ASEAN Green Financial Instruments Guide

Debt

GREEN GREEN GREEN GREEN CORPORATE SOVEREIGN GREEN SECURITI- BOND PROJECT BOND SATION BOND LOAN

Debt/Equity

GREEN GREEN GREEN GREEN PERPETUAL CONVERTIBLE MEZZANINE SUKUK BOND BOND BOND

Equity

PUBLIC PRIVATE PRIVATE JOINT INVESTMENT PARTNER- EQUITY VENTURE TRUST SHIP

Credit Enhancement

FIRST- A/B LOANS VIABILITY GUARANTEES OR GRANTS LOSS GAP PIECE FUNDING

Prepared by the Climate Bonds Initiative Sponsored by ClimateWorks Foundation Title bold: Subtitle book 1 Introduction

With an estimated combined GDP of Green bond issuance in ASEAN USD2.57tn in 2016 and a real GDP growth rate of 4.8%, the ten members of the Cumulative issuance (LHS) Number of deals (RHS) Association of Southeast Asian Nations 2 7 (ASEAN) – Brunei, Cambodia, Indonesia, 6 Laos, Malaysia, Myanmar, the Philippines, 5 Singapore, Thailand and Vietnam – taken 4 together, represent the sixth largest 1 economy globally.1 3 However, growth in the region has come at 2

great environmental expense. Air pollution, 1 USD USD Billions water contamination and deforestation are 0 - just a few of the issues that affect ASEAN Indonesia Singapore Malaysia Philippines Thailand Vietnam countries. The region’s high vulnerability to climate change exacerbates these negative trends contributing further to negative social and economic impacts. Green finance is developing rapidly Indonesia has the largest green bond market in ASEAN, with a volume of USD1.98bn from Financial products such as green labelled Transitioning to a green, climate resilient four deals including Indonesia’s sovereign bonds, sukuk and loans have become economy is paramount to ensure that the green sukuk and Star Energy Geothermal’s globally recognised as an effective means of region can reduce its greenhouse gas (GHG) senior secured green bond. emissions, better hedge against climate directing investment capital towards climate change risks and thrive in the long-run. change mitigation as well as climate change Issuance from Singapore and Malaysia is resilience and adaptation projects. most prolific with 6 deals from each. Real It is estimated that around USD3tn in estate company Sindicatum Renewable Green financing instruments are structured green investments will be required Energy (Singapore) is the sole repeat green as their vanilla counterparts, except that between 2016 and 2030 to fill the funding bond issuer so far. gap needed for the region to achieve a proceeds are earmarked to fund low-carbon low-carbon transition.2, 3 assets and projects. Initiated in 2007 with a For a full analysis of the ASEAN green and climate-awareness bond by the European climate-aligned bond markets see our The involvement of both public and private Investment Bank, the green bond market ASEAN State of the Market 2018 report. investors will be essential to meet these has grown rapidly, with over USD500bn investment targets. Since