issuers Are Looking at International and Domestic Markets
Fourteen sovereign issuers said that the international market is the target of sovereign thematicbond issuances, seven preferred to issue in thedomestic market, and 10 reported being interested
in both markets (Figure 16).
Of the 16 countries that intend to issue thematicbonds domestically, nine expect international
investors to buy the bonds, and seven see domestic
demand for such assets (Figure 17).
A variety of listing locations are under consideration
for sovereign thematic bond issuances (Figure 18). The
top choice is the local exchange, followed by London.

FIGURE 16. Markets of Interest
International

14

Both

10

Domestic7

N = 31
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

FIGURE 17. Expectations of Demandfor Domestic Issuances

FIGURE 18. Exchanges Under
Consideration
Local

12

LondonSee domestic
demand for
ESG assets, 7

Expectinternational
investors to buy
the, bonds 99Luxembourg

6

Regional

5

New York

3

Euronext
Japan
N = 16
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

2
1

N = 26
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

Sovereign Green, Social and Sustainability Bonds     25Currency
Countries prefer to issue thematic bonds inlocal currency, followed by the U.S. dollar andeuro (Figure 19). Many DMOs view thematicbond issuances in order to build a local market
to motivate private sector issuers and attract international investors (Figure 9).
Investors and intermediary banks surveyed reporta general perception that hard and local currencies
are acceptable. Nonetheless, some indicated theirpreference for hard currencies for liquidity reasonsor according to mandate.

FIGURE 19. Intended Currenciesof Thematic Bond Issuances
Localcurrency
EUR

11

USD

11

JPY

Source: 2022 World Bank Sovereign Debt Management Offices Survey.

Most DMOs are considering a maturity profile of longer than
10 years for their thematic bond issuances. Maturities of 5 to
10 years are the second most preferred option (Figure 20).

More than 10 years

16

Between 5 to 10 years

10

Between 1 to 5 years
Less than 1 year41

N = 23
Source: 2022 World Bank Sovereign Debt Management Offices Survey.

2

N = 24

Maturity IGURE 20. Intended Maturities
Fof Thematic Bonds

15

We focus on large benchmark
transactions which tend to be
hard currency, but we haveseen opportunities for smaller
local currency deals for someinvestors who are active in thelocal currency market.
INVESTOR

Lessons Learned fromSovereign Thematic
Bond IssuancesThis section of the report highlights lessons learned from the experience of emerging
market sovereign thematic bond issuers. Although experiences differ from one jurisdiction tothe other, the following observations are relevant and useful for other potential issuers.

Price
Whether thematic bonds offer funding cost advantages over conventional bonds has been the
topic of considerable discussion among potential issuers, investors, and researchers (Bachelet,
Becchetti, and Manfredonia 2019; Hachenberg and Schiereck 2018). Since thematic bonds,
like their conventional counterparts, are based on the issuer’s credit rating, any price difference
between thematic and conventional bonds is likely driven by the scarcity of thematic bonds. The
Egypt sovereign green bond priced 12.5 basis points lower than the benchmark price of theconventional bond of the same tenor, resulting in a negative new issue concession. Mexico’s first
SDG bond also realized a negative new issue premium of approximately 7 basis points (the initial price of mid spread +235 basis points and guidance of mid spread +215 basis points tightened eventually to mid spread +195 basis points). The Serbian green bond priced 10 basis points
inside fair value. Hungary reported “greenium” in primary and secondary markets. Despite thesebefore-and-after evaluations, a true price comparison can only be made when two bonds—green
and non-green—are issued at the same time and have the same financial characteristics (tenor,
currency, size). Colombia adopted the German twin-bond approach, with a thematic bond and aconventional bond with the same features issued at the same time. Colombia’s 9.5-year sovereign
green bond priced 7 basis points lower than conventional bonds with the same financial terms in
its launching and 15 basis points in its reopening one month later, suggesting a pricing advantage.

4

Sovereign Green, Social and Sustainability Bonds     27Investor Demand
Thematic bonds allow DMOs to target different investor segments to match issuances to potential demand and reduce refinancing risk and cost of funding(Jonasson and Papaioannou 2018). All sovereign issuers reported overwhelming
demand from investors, providing them the opportunity to diversify and expand theirinvestor base. Mexico’s first SDG-aligned bond was oversubscribed 6.5 times, reaching euro 5 billion of demand at its peak. Seventy-eight new investors participated forthe first time in a debt issuance from Mexico thanks to the SDG-aligned characteristic. Twohundred twenty international investors, including 16 new investors to USD-denominated Egyptianbonds participated in the final order book for its debut sovereign green bond. Orders came from40 green and ESG investors, 19 being pure green investors. The five Indonesian green sukuk
issued between 2018 and 2022 saw higher investor demand than conventional bonds. The 5-year
maturity green sukuk issued in 2020 was 7.3 times oversubscribed. International investors from
the Middle East, Asia, Europe, and the United States have underwritten more than 90 percent ofIndonesia’s green sukuk. 100 percent of the Benin’s SDG bond investors were international, with
21 percent of them being first time buyers of a Benin bond.

Domestic Versus International Market
A domestic bond market provides a durable source of financing to issuers, allows smaller sizes
and more frequent issuances, and protects against foreign exchange risk (Adrian et al. 2021). Issuance of sovereign green and other types of thematic bonds in the local market allows countries to develop domestic sustainable bond markets and help green their financial systems
by encouraging local banks and corporates to issue green bonds, but many domestic bondmarkets are not deep enough. In contrast, many international investors (in Europe and theUnited States) are integrating ESG into their investment decisions, prompted in part by sustainable finance regulations in Europe and client demand in the United States. Most domestic investors in emerging markets are lagging behind and many domestic markets do nothave the necessary financial infrastructure to attract international investors. In this situation, issuers with large financing needs (eligible expenditures) and ability to access capital markets may want to issue thematic bonds in the international market, which may allow
issuances with longer maturities than issuers generally are able to secure in theirdomestic markets in similar volumes, although currency risk is an importantconcern and should be considered. Current experience of emerging market
sovereign thematic bond issuers shows that most issuers tap the international market before issuing in the domestic market, with notable
exceptions. Egypt’s experience is noteworthy. Seventy-eight percent
of its debt is short-term domestic debt owed to commercial banks.
Its medium-term debt strategy called for diversifying its investor base.
The Ministry of Finance considered a variety of funding alternatives before
settling on the green bond because of its potential to attract new segments
of investors. Because of overwhelming demand for their debut green bond anda large (USD1.9 billion) pipeline of eligible green projects, they were able to upsizefrom USD500 million to USD750 million. Malaysia has a deep and liquid domestic market but decided to issue its first sovereign sustainability sukuk in the international market,
increasing the size from USD1 billion to USD1.3 billion. The Benin SDG bond issuance in the28     Sovereign Green, Social and Sustainability Bonds

international markets largely attracted investors with ESG mandates, who comprised 91 percentof the final allocation, whereas Colombia took full advantage of nonresident investor interest inpeso-denominated treasury bonds and issued the first sovereign green bond in the domestic
market in Latin America and the Caribbean. Most of Chile’s thematic bonds were issued in
the international markets, where the country raised funds with long maturities of up to 50 years(USD1 billion social bond issued in September 2021 with maturity of September 2071). In thedomestic market, Chile’s thematic bonds have shorter maturity (up to 13 years).

