Green Bond Working Group Terms of Reference Updated 16 February 2018 I. INTRODUCTION The following Terms of Reference (ToR) sets out the proposed purpose, scope, and working structure of the second SBN member-led technical working group, which will focus on supporting green bond market development in emerging markets. This evolving document will inform the activities and deliverables of the Working Group members between December 2017 and December 2018, and will be adapted in response to member discussion and feedback, and to market development. II. BACKGROUND The global green bond market is rapidly growing, with the potential to significantly scale up global financing of projects with climate and environmental benefits and help nations reach their sustainable development goals. For example, from 2013 to 2016, the total issuance of international green bonds reached $95.1billion, while green bond issuance for 2017 alone is expected to reach $130 billion 1.There is great potential for further expansion of the green bond market. With the green bond market still in infancy, there are multiple mechanisms and definitions in place in different countries and at the global level (such as the Green Bond Principles and the Climate Bond Initiative). In emerging markets, the success of the green bond market to raise capital for green projects is stimulating strong interest in a growing number of countries to develop national green bond frameworks that link international good practice to local priorities. Financial sector regulators and financial industry associations in these markets, including members of the Sustainable Banking Network (SBN), are therefore increasingly interested and involved in the global dialogue and knowledge exchange to identify international best practice for green bond market development and deepening. Several SBN members have already launched initiatives to establish local green bond markets, including China (2015), Brazil (2016), Morocco (2016), India (2016), Nigeria (2016), Indonesia (2017), Kenya (2017), and South Africa (2017). There are also cases emerging of regional cooperation. In 2017, the ASEAN Capital Markets Forum (ACMF) collaborated with the International Capital Market Association (ICMA) to introduce the ASEAN Green Bond Standards (AGBS). 1 Source: Climate Bond Initiate, https://www.climatebonds.net/ 1
IFC is well placed to assist SBN members in a number of ways as they navigate the new landscape of green bond principles, mechanisms and tools, and to accelerate collective learning, collaboration, and the scaling up of this powerful new market trend. As the secretariat and technical advisor to SBN, IFC is also a global leader in developing and applying environmental, social and governance (ESG) standards to financial sector transactions. IFC is one of the earliest and leading green bond issuers as well as an investor in green bonds in emerging markets and is a founding member of the international Green Bond Principles Executive Committee. In addition, IFC, through the Green Cornerstone Bond Fund (GCB Fund), a joint venture with European asset manager Amundi, intend to raise $2billion for what is expected to be the world s largest green bond fund dedicated to emerging markets. Leveraging the combined knowledge of SBN members and IFC s market experience, SBN has established a member-led Working Group to form a Community of Practice on green bonds for members. The Community of Practice will meet the dual objectives of i) supporting members that are interested to share information about their existing initiatives, and ii) provide capacity-building and market education opportunities to those countries interested in developing local green bond markets. Leveraging the SBN knowledge sharing platform, this initiative will draw on the technical expertise of a range of IFC specialist teams focused on ESG standards, financial institutions, climate business, and IFC s own Treasury; as well as input from international green bond experts and other leading initiatives. III. OBJECTIVES The Working Group will have the following objectives: 1. Enhance collective knowledge and develop technical resources to support members in i) developing green bond markets and ii) facilitating increased flow of international and domestic investment to these markets. This will be achieved through research and identification (or design) of tools for aspects such as the following: o identifying and classifying eligible green assets criteria; o accounting methods to quantify the environmental and/or climate benefits of green bonds; and o guidance on transparency and reporting. This will begin with an exercise to map current national initiatives, experiences, and capacity building needs among SBN member countries that are interested in and developing local green bond markets. This mapping exercise and research efforts will enhance support to members in designing a suitable fit with their national strategies in line with international good practice. 2. Support the integration of ESG factors into all stages of green bond issuance and reporting. One of the gaps and potential risks in many green bond issuances to date has been the focus on green impacts versus the need to manage fundamental environmental, social and 2