the signing of the green bonds issued as the end of November Paris Agreement, governments have 2018 … and counting. About this guide become increasingly involved in the development of green infrastructure to To combat the effects of climate change, it This guide highlights financial instruments meet their emission reduction targets. is estimated that green bond issuance needs and mechanisms available from and for Public finance is currently responsible for to reach USD1tn per annum in 2020. A public and private entities in the ASEAN around 75% of infrastructure investments in significant amount is expected to finance region looking to fund green assets. ASEAN, with private capital flows coming green infrastructure and assets in The document first lays out the main largely in the format of commercial loans. developing countries. sources of financing available to entities Private finance will have to scale up rapidly looking to raise capital through equity, to achieve the financing levels needed to ASEAN green bonds are on the rise debt and partnerships. It also points to accomplish sustainable growth. Promoting actors that can provide supporting tools The first ASEAN country to enter the green the development of local currency capital such as credit enhancement mechanisms. bond market was the Philippines, with AP markets by sourcing local currency funding Renewables’ PHP10.7bn (USD226m) A general step-by-step guide to green will be essential to attract capital from Certified Climate Bond, which financed financing is then provided, giving an domestic institutional and retail investors, as geothermal assets. Since then, issuers from overview of the whole financing process well as reduce cross-currency risk exposure.4 Indonesia, Singapore, Malaysia, Thailand from asset identification to deal Local banks are a key source of funding, and Vietnam have issued green debt for a structuring and post-issuance reporting. given their expertise in markets at a regional cumulative total of USD5.03bn, as of the The implementation of green finance and country level. However, international end of November 2018. mechanisms in the region are analysed bond investors are also important given the Regional issuance represents a very limited through brief case studies. scale of the financing required. As the share of both global and emerging market appetite for green financing grows, local and Finally, a detailed list of debt and equity (EM) figures: 1% and 5% respectively. international financial institutions are instruments, credit enhancement Excluding China from EM volumes takes the developing new products targeting investors mechanisms and risk transfer tools are set ASEAN green bond market share to 14%. So, interested in backing green and out in Annexes 1, 2, 3 and 4 respectively. there is significant scope for upscaling future environmentally beneficial projects. issuance to meet investment needs.