Secondary Market Performance
Secondary market performance has varied. Colombia reported that yields traded in the secondary market have been similar to their conventional bonds. Hungary’s green bonds have
low secondary market turnover, similar to their conventional bond. Fiji reports no secondary market trading for its green bond, with only one transaction in the past. Alternatively,
Mexico’s SDG bonds have had liquidity performance superior to other benchmarks. Thailand’s sustainability bond has had sufficient liquidity in the secondary market. For the Philippines’ 25-year maturity U.S. dollar–denominated sustainability bond, secondary rates havebeen increasing since issuance, ending at 5.15 percent or 96 basis points above the original coupon,
as of June 2022. Lowest bid yield to maturity of the security was 3.92 percent (~28 basis points
below issuance rate) on March 31, 2022, after which it increased to 5.15 percent in mid-May. The
observed differences in liquidity are not necessarily intrinsic to the instrument (green or conventional). For example, if more institutional investors with buy-and-hold strategies are buying green
bonds than conventional bonds, we should expect the green bonds to be less traded and therefore
have lower liquidity. Imbalances in the supply and demand for certain bonds would also affectliquidity. For example, if green bonds were scarce, holders would be more reluctant to sell them.
Again, Colombia’s experience is interesting because the twin bond mechanism is designed toensure liquidity of green bonds for investors.

Conclusions

5

Interest in sovereign thematic bonds from countries and investors is growing. Considering thepotential of this market, the World Bank surveyed emerging market DMOs and international
investors to understand the prospects for such transactions. The DMO survey sought to explore
the potential of thematic bond issuances, constraints and challenges faced, and bond characteristics being considered. The brief investor survey complemented the DMO survey, providing insights into how the demand side sees such issuances, what investors seek, and how
emerging market sovereign issuances can be improved. Based on the DMO survey, emerging market sovereign thematic issuances are set to rise, subject to market conditions.6 Most
surveyed countries are considering sovereign thematic bond transactions and preparing forsuch issuances. DMOs’ reasons for considering thematic bond issuances are similar to the motivations that lead investors to seek emerging market sovereign thematic bonds. Both sides
see such bonds as a diversification tool for their investor base in the case of countries and theirportfolios in the case of investors. Both also view sovereign thematic bond issuances as signaling a country’s commitment to sustainability. Better pricing (the greenium) appears not to be a
motivating factor. DMOs focus instead on additional investor demand in a sustainability conscious
and ESG risk averse landscape.
Challenges related to establishing governance arrangements to manage and track proceeds,
knowledge of international standards and investor expectations, and the limited pool of eligible projects constrain the supply of emerging market sovereign thematic bonds. The
limited pool of sustainable projects is motivating emerging market sovereigns to issuesocial and sustainability bonds, which fund green and social projects. Other factors
hindering issuances are the additional cost of preparing such transactions, thecomplexity of the process, and difficulty identifying eligible expenditures.
Investors face similar challenges when underwriting sovereign thematicbonds in emerging markets. According to some investors, frameworks
are not robust enough, governments lack institutional capacity, andquality and availability of data need improvement.
The investor survey reveals a concern about greenwashing. Investors want
to be sure that their resources are being allocated to projects that make a difference and have positive impacts. In addition, financial factors such as macroeconomic outlook, credit profile, and political risks are relevant for investors when evaluating thematic bonds. Sovereigns should take these factors into account when planningsuch issuances.
Investors also report an interest in subnational and sub-sovereign thematic bonds, which might

6

At the time of writing of this report, tightening global financial conditions, slowing growth in the U.S. and China, and geopoliticaltensions/risks are impacting investor appetite for emerging market debt. Furthermore, soaring energy price and inflation are affecting
oil-importing emerging markets.

     29

30     Sovereign Green, Social and Sustainability Bonds

be an option worth exploring in countries where the responsibility for urban infrastructure investments and operations is decentralized to subnational governments, including states, provinces,
municipalities, cities, or districts.
Finally, the results of both surveys reveal that there is a convergence between the supply anddemand sides with regards to the characteristics of thematic bonds. Most sovereigns are interested in issuing green, social, and sustainability bonds, which meets the reported preference ofinvestors when comparing use-of-proceeds bonds with SLBs. Sovereigns are open to issuing in
hard and local currencies, aligning with investor interests. The preference of some countries forissuances in the domestic market and in local currency indicates that countries view such issuances as a way of developing their domestic capital markets.
The need for sovereigns to issue thematic bonds remains because of significant funding needs toimplement actions related to climate, environment, and SDGs, yet challenges must be addressed.
First of all, DMOs must carefully assess the appropriateness of including thematic bonds in theiroverall debt management strategy and the feasibility of issuing bonds (thematic or not) based onmarket conditions and their ability to service debt. It is important to have a good understanding ofgovernment priorities, evaluate the financing gap, and consider all sources of financing available(including concessional and non-concessional) before embarking on any transaction. Investors
are interested in both the quality of eligible projects and the governance practices establishedto ensure proceeds are being used as committed. Better understanding of the thematic bond market
and its requirements will help DMOs make informed decisions. Issuers and investors should
engage with each other to ensure they meet each other’s expectations and increase the ability
and willingness of emerging market sovereigns to issue thematic bonds. International financial institutions and multilateral development banks such as the World Bank can play a critical role in helping DMOs develop capacity building and integrate thematic bonds into
their overall debt management strategy (Box 9). The main message is that unlocking
the potential for sovereign thematic bonds in emerging and developing markets
can only be achieved by clarifying market expectation and overcoming theknowledge gap.

BOX 9. WORLD BANK TECHNICAL ASSISTANCE FOR
EMERGING MARKET SOVEREIGNSThe World Bank provides technical assistance to emerging market public sector issuers to develop sustainable capital markets, facilitate market-based solutions, promote sustainable investment, and engage in dialogue with investors
on environmental, social, and governance (ESG) issues. The World Bank Treasury, which shares with issuers its own knowledge and experience as a pioneerof thematic bonds and expertise in sustainability issues, delivers the technicalassistance. Treasury’s Sustainable Finance and ESG Advisory Services programis part of the World Bank’s broader work to promote sustainable development,
drive resources toward national environmental and social priorities, and contribute to the global agenda.

A P P E N D IX

A

Select Sovereign
Experiences with
Thematic Bonds
BENIN
Type of thematic bond

Sustainability-linked, SDG bond

Main motivation Funding of various social and environmental projects contributing to Benin’s commitments to achieve the United Nations SDGs
Standard adopted International Capital Markets Association Green Bonds Principles, Social Bonds Principles, and Sustainability Bond Guidelines, 2021 edition
Bond framework

https://odd.finances.bj/wp-content/uploads/2022/07/Document-cadre-obligations-ODD_Republique-du-Benin_FR-2-1-1-2.pdf

External review

https://assets.website-files.com/5df9172583d7eec04960799a/624ff65582d9c971a67b214d_20210709_V.E_SPO_Republic%20of%20Benin.pdf

Impact report

Not published yet

Transactions to date ▪
▪
▪
▪

Date: July 2021
Size: 500 million
Currency: euro
Market: International

Investors 100% international investors. 30% of investors who placed an order were participating for the first time in a bond issued by Benin. Twenty one
percent of the investors that received the final allocation were new to Benin. Sixty nine percent of investors had specific ESG mandates and
22% integrate ESG criteria into investment decisions.
Greenium 0.20%
Secondary market Benin’s SDG Eurobond is performing well on the secondary market, with good liquidity and demand.
performance
Other comments In July 2021, Benin distinguished itself in the international financial markets by becoming the first country in Africa to issue an SDG bond, with an issueof 500 million euros (approximately 328 billion Central African francs). The bond is unique because proceeds finance projects that have strong impacts
on the achievement of SDGs. The issuance had a strong investor turnout (more than 100 top-tier investors globally), achieving a 300% subscription
rate (approximately). The transaction’s coupon rate stood at 4.95%, with a negative new issue premium of 0.20%, reflecting investors’ appetite for thisinnovative instrument.
Three major challenges Benin faced are convincing investors of Benin’s macroeconomic fundamentals and the relevance of the development planthat the government has initiated, convincing investors of the innovative nature and particularities of the security, and reassuring investors of theplanned effective use of resources and of the communication strategy on the progress that Benin has made. Benin addressed these challenges bytaking the following major steps:
a.
b.
c.
d.

