Central Banks move to aggregate investments in green bonds

As the world moves towards enabling climate-friendly investments, the Bank for International Settlements (BIS) has gone ahead to launch an open-ended fund for investments in green bonds for central banks across the globe. 

Why this matters: The essence of the fund is to prioritise the development of the environment as well as the finance projects that provide solutions to climate change. 

The Details: The bank said: “The initiative is part of the BIS’s broader commitment to supporting environmentally responsible finance and investment practices, in line with the Bank’s participation in the Central Banks and Supervisors Network for Greening the Financial System.” 

Peter Zöllner, Head of the BIS Banking Department, said the decision of Central Banks to create global green bonds would deepen the green bond market. 

“We are confident that, by aggregating the investment power of central banks, we can influence the behaviour of market participants and have some impact on how green investment standards develop.” 

About the fund: The fund is designed to be like a mutual fund. It is tagged ‘An Open-ended Fund’and the contribution to the fund is in United States dollars. It is structured in accordance with Swiss law and belongs to the BIS Investment Pool (BISIP) family, a format commonly used by BIS Asset Management for its fixed-income investment products.  

It is managed in-house by BIS Asset Management. Eligible bonds have a minimum rating of A– and comply with the International Capital Market Association’s Green Bond Principles and/or the Climate Bond Standard published by the Climate Bonds Initiative.  

What you should know: The idea of green bonds is not new to Nigeria. The Federal Government had in December 2017 launched Nigeria’s maiden sovereign green bond as part of efforts to diversify government revenue and deepen the domestic capital market. Nigeria’s first sovereign green bond was oversubscribed by about N100 million as investors staked N10.791 billion on the N10.69 billion maiden bond. 

Part of President Muhammadu Buhari’sinitiatives under Nigeria’s climate change programme includes the expansion of the scope of Nigeria’s sovereign green bonds. This was revealed during a United Nations General Assembly session including plans for more sectorial action plan and expansion of the scope of Nigeria’s sovereign green bonds. 

According to him, Nigeria will issue a green bond for irrigation and construct multi-purpose dams for power, irrigation and water supply. 

The Debt Management Office (DMO), which oversees government’s debt issues, in July 2018, listed the maiden N10.69 billion green bond on the stock market. The five-year bond carries a coupon rate of 13.48%. 

The issuance of the green bond and listing were sequel to Nigeria’s endorsement of the Paris Agreement on Climate Change on September 21, 2016. The Paris Agreement aims to strengthen the global response to the threat of climate change. 

The Securities and Exchange Commission (SEC) subsequently launched Green Bonds Issuance Rules, including rules and regulations on green bond issuance and management in the capital market regulatory framework  

About BIS: Established in 1930, the BIS is owned by 60 central banks. It represents countries that account for about 95% of the world’s gross domestic products (GDP). BIS offers financial services to a broad client base comprising some 140 central banks, monetary authorities and international organisations worldwide.

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