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 1 Main sources of public and private funding

This is particularly relevant for large-scale Government support is unlocking Banks play a key role project such as infrastructure development. green finance DFIs, such as the International Finance Local banks are a key source of funding, Corporation (IFC), Asian Development Bank Governments are increasingly involved in given their market expertise at a regional (ADB), Asian Infrastructure Investment Bank the development of green infrastructure to and country level. They can function as (AIIB) and the World Bank, can subscribe to meet national emission reduction targets aggregators of green projects and refinance private placements or be anchor investors in under the Paris Agreement. in the green bond market, or may be able to debt issuance and IPOs to help the company develop green securitisations. This would seeking funding to build investor confidence Governments (central, local, cities) and provide indirect capital market access for and catalyse investments from a wider pool government-related entities can seek to small- and medium-sized enterprises of private actors (see Annex 1 and Annex 2). develop a green project pipeline and obtain (SMEs), which cannot access debt capital funding through debt issuance in the capital markets directly due to limited project scale markets. Subsidies, tax incentives and other and lack of bond issuance expertise. Specialised financing is emerging policy instruments can be put in place to promote green investments from both Green banks and dedicated green divisions Finance facilities, such as Indonesia’s private and public entities. within banks can contribute to accelerating Tropical Landscapes Finance Facility and the private sector participation in green projects Credit Guarantee Investment Facility, They can partner with other public entities, by offering dedicated green products in employ the blended finance approach to e.g. multilateral development banks, or the compliance with international definitions of generate bankable project pipelines by private sector to reduce the pressure on green (see the CBI taxonomy in Annex 5). providing technical support and facilitating national balance sheets and share the risks access to funding (see the case studies Development finance institutions (DFIs) have that can arise from infrastructure project section for more details). development (see Annex 2 for instruments). a mandate to support developing countries and can achieve this through blended Specialised investment funds are also a finance and credit enhancement source of financing support. Regional Two key policy changes underpin mechanisms, by reducing risk exposure and examples include the ASEAN Infrastructure ASEAN green finance enhancing market incentives for investors to Fund, the Indonesia Infrastructure mobilize private capital (see Annex 3). Guarantee Fund (IIGF), and LEAP, Leading In the area of green finance, the ASEAN Asia’s Private Sector Infrastructure Fund. Capital Markets Forum is the focal point for ASEAN Green Bond Standards the ten ASEAN capital market regulators. In International funds focused on green bonds November 2017, ACMF released the ASEAN The ASEAN Green Bond Standards are include the Green Cornerstone Bond Fund, Green Bond Standards (AGBS, see box). In based on the ICMA Green Bond Principles created by the IFC and Amundi and short order, three “firsts” were recorded: and seek to enhance transparency, launched in March 2018. The fund is the consistency and uniformity to help reduce world’s largest targeted green bond fund • In December 2017, Permodalan 5 issuance and investment costs. Key focused on investing in emerging markets. Nasional Berhad became the first elements of the standards include: Malaysian government-backed entity to issue a green sukuk. It finances the • The issuer or issuance of the green Mobilising institutional investors is Merdeka PNB118 tower, which benefits bond must have a geographical or essential to financing at scale from three building certifications. economic connection to the region; Mobilising institutional investors – pension • Segi Astana (Malaysia) launched the • Fossil fuel power generation projects funds, insurance companies, sovereign first ASEAN Green medium term note are explicitly excluded; wealth funds, hedge funds, mutual funds – is (MTN) programme in January 2018. It • Information on the process for project essential to promoting green finance. Doing will allow Segi Astana to raise funding selection and on the use of proceeds so creates market liquidity and enables repeatedly for certified buildings. allocation, as well as the external primary lenders to free up capital and make • Sindicatum Renewable Energy review report must be made publicly space for new lending and investments. (Singapore) raised INR2.5bn (USD40m) available on a designated website; Institutional investors can also play a critical in the first foreign-currency ASEAN role in scaling up domestic currency • Recommendation to obtain an green bond. The deal benefits from a financing through direct lending or equity external review for the green bond guarantee by GuarantCo (see Annex 3). investment in large, long-term projects such framework, and is particularly as green infrastructure and property. The ASEAN+3 Multi-currency Bond recommended for the management of Issuance Framework, released in 2015 by proceeds and annual reports; and For instance, Australian bank Westpac’s the ASEAN countries, China, Japan and the newly launched long-term investment • Recommendation for the external Republic of Korea, encourages domestic and product, the Green Tailored Deposit, uses review providers to disclose their regional issuers to take advantage of deposits from large investors (minimum relevant credentials and expertise and streamlined issuance approval processes investment of AUD1m) to finance a pool of the scope of the review conducted. and provides opportunities for bond wind farm and low-carbon building assets, 6 issuance activity across the wider region. which meet the Climate Bonds Standard.