governance (ESG) risks during both project design and implementation. There is also a need to strengthen the way issuers communicate to investors about the environmental and social sustainability objectives and benefits of projects; the process by which the issuer determines how the projects fit within the eligible green projects categories identified; and the related eligibility criteria, including, if applicable, exclusion criteria or any other process applied to identify and manage potentially material ESG risks associated with the projects. Some green bond underwriters as well as investors use IFC's Performance Standards (PSs) and Corporate Governance (CG) Framework tools to assess the ESG quality of such assets. Recently IFC developed ESG Performance Indicators based on the PSs and CG methodology which could help issuers, underwriters and investors, as well as second opinion providers in assessing ESG quality of the assets to be financed or refinanced from green bond proceeds. 3. Support SBN members to develop and deepen green bond markets through awareness raising, capacity building and knowledge sharing. This will be long-term and continuous support to members through a series of learning webinars, workshops, development of knowledge products, technical input into local green bond market development, and outreach to key stakeholders. This will be based on member request and subject to availability of resources. IV. DELIVERABLES, PROCESS & TIMELINE The activities of the Working Group are expected to be divided into two main phases: PHASE I: mapping of the current status and lessons learned from national, regional and global green bond guidance, standards and practices this will include research on existing green bond guidelines, standards, definitions and practices, both globally and within the SBN community, among which 6 countries have launched such guidelines. This could serve as a baseline to develop practical tools and resources to support members. o During the COP 23, the Green Finance Committee (GFC) of the China Society for Finance and Banking and the European Investment Bank (EIB) launched a White Paper that provides an international comparison of several green bond standards. This could be a useful starting point for the mapping exercise. o The Climate Bond Initiative (CBI) is assisting a number of SBN members in their development of national green bond frameworks. CBI and similar supporting organizations will be invited to provide information on their experiences to date. PHASE II: development of practical technical tools to support green bond market development: as the green bond market evolves, a number of aspects require ongoing attention and strengthening. Drawing on members practical experiences as well as that of IFC, international experts and other market players, this phase will focus on developing technical guidance for the following priority areas: 3
o Common practical guidance for designing national green bond frameworks (building on process and success factors in existing initiatives, aligning with international standards, and reflecting future trends); o Good practice in integrating ESG risk and impact assessment at all stages of issuance and project implementation (including selection; verification; and management of proceeds); o Transparency and reporting on green bond performance and impacts; o Good practice in the use of independent external review; and o Research on good practices, case studies, and innovation in green bond issuance by financial institutions globally (e.g. Green Sukuks) The work program and activities of the Working Group will be facilitated by IFC as SBN Secretariat and technical partner. External consultants will be hired to assist in information collection and the preparation of documents as needed. Implementation timeline Timing Status Concept and Launch of Working Group at 2017 SBN Annual Sep 2017 Completed Meeting Finalize Terms of Reference (ToR) and working group membership in consultation with SBN member and key partners. First meeting of the Working Group (virtual) to discuss the work plan and deliverables Phase I: mapping of the current status and lessons learned from national, regional and global green bond guidance and practices Sep Nov 2017 Dec, 2017 Jan-April 2018 Completed Completed In progress Webinar Series 1 to invite SBN members and/or International experts to share market knowledge/trends and lessons learnt Second Meeting of the Working Group (in-person) to discuss draft mapping of current status and lessons learned. Feb, 2018 Mar. 2018 Finalize and publish mapping report April 2018 Phase II: development of technical tools to support green bond market development (details to be agreed with members) Webinar Series 2 to invite SBN members and/or International experts to share market knowledge/trends and lessons learned Third Meeting of the Working Group (virtual) to review draft Common Practical Guidance for designing national green bond frameworks, and work plan for additional technical tools. Webinar Series 3 to invite SBN members and/or International experts to share market knowledge/trends and lessons learnt. April Sept 2018 April, 2018 June 2018 July, 2018 4