Drafting an SDG bond framework that presents its Benin’s climate commitments and the strategy for achieving the SDGs
Signing an agreement with Vigeo Eiris (Moody’s group) to conduct an independent study of the Benin issuance project
Reassuring investors about the soundness of the country’s macroeconomic fundamentals
Establishing a steering, monitoring, and reporting committee for SDG obligations with the following main missions:▪ Validation of compliance and eligibility of projects for SDG funding▪ Evaluation and selection of eligible expenses and allocation of associated funds (analytical allocation of funds raised) throughout the
obligation period▪ Production of an annual report on allocation and impact of funds that Benin has allocated to SDG projects▪ Supervision of any revision of the master issuance document▪ Review of audit reports and taking corrective action
e. Establishing a dedicated website (odd.gouv.bj) to disseminate information on Benin’s progress in achieving the SDGs
Source Ministry of Economy and Finance, Benin     31

32     Sovereign Green, Social and Sustainability Bonds

CHILE
Types of thematic bonds
Main motivation

Green, social, sustainable7, and sustainability-linked
The Ministry of Finance expanded the issuance of green bonds to social and sustainability bonds, moving from a purely environmental criterion toa sustainable one in line with the broader nature of sustainable development, incorporating a more complex vision of vulnerability, and aligningemissions targets with the UN SDGs. These bonds have the main objective of strengthening efforts related to climate change mitigation andenvironmental protection, as well as promoting growth with equity, through policies aimed at the origin of inequality, such as those aimed at
improving the education of those groups in vulnerability, and others aimed at improving the pensions of the elderly in a situation of vulnerability.

Standard adopted International Capital Markets Association Green Bonds Principles, Social Bonds Principles, and Sustainability-Linked Bond Principles
Bond framework

Sustainable Bond Framework: https://hacienda.cl/index.php/english/work-areas/international-finance/public-debt-office/sustainable-bonds/
chile-s-sustainable-bond-framework
Sustainability-Linked Bond Framework: https://hacienda.cl/index.php/english/work-areas/international-finance/public-debt-office/esg-bonds/
sustainability-linked-bonds/chile-s-sustainability-linked-bond-framework

External review

Sustainable Bond Framework: https://hacienda.cl/index.php/english/work-areas/international-finance/public-debt-office/sustainable-bonds/
sustainable-bonds-framework-second-party-opinion
Sustainability-Linked Bond Framework: https://hacienda.cl/index.php/english/work-areas/international-finance/public-debt-office/esg-bonds/
sustainability-linked-bonds/second-party-opinion-sustainalytics

Impact report

Sustainable Bonds: https://hacienda.cl/index.php/english/work-areas/international-finance/public-debt-office/sustainable-bonds/reports/allocationeligibility-environmental-impact-2020-report

Transactions to dateSpreadSecondary market
spread,April 30, 2022

3.50%/
3.53%

T + 95

T + 180

7/2/2031

0.83%/
0.83%

MS + 50

MS + 97

1/22/2020

1/27/2032

2.55%/
2.57%

T + 80T + 1240.9

1/22/2020

1/25/2050

3.50%/
3.28%

T + 105

T + 180

Euro

0.69

1/23/2020

7/2/2031

0.83%/
0.70%

MS + 50

MS + 97

EUR-2040

Euro

1.27

1/23/2020

1/29/2040

1.25%/
1.30%

MS + 80

MS + 123

Social

CLP-2028

Chilean
pesos

1,040

11/19/2020

10/1/2028

2.30%/
2.50%—

Social

CLP-2033

Chileanpesos

560

11/19/2020

10/1/2033

2.8%/
3.4%

—

Social

EUR-2051

Euro

1.25

1/19/2021

1/22/2051

1.25%/
1.30%

MS + 125

MS + 156

Social

USD-2061

U.S. dollar

1.50

1/19/2021

1/22/2061

3.10%/
3.12%

T + 127

T + 183

Green

EUR-2031 (R)

Euro

0.40

1/19/2021

7/2/2031

0.83%/
0.40%

MS + 60

MS + 97

Bond

Currency

Amount,BillionGreen

USD-2050

U.S. dollar

1.42

6/17/2019

1/25/2050

Green

EUR-2031

Euro

0.86

6/25/2019

Green

USD-2032

U.S. dollar

0.75

Green

USD-2050 (R)

U.S. dollar

Green

EUR-2031 (R)Green

Type of bond7

Negotiation
date

Maturity

Chile uses the term “sustainable bonds” for those that finance both green and social projects.

Coupon/Yield

Sovereign Green, Social and Sustainability Bonds     33CHILE (continued)
Transactions to date(continued)

SpreadSecondary market
spread,April 30, 2022

2.55%/
1.96%

T + 87

T + 124

4/15/2053

3.50%/
3.50%

T + 111.9

T + 191

5/4/2021

5/7/2041

3.10%/
3.30%

T + 115

T + 166

1,500

6/30/2021

10/1/2028

5.00%/
4.60%

—

Euro

1.00

7/21/2021

7/26/2027

0.10%/
0.30%

MS + 60

MS + 59

EUR-2036

Euro

0.75

7/21/2021

7/26/2036

1.30%/
1.31%

MS + 110

MS + 110

Social

USD-2033

U.S. dollar

2.25

7/22/2021

7/27/2033

2.55%/
2.58%

T + 130

T + 143

Social

USD-2041 (R)

U.S. dollar

1.00

7/22/2021

5/7/2041

3.10%/
3.14%

T + 130

T + 166

Social

USD-2061 (R)

U.S. dollar

0.50

7/22/2021

1/22/2061

3.10%/
3.33%

T + 140

T + 183

Social

EUR-2029

Euro

0.92

9/14/2021

1/21/2029

0.55%/
0.55%

MS + 70

MS + 77

Social

USD-2071

U.S. dollar

1.00

9/14/2021

9/21/2071

3.25%/
3.42%

T + 158

T + 196

Social

CLP-2024

Chilean
pesos

1,061

12/9/2021

6/1/2024

5.80%/
5.70%—

Sustainable

USD-2027

U.S. dollar

1.50

1/27/2022

1/31/2027

2.75%/
2.76%

T + 110

T + 103

Sustainable

USD-2034

U.S. dollar

1.50

1/27/2022

1/31/2034

3.50%/
3.51%

T + 170

T + 150

Sustainable

USD-2052

U.S. dollar

1.00

1/27/2022

1/31/2052

4.00%/
4.06%

T + 195

T + 191

Sustainabilitylinked

USD-2042

U.S. dollar

2.00

3/2/2022

3/7/2042

4.34%/
4.35%

T + 200

T + 179

Bond

Currency

Amount,BillionGreen

USD-2032 (R)