ASEAN Green Financial Guidelines Climate Bonds Initiative 2 A step-by-step guide to green financing

Entities have a wide range of options to 1. setting eligibility criteria, choose from when seeking to finance green 2. asset / project screening, External reviews infrastructure projects. The optimal 3. management of proceeds and financing structure will depend on the 4. post-issuance reporting. External reviews from an independent party, which confirm alignment with the company and project-specific factors, as The Climate Bonds Taxonomy builds upon Green Bond Principles (GBP) / Green Loan well as on regulations and general market the GBPs and provides definitions for asset Principles (GLP) and/or compliance with conditions. As each financing structure will and project types compliant with the Paris the Climate Bonds Standard, have become entail specific procedures, the steps Agreement, i.e. decarbonisation by 2050 common practice. The most common provided below are intended to be a high- and limiting global warming to 2oC.9 forms of review are: level guide highlighting the major aspects an entity should consider when planning to Country-specific guidelines and frameworks • Assurance report: an external party raise capital for a green project. should also be taken into account. For confirmation of compliance with GBP. example, the Sustainable and Responsible • Second Party Opinion: an external Investment Sukuk Framework introduced by Step 1: Develop green asset assessment of the issuer’s green the Securities Commission Malaysia. Issuers bond framework, confirming GBP strategy and process should consider alignment with regional compliance and analysing the standards such as AGBS, which can facilitate The first step for any private or public sector “greenness” of eligible categories. access to a regional and/or international entity looking to finance a green project is to investor base. • Green rating: an evaluation of the develop a green investment strategy and green bond or related framework define a framework laying out the selection What’s best practice? against a third-party rating process and eligibility criteria for identifying methodology, which considers the the projects to be financed. It is market best practice to engage an external reviewer to evaluate the green environmental aspects of the Procedures for the tracking and reporting of credentials of the selected projects as well investments. These include products allocated and unallocated funds also need to as the transparency and clarity of the developed by international and be defined. Further, more and more framework. External reviews provide domestic rating agencies, e.g. investors are looking for impact reporting, additional comfort to investors. There are a Moody’s, S&P and RAM Malaysia. so it is advisable to identify suitable metrics variety of external review formats (see box). • Verification reports for Certified and initiate a monitoring process. The Climate Bonds Initiative has developed Climate Bonds: third party Who can issue green bonds? the Climate Bonds Standard and sector verification, pre- and post-issuance, specific criteria for a variety of asset which confirms that the use of Any entity which has suitable green assets to categories – solar, wind, geothermal and proceeds adheres to the Climate finance can issue green bonds, green sukuk marine renewable energy, low carbon Bonds Standard and Sector Criteria. or obtain a green loan. The key aspect of buildings, low carbon transport, water green finance is that the proponent commits infrastructure, forestry – and continues to Certified Climate Bonds to investing the funds raised in green assets develop metrics and criteria. The criteria such as renewable power generation, low Issuers can certify bonds, loans or sukuk metrics and assessment process are carbon transport, low carbon buildings, under the Climate Bonds Standard. designed to ensure that the selected assets sustainable water management, sustainable Certification confirms that the bond is are on a trajectory to full decarbonisation by waste management, sustainable land use, aligned to the Paris Agreement and to 2050 and limiting global warming to 2°C. etc. and/or climate change adaptation or keeping global warming under 2°C. resilience measures such as flood defences. Is there support for green bond issuers? In order to receive the Certified Climate An overview of the Climate Bonds Taxonomy Bonds stamp of approval, a prospective of sectors is provided in Annex 5. Singapore and Malaysia offer subsidies or grant schemes to cover the cost of external issuer must appoint an Approved Verifier, In ASEAN, green bond issuance is not limited reviews to incentivise best practice and who will assess the assets and issue a to domestic companies. International transparency. verification report to confirm that the companies with a subsidiary in an ASEAN bond meets the Climate Bonds Standard. country are also eligible to come to market In Singapore, the central bank, Monetary The Climate Bond Standard allows under the ASEAN Green Bond Standards. Authority of Singapore, has implemented a green bond grant scheme that can absorb Certification of a bond prior to issuance, Is there guidance available? the full cost of external reviews. which enables the issuer to use the Climate Bond Certification Mark in the When pursuing green bonds and green In Malaysia, tax deduction of issuance costs bond marketing efforts and investor 7 loans, the Green Bond Principles (GBP) for issuers and tax exemptions for investors roadshows. After the bond has been developed by the International Capital are in place until 2020 for socially issued and allocation of the bond Markets Association (ICMA) and the Green responsible sukuk and green sukuk. A proceeds has begun, the issuer must 8 Loan Principles (GLP) published by the Loan MYR6m Green SRI Sukuk Grant Scheme has confirm the Certification by obtaining a Market Association (LMA) and the Asia- also been set up to cover the cost of post issuance verification report annually Pacific Loan Market Association (APLMA) external reviews. to maintain its Certified status. provide useful guidance on four key aspects:

