Pioneering green finance in the developing world: The Fijian Sovereign Green Bond
In November 2017, the Fijian government
successfully issued a sovereign green bond and raised
Fijian dollars (FJD)
100 million (~USD 50 million; long-term average conversion
rate: 1 USD = 2 FJD) to
help finance its transition towards a low-carbon and climate-resilient economy.
Green bonds are fixed income financial instruments for raising capital from
investors through the debt market. The bond issuer raises a fixed amount of
capital from investors over a set period of time (i.e. the ‘maturity’) and
repays the capital as well as an agreed amount of interest when the bond
matures. A green bond is different from a regular bond in that it is being
‘labelled’. That means that it is designated as ‘green’ by the issuer or
another entity, with a commitment to use the proceeds of the green bond in a
transparent manner and solely finance ‘green’ projects, assets or business
activities with an environmental benefit (OECD, 2015, p.5). Fiji became the
first developing country to use this innovative financial instrument. In April
2018, the Fiji Sovereign Green Bond (FSGB) was successfully listed on the London
Stock Exchange International Securities Market, which enabled the FSGB to reach
broader investor segments.
For the bond’s issuance, Fiji
developed a Green Bond Framework through a transparent process with sound plans
for strengthening the country’s climate actions and in strong alignment with
the International Capital Market Association’s (ICMA) Green Bond Principles.
These principles were developed by a group of investment and multilateral
banks, including the World Bank and the International Finance Corporation (IFC),
and are voluntary guidelines for a broad market use. To institute credibility,
the Fijian government also engaged a second opinion provider, Sustainalytics,
to review and verify the green and sustainable aspects of the framework.
Following Sustainalytics’ analysis, the framework was revised and further
strengthened. Fiji’s Green Bond Framework (FGBF) targets climate change
mitigation and adaptation, sustainable land use and biodiversity protection
and, in addition, helps achieving the Sustainable Development Goals (SDG).
There is an increasing need for innovative
financing options that have minimum implications for fiscal stability for
developing economies and that enable them to efficiently mobilise private,
bilateral and multilateral financing. As a developing country vulnerable to
climate impacts, it was imperative for Fiji to balance its developmental
aspirations and climate goals. Fiji saw the global green bond market as an
opportunity to address capacity and resource gaps in meeting these goals, and
tapped into its potential. With high-level political endorsement, the FSGB
allowed Fiji to reach an untapped international investor base and also enabled
it to be ambitious in planning its future climate actions. By encouraging domestic investors to help finance green projects through
this bond, the Fijian government was able to gain significant subscriptions. The robust and transparent process set by Fiji
is likely to pioneer and establish a roadmap for other developing countries to
follow in using innovative financial instruments
for financing their climate needs and actions.