U.S. dollar

0.75

1/19/2021

1/27/2032

Sustainable

USD-2053

U.S. dollar

1.50

3/30/2021

Social

USD-2041

U.S. dollar

1.70

Social

CLP-2028

Chileanpesos

Social

EUR-2027

SocialType of bond

Negotiation
date

Maturity

Coupon/Yield

Greenium Historically we observed a greenium of between 5–15 basis points in green bonds, which are the thematic bonds that the market most favors.
The comparison is made based on the estimated fair value prior to issuance (there is no other formal measure).
Secondary market Chile’s sovereign thematic bonds stand out for having significant transaction levels in the secondary market, reflected in the lower volatility of
performance interest rates they present. A moderate greenium is also observed in some cases (5 basis points).
SourceMinistry of Finance, Chile

34     Sovereign Green, Social and Sustainability Bonds

COLOMBIA
Type of thematic bondGreen bond

Main motivation Sovereign green bonds are a way to channel resources to green initiatives aligned with Colombia’s environmental goals to promote sustainableeconomic growth, encourage participation of other Colombian issuers in the green bond market, and diversify the investor base in local capital
markets, attracting even more socially and environmentally responsible investors to the country.
Standard adopted International Capital Markets Association Green Bonds Principles 2021
Bond framework

Spanish: https://www.irc.gov.co/webcenter/ShowProperty?nodeId=%2FConexionContent%2FWCC_CLUSTER-169891%2F%2FidcPrimaryFile&revision=latestreleased
English: https://www.irc.gov.co/webcenter/ShowProperty?nodeId=%2FConexionContent%2FWCC_CLUSTER-170719%2F%2FidcPrimaryFile&revision=latestreleased

External review

Spanish: https://www.irc.gov.co/webcenter/ShowProperty?nodeId=%2FConexionContent%2FWCC_CLUSTER-169892
English: https://www.irc.gov.co/webcenter/ShowProperty?nodeId=%2FConexionContent%2FWCC_CLUSTER-169898

Impact report

Not published yet

Transactions to date

First Auction

Second Auction (reopening)

September 29, 2021

October 27, 2021

750

650

Currency

Colombian pesos

Colombian pesos

Coupon

7.00%

7.00%

Maturity

March 26, 2031

March 26, 2031

Price

99.85198.379Yield

7.556%

7.877%

Bid to cover

4.6

1.5

Greenium7 basis points

15 basis points

Date
Net proceeds (billion Colombian pesos)

Investors

The auction results demonstrated the appetite of investors, including banks, foreign investors, pension funds, fiduciaries, insurance companies, andothers. About 40% of Colombia’s debut green sale went to foreign investors, higher than the participation of foreign holders in the market of 25%,
expanding and diversifying its investor base. With the second auction, foreign holders accumulated approximately 49% of green bonds issued, andcurrently they hold approximately 60%.

Secondary market Conventional Treasury Bonds Colombian pesos 2031 vs. Green Treasury Bonds 2031 in secondary market, as of May 6, 2022
performance
Yield (%)
10.9
10.4
9.9
9.4

Conventional TES 2031
Green TES 2031

8.9
8.4
7.4

29-Sep-21
7-Oct-21
15-Oct-21
26-Oct-21
4-Nov-21
12-Nov-21
23-Nov-21
1-Dec-21
10-Dec-21
20-Dec-21
28-Dec-21
6-Jan-22
17-Jan-22
25-Jan-22
2-Feb-22
10-Feb-22
18-Feb-22
28-Feb-22
8-Mar-22
16-Mar-22
25-Mar-22
4-Apr-22
12-Apr-22
22-Apr-22
2-May-22

7.9

Source: Deputy Directorate of Domestic Debt; SFIN calculations with data from the Electronic Trading System SEN

Other comments Colombia issued twin green bonds for Colombian pesos 1.49 trillion in the local market using the Dutch Auction mechanism, with the aim ofdeveloping the green capital market in the country, increasing market liquidity, and diversifying the investor base. With these issuances, Colombia
became the second country in the region, after Chile, to issue sovereign green bonds and the first to do so in the domestic market. Likewise, as an
emerging country, Colombia was a pioneer in adopting the concept of twin green bonds, following the example of Germany.
SourceMinistry of Finance and Public Credit, Colombia

Sovereign Green, Social and Sustainability Bonds     35EGYPTType of thematic bondGreen bond

Main motivation The sovereign green bond program will help Egypt raise capital from investors who care for environmental and financial returns. Issuance ofinternational government green bonds in the global markets will increase Egypt’s environmental rating and confidence of foreign investors in the
Egyptian economy and support its current and future growth.
Standard adopted International Capital Markets Association Green Bonds Principles
Bond framework

https://assets.mof.gov.eg/files/27682660-663c-11eb-a70b-29b6f5bc96c7.pdf

External review

https://www.mof.gov.eg/files/4f6c4770-574c-11ec-9145-6f33c8bd6a26.pdf

Impact reporthttps://www.mof.gov.eg/files/a3362b50-574c-11ec-9145-6f33c8bd6a26.pdf

Transactions to date ▪ Date: 6/10/2020▪ Size: 750 million▪ Currency: USD
Investors 100% international investors with 220 accounts participating in the final order book, including 16 first-time investors in U.S. dollar–denominatedEgyptian bonds and 40 investors with green or ESG mandates.
Greenium 12.5 basis point below conventional bond curve at time of pricing.
Secondary market Because of market conditions as of May 2022, the trading level is higher than its coupon level.
performance
SourceMinistry of Finance, Egypt

36     Sovereign Green, Social and Sustainability Bonds

FIJI
Type of thematic bondGreen bond

Main motivation Fiji must raise climate capital not only to achieve its national emissions-reduction target, but also to build resilience to increasingly threatening
climate conditions. As part of its 2017/18 national budget, the Fijian government announced its plans to issue a Fijian dollar 100 million green
bond to finance sustainable projects that respect the environment and address the impacts of climate change.
Bond framework

https://www.rbf.gov.fj/wp-content/uploads/2020/03/Fijis-Green-Bond-Framework-October-2017.pdf

External review

https://mstar-sustops-cdn-mainwebsite-s3.s3.amazonaws.com/docs/default-source/spos/republic-of-fiji-green-bond-opinion_final.
pdf?sfvrsn=6c9a896b_3

Impact reporthttps://www.rbf.gov.fj/wp-content/uploads/2021/06/Fiji_Sovereign_Green_Bond_2020_Impact_Report-1.pdf
https://www.rbf.gov.fj/wp-content/uploads/2020/03/Fiji-Sovereign-Green-Bond-Impact-Report-2019.pdf
https://fijiclimatechangeportal.gov.fj/wp-content/uploads/2021/12/Fiji-Sovereign-Green-Bond-Impact-Report-2018-FINAL.pdf

Transactions to date

Investors

NominalValue (Fijian dollar)