Fourth Meeting of the Working Group (Virtual) to review the 2 nd draft of the Common Practical Guidance and draft of next technical tool/research Fifth Meeting of the Working Group (SBN Annual Meeting) Launch of Common Practical Guidance and 2nd technical tool Sep 2018 Oct/Nov/Dec 2018 Not Started Not Started # Technical consultation workshops will take place to inform the Working Group. The meetings may be conference calls, webinars or face-to-face meetings. V. MEMBERSHIP The Working Group is proposed to consist of representatives from 16 countries and 22 organizations active or with a strong interest in creating Green Bond markets. The following members have expressed interest to join the Working Group. Region Country Organization Asia Bangladesh Bangladesh Bank(BB) (6) China China Banking Regulatory Commission (CBRC) Vietnam State Securities Commission Indonesia Financial Service Authority (OJK) Mongolia Mongolia Banking Association (MBA) India Reserve Bank of India (RBI) LAC LAC FELABAN Latin American Banking Association (5) Brazil Banking Association Febraban Colombia Banking Association - Asobancaria Ecuador Banking Association - Asobanca Mexico Mexico Stock Exchange representing the Mexican Green Bond Working Group SSAfrica Kenya Kenya Banking Association (4) Nigeria Central Bank of Nigeria South Africa Financial Services Board (FSB) (Observer) Johannesburg Stock Exchange (JSE) MENA United Arab Emirates Abu Dhabi Global Market (ADGM) (Observer) (4) Morocco Moroccan Capital Markets Authority (AMMC) Egypt Federation of Egyptian Banks Central Bank of Egypt (Observer) Global Partners Global SBN/IFC/World Bank (3) Global Climate Bond Initiative (CBI) Global Green Climate Fund (GCF) (Observer) 5
The Working Group is expected to connect through both face-to-face and virtual meetings in 2018 as needed. The Working Group will reach out and connect with a broad community of international experts and organizations with relevant expertise and focus, including but not limited to the Climate Bond Initiative (CBI) and the International Capital Market Association (ICMA)/Green Bond Principles Executive Committee. VI. RESPONSIBILITIES As SBN Secretariat and technical advisor, IFC will be responsible for the administration of the Working Group, including convening Working Group meetings (in person and virtually) collecting and sharing relevant materials required for informed input and deliberation by Working Group members establishing and hosting a data hub for SBN members with information on existing Green Bond initiatives. providing regular updates on Working Group activities to i) Working Group members and ii) the SBN wider network Sharing its own technical experience with Green Bond issuance. Working Group members commit to provide guidance on the strategic direction of the Working Group to achieve the greatest global impact participate in Working Group meetings share country information and lessons learned review background materials provide expert and technical input to the Working Group discussions review and provide input to various drafts of the Working Group outputs represent SBN and share the Working Group findings at conferences and similar events. 6
ANNEX 1: Summary of the Green Bond Working Group Launch Meeting The Green Bond Working Group was officially launched at the 5 th SBN Annual Meeting held in Washington DC on October 16, 2017. The first meeting was open to all SBN members as a brainstorming session to define objectives and scopes of work for the working group 2. The outcomes of the discussion have informed the development of this Terms of Reference for the SBN Green Bond Working Group. Members noted particular interest in the following: Learning from other members experiences Defining green assets for green bond issuance Establishing simple minimum standards for SBN members, including on second opinion, verification, and definitions Supporting development of green bond guidelines by SBN members Proposing practical recommendations on enabling environment for green bond market development, including role of national government, issuer, verifiers, and DFIs Development of green sukuks Aspects such as governance structures, process & procedures, and verification/assessment of green bonds Experiences in keeping a liquid secondary market: policies and market experience to date Education for banks to understand and identify green finance, which are the underlying assets for green bond issuance Involving securities regulators who regulate capital market activities. 2 SBN members participating in the first meeting included representatives from the Pakistan Central Bank, China Banking Regulatory Commission, FELABAN, Colombia Banking Association, Indonesia Financial Sector Authority (OJK), Kenya Banking Association, Brazil Banking Association (Febraban), Costa Rica Banking Association (observer), and Egyptian Central Bank (observer), Climate Business Initiative and IFC/SBN staff. The meeting was facilitated by IFC. 7