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 3

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 4 Step 2: Source of financing The share of funding coming from public or project risks, cash flow projections and/or private equity also has to be determined. valuation as appropriate, financial accounts, Once the assets have been identified, the Private companies with a history of technical assessments such as building entity needs to determine the most suitable profitability can consider going public and survey or certification, environmental report way to obtain the required funding. raising capital through an IPO. Companies or climate change vulnerability assessment. 10 Financing can be obtained through: can also look to mezzanine financing or forms of preferred equity or subordinated • Direct investments: equity, debt and Step 4: Debt origination project finance, including Public-Private debt which have a higher claim on the Partnerships company’s assets compared to common Debt origination involves a number of stock (see Annex 2). parties that help the issuer structure and • Semi-direct investments: pooled execute the transaction. Highlighting the vehicles, including securitisation, Debt financing can take many shapes and deal’s green credentials by developing a covered bonds, investment trusts, forms. Bonds may be backed by an issuer’s Green Bond Framework and obtaining an venture capital and equity funds balance sheet (e.g. corporate bond), by a specific pool of assets or revenue streams external review demonstrates a high level of • Indirect investments: publicly listed (e.g. securitisation) or by both (dual- transparency which can benefit the equity, corporate bonds, participation recourse or covered bond) (see Annex 1). origination process and attract investors. in debt financing When considering debt issuance, entities There are a number of parties involved in Public-private partnerships (PPP) are one of should evaluate if there is the need to use a the origination process: the most frequently used methods globally credit enhancement mechanism to improve • Arranger: structures the deal in to increase a public project’s viability and the risk-return profile of the deal in order to conjunction with the issuer to address attract private capital (see Annex 3). attract private capital. Credit risk, political the latter’s goals effectively. Treasury However, PPPs are not the most appropriate risk and technological risk are all factors that teams within the issuing entities can means of financing certain asset types, such have to be adequately addressed for a viable bring to the table extensive knowledge as real estate and renewable energy power underwriting commitment (see Annex 3). of local capital markets to support the plants. These assets would typically be process. The arranger’s role is primarily classified as infrastructure projects and Issuers can list bonds publicly, i.e. make to advise on the most appropriate financed through private sector equity and them available to a large number of financing approach and structure, but debt funding. potential investors. However, in emerging markets and for small issuers this could they also coordinate transaction Equity markets are a potential source of prove challenging if the issuer has limited execution and the parties involved. funding for private projects, which can be credit history, a low credit rating and/or is The issuer can also appoint the achieved through publicly listed equity, financing a new asset type. A better arranger as “green structuring agent” mezzanine finance, venture capital or alternative may be to sell the deal as a to advise on green bond aspects, e.g. private equity funds and direct equity private placement directly to specific the green bond framework and/or investments in the selected projects. Equity investors – often government or quasi- arranging an external review. funding from venture capital funds is government entities, national banks and particularly useful at the early development supranational banks – to demonstrate the • Legal advisor: prepares the bond stages of a company/product that is not viability of the project and build investor prospectus and all underlying market-ready (see Annex 2 for more). confidence for future deals. transaction documentation, provides legal structuring advice and delivers a Sometimes investments are entirely equity During the structuring phase, the issuer can legal opinion. funded, but typically, the financing package seek support from providers of finance a component of equity and a more services – including investment banks, • Auditor: prepares the audit report and significant amount of debt. There are a wide guarantee providers and specialised facilities signs off on financial disclosure in the variety of debt instruments available, such – to identify the best avenue to pursue. Any bond prospectus/loan syndication pack. as secured or unsecured senior loans or tax incentives for green products available • Credit rating agencies (optional): bonds, secured or unsecured subordinated / to either issuers or investors should be prepare a credit rating report and mezzanine loans or bonds, structured taken into consideration at this point. In assign the deal a credit rating. finance and securitisation (see Annex 1). Malaysia, for instance, green SRI sukuk issuers benefit from tax deduction on the • Underwriter / lead manager / issuance costs until year of assessment 2020 bookrunner: underwrites the deal and Step 3: Deal structuring and can defray external review costs manages the process of selling the The deal structure can entail a combination between 2018 and 2020. bonds/loan/sukuk to investors. of different sources of financing, depending Subsidies to equipment manufacturers on the company, asset characteristics and should be considered as they can potentially Step 5: Post-issuance reporting macroeconomic factors. have a beneficial effect on pricing. After a green bond, sukuk or loan be issued, The entity should consider if there is a need Regulation and supporting documents issuers should publish a public report for a partner. Other than being an effective annually on proceeds allocations, with means of obtaining capital requirements, Having chosen the type of funding details on the financed projects and the partnerships can cater to several other instrument, the issuer will have to prepare management of any unallocated proceeds. needs, such as expertise acquisition and risk any documentation required by relevant Disclosing the environmental impacts of distribution. Co-investors can come into a regulations or by entities providing any financed projects using appropriate metrics joint venture or a partnership, or they can credit enhancement mechanisms such as and benchmarks is aligned to best practice. invest in the company (see Annex 2). due diligence reports identifying the specific