Coupon rate

Issue date

Maturity date

Yield tomaturity

Price per 100

20,000,000

4.00%

1/11/2017

1-Nov-22

0.07%

101.9743

80,000,000

6.30%

1/11/2017

1-Nov-30

3.32%

121.9162

Fiji Green Bonds
Holders

Outstanding as of 30-04-2022

Reserve Bank of Fiji
Commercial Banks
Insurance Companies
Sinking FundFNPF (Includes Special Death & Retirement Inc. Fund)
Others400,000
16,442,000
9,247,000

TOTAL

100,000,000

69,238,000
4,673,000

99.99% of green bonds are held domestically, and 0.01% are held by international investors.
Greenium Fiji’s green bonds are issued on fixed rate and currently not traded in the secondary market (aside from other government instruments). The coupon
rate for the Fiji’s green bond at the time of issue was 4 percent for the 5-year tenor and 6.31% for the 13-year tenor. These are not the usual tenors inwhich the government benchmarks bonds.
Secondary market There was not much secondary market trading for green bonds from the initial public offering, with only one registered so far as of May 15, 2020.
performance
Other

Fiji is expected to issue approximately USD50 million through a blue bond issuance in 2022, which will enable more financing for the protection ofreefs and building resilient coastal ecosystems. This is subject to completion of internal frameworks and identification of relevant projects.

SourceMinistry of Economy, Fiji

Sovereign Green, Social and Sustainability Bonds     37HUNGARY
Type of thematic bondGreen bond

Main motivation In line with international efforts, Hungary is strongly committed to fighting climate change and biodiversity loss, thus aligning financing to policy. Hungary’s
green bond framework is intended to raise some of the necessary funding from capital markets, contribute to development of sustainable finance internationallyand in Hungary’s domestic capital markets, respond to international investors’ demand for green bonds, and help diversify Hungary’s investor base.
Standard adopted International Capital Markets Association Green Bonds Principles
Bond framework

https://www.akk.hu/download?path=2f0f8982-980b-42f0-9030-0556da1222c7.pdf

External review

https://www.akk.hu/download?path=740f16c7-d9dd-4be7-8f3c-de41debb82bc.pdf

Impact reporthttps://www.akk.hu/download?path=21dcb526-74eb-40c9-914a-9119b8e1d8e1.pdf

Transactions to date

Date

Size

Currency

MarketInvestors

Greenium05.06.2020

1.5 billion

Euro

International

International: 100%
ESG investors: 65–68%

NA

18.09.2020

15.5 billion

Japanese yen

International

International: 100%
ESG investors: 55%

NA

18.09.2020

4.5 billion

Japanese yen

International

International: 100%
ESG investors: 55%

NA*28.04.2021**94.4 billion

Hungarian forint

Domestic

International: 53.7%**NA

16.12.2021

1 billion

Chinese yuan

International

International: 100%NA*26.01.2022**83.5 billion

Hungarian forint

Domestic

International: 56.7%**

At issuance (est.):26.01.2022–6.5 bps
23.02.2022 2 bps
23.03.2022 21 bps
20.04.2022 24 bps
On secondary market:
Jan 6.43 bps
Feb 1.56 bps
Mar -0.94 bps
Apr 0.15 bps
May -1.06 bps

25.02.2022

46.8 billion

Japanese yen

International

International: 100%NA25.02.2022

7.8 billion

Japanese yen

International

International: 100%NA25.02.2022

4.7 billion

Japanese yen

International

International: 100%NA

* Multiple issuances.
** As of May 5, 2022.
Secondary market Secondary market turnover is low for conventional and green bonds of all maturities.
performance
Other

The debt management office is considering issuing social and sustainability-linked bonds. No decision had been made as of the publication of this report.

SourceMinistry of Finance, Hungary

38     Sovereign Green, Social and Sustainability Bonds

INDONESIA
Type of thematic bondGreen sukuk

Main motivation Financing new green projects, diversifying the source of financing, and proving the government’s dedication and long-term commitment to green
and sustainable finance, as part of its efforts to fight climate changeStandard adopted International Capital Markets Association Green Bonds Principles, June 2021 edition
Bond framework

https://www.djppr.kemenkeu.go.id/page/loadViewer?idViewer=7625&action=download

External review

https://www.djppr.kemenkeu.go.id/page/loadViewer?idViewer=7627&action=download

Impact reporthttps://www.djppr.kemenkeu.go.id/page/load/2357

Transactions to dateYear

2018 (SNI-0323)

2019 (SNI-0824)

2020 (SNI-0625)

2022 (SNI-0632)

Islamic GMTN Prog, Reg S/144 A

Format5 years

5.5 years

5 years

30 years

10 yearsIssue dateMar 1, 2018

Feb 20, 2019

Jun 23, 2020

Jun 9, 2021

Jun 6, 2022

Maturity dateMar 1, 2023

Aug 20, 2024

Jun 23, 2025

Jun 9, 2051

Jun 6, 2032

3.75%

3.90%

2.30%

3.55%

4.70%

Tenor

CouponWakalah

Structure
Order book
(USD billion)

3.0

2.10

5.53

3.0

5.1

Issue size
(USD billion)

1.25

0.75

0.75

0.75

1.5

Geographic ▪ Middle East (32%)
distribution ▪ Asia (25%)▪ Europe (15%)▪ United States (18%)▪ Indonesia (10%)
Distribution ▪ Bank (40%)
according to ▪ Funds (29%)
investor type ▪ Sovereign wealthfunds (20%)▪ Private banks (1%)▪ Insurance, pension
funds (10%)
Source2021 SNI-0651)

Ministry of Finance, Indonesia

▪
▪
▪
▪
▪

Middle East (29%)
Asia (16%)
Europe (22%)
United States (23%)
Indonesia (10%)▪ Bank (23%)▪ Funds (31%)▪ Sovereign wealthfunds (21%)▪ Insurance, pension
funds (17%)▪ Others (8%)

▪
▪
▪
▪
▪

Middle East (32%)
Asia (40%)
Europe (11%)
United States (12%)
Indonesia (5%)▪ Bank (27%)▪ Funds (54%)▪ Central bank andsovereign wealthfunds (15%)▪ Insurance, pension
funds (3%)▪ Others (1%)

▪
▪
▪
▪
▪

Middle East (8%)
Asia (34%)
Europe (25%)
United States (27%)
Indonesia (6%)▪ Bank (20%)▪ Funds (63%)▪ Central bank andsovereign wealthfunds (5%)▪ Insurance, pension
funds (12%)▪ Others (2%)

▪
▪
▪
▪

Middle East (27%)
Asia (38%)
Europe (15%)
United States (20%)▪ Bank (30%)▪ Funds (49%)▪ Central bank andsovereign wealthfunds (7%)▪ Insurance, pension
fund (13%)▪ Others (1%)

Sovereign Green, Social and Sustainability Bonds     39MALAYSIA
Type of thematic bond

Sustainability sukuk

Main motivation Signaling the government of Malaysia’s commitment to advancing sustainable development in line with Malaysia’s adoption of the 2030 Agenda
for Sustainable Development at the United Nations General Assembly in New York on September 25, 2015
Standard adopted International Capital Markets Association Sustainability Bond Guidelines 2018, Green Bonds Principles 2018, Social Bonds Principles 2020, andAssociation of Southeast Asian Nations Sustainability Bond Standards 2018
Bond framework

https://www.mof.gov.my/portal/pdf/economy/sustainability/

External review

https://www.mof.gov.my/portal/pdf/economy/sustainability/

Impact reporthttps://www.mof.gov.my/portal/pdf/economy/sustainability/

Transactions to date ▪
▪
▪
▪

Date: 28 April 2021
Size: 800 million
Currency: USD
Market: International

Investors The 10-year sustainability sukuk was distributed globally to investors in Asia (45%); the United States (12%); and Europe, Middle East, and Africa(33%). Domestic investors subscribed 10% of the total. Fund managers and insurance companies were the largest investors (67%), followed bybanks (18%) and central banks and governments (14%).
Greenium This USD sustainability sukuk has recorded the lowest yield and spread of any previous government of Malaysia’s 10-year USD sukuk issuances.
Secondary market Upon post-pricing date, the secondary market trading levels are as follows:
performance ASIA CLOSE: 22 APRIL 2021 (THURSDAY)
At Primary

Other

Current Bid

Movement

Malaysia

UST

SpreadYield

UST

SpreadYield

UST

Spread

Yield

2.07%
04/31

1.57%

0.50%

2.070%

1.56%

0.52%

2.08%

−0.010%0.020%

0.010%

3.075%
04/51

2.275%

0.80%

3.075%

2.26%

0.75%

3.01%

−0.015%−0.050%−0.065%

Despite the COVID-19 pandemic, which was still affecting the global economy, the government’s resilient credit profile enabled maximizationof price compression, resulting in the lowest yield and lowest spread achieved to date. This issuance also sets a new record as the world’s first
U.S. dollar–denominated sustainability Sukuk by a sovereign. See: https://budget.mof.gov.my/pdf/2022/revenue/section4.pdf (page 166–171)

Source Ministry of Finance, Malaysia

40     Sovereign Green, Social and Sustainability Bonds

MEXICO
Type of thematic bond

SDG-aligned

Main motivation The Mexican government has recognized that ESG financing is here to stay, and the Ministry of Finance helped set this trend in motion by issuing
the world’s first sovereign bond aligned to the SDGs. Some other goals that Mexico achieved were to expand its investor base; improve the pricediscovery process for other public and private sector issuers when they seek access to this market; establish a firm commitment with public policies
to enhance social development in the country, especially in underdeveloped areas, and reaffirm its pledge to achieve the objectives established in
the 2030 agenda for sustainable development; offer investors greater transparency in public spending and better monitoring for the fulfillment of
its SDG goals; and confirm Mexico’s leading role as a Latin American and emerging market sovereign issuer, placing the country at the forefront in
the innovation of sustainable financing instruments.
Standard adopted International Capital Markets Association Green Bonds Principles and Social Bonds Principles 2021 edition and designed to be in line with the spiritof the EU Green Bond Standard.
The framework details the four core components of the International Capital Markets Association’s Green Bonds Principles and Social Bonds
Principles, 2021 edition:
a)
b)
c)
d)

Use of proceeds
Process for expenditure evaluation and selection
Management of proceeds
Reporting

The framework also includes external review features such as the second-party opinions that Vigeo Eiris, a brand from Moody’s, provides. In
this second-party opinion, Vigeo Eiris has highlighted the robustness of the Mexican framework. Technical cooperation with the United Nations
Development Programme for monitoring alignment with best practices is also included in the framework. The United Nations Development
Programme has provided a nonbinding opinion regarding use of proceeds and the impact report.
Bond framework

https://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/UMS_MarcoReferenciaBonosSoberanos_ODS.pdf

External review

https://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/2020_0218_VigeoEiris_SPO_SHCP_Final.pdf
https://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/UNDPs_Opinion_on_Mexicos_SDG_Sovereign_
Bond-February_2020.pdf
https://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/2021_VigeoEiris_SPO_SHCP.pdf

Impact reporthttps://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/Mexico_SDG_Bond_Allocation_and_Impact_
Report_2021_Executive_Summary.pdf
https://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/Mexico_SDG_Bond_Allocation-Impact_
Report_2021.pdf
https://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/Mexico_SDG_Bond_Allocation_and_Impact_
Report_2021_Annexes.pdf

Transactions to date ▪
▪
▪
▪

Date: September 2020, July 2021
Size: 750 million (September 2020), 1.25 billion (July 2021)
Currency: both in euros
Market: both were under an international format

Investors Seventy-eight investors with ESG mandates and commitment to sustainable economic development policies participated for the first time in debt
issuance from Mexico thanks to the SDG-aligned characteristic.
Greenium The book-building process for the first SDG-aligned bond attracted high-quality, investors reaching around 5 billion of demand at its peak (around
6.5 times oversubscription). Thus, Mexico was able to tighten initial price of MS+235 basis points and guidance of MS+215 basis points to a final
spread of MS+195 basis points, representing a negative new-issue premium of approximately 7 basis points.
Secondary market Since Mexico began having two SDG-aligned bonds trading in the secondary market, its liquidity performance (measured according to average bid/ask
performance spread) has been better than other benchmarks, as the graph here shows.

Mar-22

May-22

Jan-22

Feb-22

Dec-21

Oct-21

Nov-21SDG Bonds (EUR 2027, EUR 2036)
Non-SDG Bonds (EUR 2025, EUR 2030,
EUR 2039, EUR 2045, EUR 2051, EUR 2115)
Sep-21

Jul-21

Aug-21

Jun-21

Apr-21

May-21

Jan-21

Feb-21

Dec-20

Oct-20Nov-20

Sep-20

Average BID/ASK Spread (Sept 2020–May 2022)
1.20
1.00
0.80
0.60
0.40
0.20
0.00

Source: Bloomberg

Other

Mexico has repeatedly expressed its commitment to sustainability by promoting issuance of SDG-aligned bonds in the entire Mexican public sector.
The government recently introduced the SDG format in the local market and is planning to aim the Samurai market (Japan); both transactions are
expected to materialize before the end of the first half of 2022.

Source Ministry of Finance and Public Credit, Mexico

Sovereign Green, Social and Sustainability Bonds     41PHILIPPINES
Type of thematic bond

Sustainability

Main motivation ▪ Highlight green and social initiatives of government, including massive expenditures incurred to combat impact of COVID-19 pandemic▪ Expand investor base to include ESG-conscious investors▪ Benefit from better pricing terms or larger issue sizes than plain vanilla bonds because of expected increase in investor demand andparticipation
Standard adopted ▪ International Capital Markets Association Green Bonds Principles 2021 and Social Bonds Principles 2021
▪ Loan Market Association Green Loan Principles 2021 and Social Loan Principles 2021
▪ Association of Southeast Asian Nations
Bond framework

https://www.treasury.gov.ph/?page_id=43119

External review

https://www.treasury.gov.ph/?page_id=43119

Impact report

Not published yet

Transactions to date

Year

2022

FormatSustainability

Tenor

5 years

10 years

20 years

52

5

Mar 21, 2022
7.1

6

1

Japanese yen

Currency

USD
International

MarketCoupon25 years

Apr 12, 2022

Pricing dateIssue size
(billion)

7 years

0.76%

0.95%

1.22%

1.83%

4.20%

New investors Approximately 30% of accounts were identified as
new investors.

Approximately 10% of accounts were identified as new investors.

Investors with Approximately 27% of investor accounts that
ESG mandates participated in the deal were identified to have
had dedicated ESG portfolios or included ESG
considerations in their investment decision; they
contributed to approximately 57% of final allocation.

Approximately 30% of investor accounts that participated in the offer
were identified to have had dedicated ESG portfolios or included
ESG considerations in their investment decision; they contributed toapproximately 49% of final allocations.

Investors

Final allocation of the 25-year bond: United States (41.95%), Asia except Philippines (33.5%), Europe (24.47%), Philippines (0.08%).

Greenium

Although the greenium is difficult to estimate, the sustainability label brought in additional investor demand, which allowed us to upsize thetransaction while significantly reducing the pricing guidance.

Secondary market For the Japanese yen bonds, yields have stayed fairly stable, even decreasing since its issuance, but markets that were bracing for a potential policy
performance hike led Japanese government bonds and in turn Republic of the Philippines Samurai bonds to rise from 11 to 19 basis points across tenors.
For the 25-year USD bond, secondary rates have been increasing since issuance, ending at 5.15% or 96 basis points above original coupon asof June 2022. Lowest bid yield to maturity of the security was 3.92% (~28 basis points below issuance rate) on March 31, 2022, after which it
increased to 5.15% in mid-May. June saw an increase from 4.687% to 5.15%.
Other comments Of the three offered tenors, the strongest demand was for the 25-year USD bond (>USD6.8 billion of orders at its peak), which enabled the Philippines
to upsize this tranche (from the initial target of USD500 million) while maintaining the largest compression in pricing guidance (50 basis points).
The ESG label helped spur investor interest, notwithstanding the 25-year bond being the more challenging tenor in this environment.
SourceDepartment of Finance, Philippines42     Sovereign Green, Social and Sustainability Bonds

REPUBLIC OF SERBIA
Type of thematic bondGreen bond

Main motivation Promoting Serbia’s transition to a low-carbon, climate-resilient, ecological economy and contributing to the United Nations SDGs. To be eligible,
expenditures must fall in at least one green category: renewable energy, energy efficiency, transport, sustainable water and wastewater management,
pollution prevention and control and circular economy, protection of the environment and biodiversity, and sustainable agriculture. In addition, theintention was to increase awareness of the importance of sustainable financing and promote it internationally and locally, in the Serbian financial andcapital markets sectors.
Standard adopted International Capital Markets Association’s Green Bonds Principles June 2021
Bond framework

http://javnidug.gov.rs/static/uploads/1438_Serbia%20Green%20Bond%20Framework_vf.pdf

External review

http://javnidug.gov.rs/static/uploads/1439_Serbia_SPO_final.pdf

Impact report

To be available in the last quarter of 2022

Transactions to date ▪
▪
▪
▪

Date: 23 September 2021
Size: 1 billion
Currency: euro
Market: International

Investors Allocation in September 2021: asset management (76%), others (12%), banks (8%), institutional (4%).

6,0
5,5
5,0
4,5
4,0
3,5
3,0
2,5
2,0
1,5
1,0

Closing price
YTM

30
.
08 09.2. 1
16 10.2. 1
24 10.2. 1
01 10.2. 1
09 11.2. 1
17 11.2
.11 1
25 .2
. 1
03 11.2. 1
19 12.2. 1
19 12.2. 1
27 12.2. 1
04 12.2. 1
12 01.2. 2
20 01.2. 2
28 01.2. 2
05 01.2. 2
13 02.2. 2
21 02.2. 2
01 02.2. 2
09 03.2. 2
17 03.2
.03 2
25 .2
. 2
02 03.2
.04 2
10 .2
. 2
18 04.2. 2
26 04.2. 2
04 04.2.05 2.22Secondary market Price/YTM Graph - Serbia Eurobond 2028
performance
100,0 €
97,0 €
94,0 €
91,0 €
88,0 €
85,0 €
82,0 €
79,0 €
76,0 €
73,0 €
70,0 €

In percentage

Greenium Green tranche achieved 10 basis points inside fair value.

Other comments The inaugural green transaction benefitted from strong support from green investors, who received approximately two-thirds of the allocation.
SourceMinistry of Finance, Republic of Serbia

Sovereign Green, Social and Sustainability Bonds     43THAILANDType of thematic bond

Sustainability bond

Main motivation Address the importance of environmental and social issues and support a national agenda of meeting the United Nations SDGs and achieving thezero-carbon target
Standard adopted International Capital Markets Association Sustainability Bond Guidelines, Association of Southeast Asian Nations Capital Market Forum standards
Bond framework

https://www.pdmo.go.th/pdmomedia/documents/2020/Jul/KOT%20Sustainable%20Financing%20Framework.pdf

External review

https://www.pdmo.go.th/pdmomedia/documents/2020/Jul/KOT%20Sustainable%20Financing%20Framework%20Second%20Party%20Opinion.pdf

Impact reporthttps://www.pdmo.go.th/pdmomedia/documents/2021/Dec/Sustainability%20Bond%20Annual%20Report%202021.pdf

Transactions to date ▪
▪
▪
▪

Date: March 18, 2022 (latest auction date)Size: 197,000 mil
Currency: Thai baht
Market: International and domestic

Investors The sustainability bond issuance was well received by all investor types. The first tranche was 3.05 times oversubscribed. Most of the investors are
domestic (primary dealer bank, 42%). About 12% are nonresident investors.
Greenium There are no empirical data to exhibit a greenium because the Thai government does not have a conventional bond with the same maturity, but thesustainability bond auctions have always received higher participation rates than conventional bonds.
Secondary market The bond has sufficient liquidity in the secondary market and has been included in several bond indices.
performance
SourceMinistry of Finance, Thailand

2022 World Bank
Sovereign Debt
Management Offices
Survey1. Which option best describes your approach to the sovereign and/or sub-sovereign GSS bondissuance(s)?
a. Not considering issuance [if this is the answer, please answer question 5]
b. Exploring the potential for issuancec. Early-stage planning for issuanced.	Developing the policies, issuance framework, and identification of eligible projects and/or key performance indicators
e. Late-stage planning for issuance, near formal announcement
f. Option to issue GSS bonds is included in funding options
2. If you are planning to issue GSS bonds, when do you plan to issue by?
a. Fill in estimated date ___________
b. Unknown
3. If you are planning to issue GSS bonds, is the rationale (mark top three reasons):
a. Cheaper fundingb. Diversifying the investor basec. Raising international funding
d. Building a local GSS bond market/motivating private sector issuerse. Attracting international investors to domestic market
f.	Funding needed sustainable development investments and/or Meeting Paris Agreement
goals to mitigate impacts of climate change
g. Promoting transparency in generalh. Signalling commitment to sustainability
i. Others (please specify)
4. If you are not planning to issue, why not (mark top three reasons)?
a. The value added is not clear
b. Too complicatedc. Cost of arranging issuanced. Cost of post-issuance reportinge. Does not contribute to yield curve formation or debt market liquidity
f. Small green project portfolio
g. Difficulty in identifying eligible expenditures
h. Other please, specify
44     A P P E N D IX

B

Sovereign Green, Social and Sustainability Bonds     455. What are the challenges that need to be resolved to issue a GSS sustainable bond in accordancewith the Principles established by ICMA (mark top three reasons)?
a. Better understanding of the financial instrument, including structure, demand, pricing
b. Setting up governance arrangements to manage and track proceeds
c. Availability of eligible projects
d. Evaluating projects
e. Appointing an external reviewer
f. Reporting on the use of proceeds (e.g., lack of data, coordination with different ministries)
g. Lack of knowledge about the ICMA principles
h. Other, please specify
6. Has your jurisdiction established a GSS sustainable Bond Steering Committee, or some othergroup of cross-organisation policy makers to direct and explore GSS bond issuance options?
a. Yes (please specify)
b. No
7. Have you developed a framework for issuing GSS bonds?
a. Yes (please specify and share the framework)
b. No
8. Have you developed a taxonomy8 for the eligible use of proceeds for GSS bonds?
a. Yes (please specify and share the taxonomy)b. No
c. Considering
9. What type of GSS bond issuance are you considering? Please select all that apply.
a. Greenb. Bluec. Sociald. Sustainablee.	A performance-linked bond (e.g., a general use bond with the principal or interest linked tomeeting overall indicators of sustainable development goals), aka sustainability-linkedbondf. Other (please specify)
10. If you are planning to issue GSS bonds, where would you be targeting:a. Internationalb. Domesticc. Both
11. If issuing domestically, do you:a. Expect international investors to buy the bonds?
b. See domestic demand for ESG assets?

8

A green taxonomy is a classification of activities that specifies which activities are eligible to be categorized as “green”.

46     Sovereign Green, Social and Sustainability Bonds

12. Are you considering a specific bond size minimum?
a. Yes (what minimum size issuance in USD?)
b. No
c. Not applicable
13. What currency are you considering issuing in (Please select all that apply)?
a. USDb. EURc. Domestic currency
d. Other (please specify)e. Not applicable
14. What maturity profile are you considering?
a. <1b. ≥1 and <5c. ≥5 and <10
d. ≥10e. Not applicable
15. Which exchange are you considering issuing in (Please select all that apply)?
a. Localb. Regionalc. London
d. New Yorke. Luxembourg
f. Other (please specify)
16. Have investors expressed interest in a GSS bond type (Please select all that apply)?
a. Green bondb. Blue bondc. Social bondd. Sustainable bonde. Performance-linked bonds
f. Other, please specify
17. Have investors expressed interest in a specific bond size minimum?
a. Yes (what minimum size issuance?)
b. No
18. Have investors expressed interest in a specific issue currency (Please select all that apply)?
a. USDb. EURc. Local currency
d. Other, please specify

Sovereign Green, Social and Sustainability Bonds     4719. Have investors expressed interest in a specific maturity profile?
a. <1b. ≥1 and <5c. ≥5 and <10
d. ≥10e. Not applicable
20. Have investors expressed interest in an issuance location?
a. Yes (please specify)
b. No
21. Would you be interested in World Bank technical assistance on GSS issuance?
a. Yesb. No

2022 World Bank
Investors Survey
1. Why are you (investor or intermediary bank) interested in ESG bonds in general and sovereign ESG bonds in particular?
2. Do you consider ESG Bonds to be the new safe haven?
3. What is your major argument for investing or not investing in emerging market sovereign
ESG bonds?
4. What specific emerging and frontier markets (countries/ regions) are you (investors) interested in for sovereign ESG bonds? In which currency (hard currency or local currency)?
5. Are you interested in domestic issuances (in local currency)? If yes, which ones?
6. Would you (investors) consider smaller-sized private placements (for instance for smaller
economies and island states)?
7. What factors (financial and ESG) would investors consider before investing in emerging market sovereign ESG bonds?
8. Are there any specific types of projects that you (investors) prefer to support with sovereign
ESG bonds (mitigation vs adaptation, biodiversity conservation, dark green vs transition projects, social projects in general vs projects supporting specific beneficiaries)?
9. Which type of sovereign ESG bond do you (investors) prefer: Green/Social bonds or sustainability-linked bonds (SLB), and why?
a.	What factors (financial and ESG) would you (investors) consider before investing in sovereign SLBs?
b.	What would prevent you (investors) from investing in sovereign SLBs?
c. Would you (investor) consider a step down in the SLB coupon?
10. What is the minimum size you are interested in?
11. Do you see any interest in subnational emerging market ESG bonds?
12. What role do investors and financial intermediaries expect the World Bank to play to attract
investors to emerging and frontier market ESG bond transactions?
13. What role do you see the World Bank playing to facilitate GSS bonds by emerging and frontier market issuers?

48     A P P E N D IX

C

References
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Amundi Asset Management, and IFC (International Finance Corporation). 2022. “Emerging Market
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emerging-market-green-bonds-report-2021.
Bachelet, M.J., L. Becchetti, and S. Manfredonia. 2019. “The Green Bonds Premium Puzzle: The Roleof Issuer Characteristics and Third-Party Verification.” Sustainability 11 (4): 1098. https://doi.
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Bloomberg. 2022. Bloomberg Terminal and BloombergNEF. Subscription service.
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Cicero Shades of Green. 2022. “Shading Methodology.” https://static1.squarespace.com/static/5bc5b31a7788975c96763ea7/t/6273a565afcf94308c2966da/1651746149448/facsheet2022_v25_04_
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Climate Bonds Initiative. 2022. “Green Bond Pricing in the Primary Market H2 2021.” https://www.climatebonds.net/files/reports/cbi_pricing_h2_2021_02g.pdf.
Hachenberg, B., and D. Schiereck. 2018. “Are Green Bonds Priced Differently from Conventional Bonds?” Journal of Asset Management 19 (6): 371–83. https://doi.org/10.1057/s41260018-0088-5.
Hussain, F.I. 2022. “Thematic Bonds to Diversify Fiscal Sources.” In The Sustainability of Asia’s Debt, edited
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ICMA. 2020. “Sustainability-Linked Bond Principles: Voluntary Process Guidelines.” https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/June-2020/SustainabilityLinked-Bond-Principles-June-2020-171120.pdf.
———. 2021. “Social Bond Principles: Voluntary Process Guidelines for Issuing Social Bonds.” https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Social-Bond-PrinciplesJune-2021-140621.pdf.
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Nations) Women. 2021. “Bonds to Ridge the Gender Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality.” https://www.unwomen.org/en/digital-library/publications/2021/11/
bonds-to-bridge-the-gender-gap.
Jonasson, T., and M.G. Papaioannou. 2018. “A Primer on Managing Sovereign Debt-Portfolio Risks.” IMF. 2018. https://www.imf.org/en/Publications/WP/Issues/2018/04/06/APrimer-on-Managing-Sovereign-Debt-Portfolio-Risks-45746.
Network for Greening the Financial System. 2022. “Enhancing Market Transparency in Green andTransition Finance.” https://www.ngfs.net/sites/default/files/medias/documents/enhancing_market_transparency_in_green_and_transition_finance.pdf.
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     49

50     Sovereign Green, Social and Sustainability Bonds

UN (United Nations) Global Compact. 2020a. “Blue Bonds Reference Paper.” https://www.unglobalcompact.
org/library/5741.
———. 2020b. “Practical Guidance to Issue a Blue Bond.” https://unglobalcompact.org/library/5798.
UNCTAD. 2014. “World Investment Report 2014: Investing in the SDGs - An Action Plan.” UN. https://doi.
org/10.18356/3e74cde5-en.
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worldbank.org/curated/en/400251468187810398/What-are-green-bonds.

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