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 5 ASEAN highlights: Green debt issuance case studies and support mechanisms

Green Sukuk However, in the case of green private Clear definitions of eligible categories are placements, the issuer is expected to always recommended. For instance, energy A sukuk is an Islamic financial certificate in disclose information on the nominated efficiency is best qualified as to the sector it compliance with the Sharia law. The projects and assets to be financed, at least relates to – e.g. buildings, transport, grid certificates give partial ownership in the initially to allow classification (see Annex 1). infrastructure. underlying nominated assets or earnings from those assets. For issuers debuting in the green bond Specifics may not be possible pre-issuance market, private placements provide the in the case of banks, but post-issuance In the case of a green sukuk, the financed advantage of building an investor base disclosure on allocations can provide the assets must yield environmental benefits. before coming to market with a public needed transparency and clarity. Ideally, all An advantage of green sukuk as it has the issuance. Multilateral development banks, disclosure on assets’ green credentials potential to attract both green investors and such as the IFC, EBRD and ADB, have been should be publicly available to provide those with Shariah-compliant mandates. active as investors in a range of green bond visibility, improve investor confidence and The world’s first green sukuk was issued in deals of first-time issuers, some of which enhance market credibility. July 2017 by Tadau Energy. The MYR250m also coincide with the first green bond from Credit guarantees (USD58m) deal will finance solar projects in a specific country. Malaysia. The market has now grown to a Credit guarantees can provide default risk While private placements can be very cumulative total of USD2.13bn, with all coverage of a commercial infrastructure beneficial for raising capital, the lack of deals but the Indonesian sovereign sukuk publicly available information can lead to a project for a portion or the whole debt coming from Malaysian issuers. obligation subscribed by private investors, bond being excluded from green bond lists regardless of the reason for default. The Republic of Indonesia’s USD1.25bn or from investor consideration if it is not Through this mechanism, the issuer is able green sovereign sukuk is the largest green possible to determine the green credentials to improve the credit worthiness of the sukuk to date, as well as the first green of the assets/projects being financed. project, thereby attracting a wider range of sovereign bond from Asia. The Indonesian Below are two examples of private investors and potentially achieving better sovereign’s Green Bond and Sukuk placements from ASEAN issuers fully terms for the deal. Framework11 includes a wide range of subscribed by IFC that have been classified eligibility categories, which is not unusual Credit guarantees are particularly helpful to differently by Climate Bonds Initiative based for a sovereign bond as ministries and finance green infrastructure projects in on the degree of disclosure on allocations. agencies usually apply for funding of specific emerging markets which have a high credit projects after the bond has been issued. The • TMB Bank issued a USD60m green risk profile. Two examples from the green issuer’s reporting on proceed allocation will private placement in June 2018, bond market in ASEAN are described below. be essential to determine the share of funds becoming the first green bond issuer • Philippines-based energy company AP allocated to each eligible category. from Thailand. Proceeds will finance Renewables issued a PHP10.7bn solar, waste to energy, biomass and Malaysian state-backed investment bagasse projects. To be eligible, (USD226m), 10-year, senior secured company Permodalan Nasional Berhad Certified Climate Bond to finance the biomass projects must exclusively use issued the first (and so far only) green sukuk Tiwi-MakBan geothermal power plants, sustainable biomass feedstocks. The which allocates proceeds solely to property which have a combined capacity of deal was originally classified as pending financing: the Merdeka PNB118 Tower, 390MW. The Asian Development Bank due to insufficient information, but which aims to secure LEED certification.12 clarifications provided by the IFC, sole (ADB) provided a Partial Credit Guarantee covering up to 75% of The green sukuk market has the potential investor in the deal, confirmed that the scheduled principal repayments and for scaling up significantly, especially in eligibility categories are aligned with interest payments.15 The ADB also Indonesia and Malaysia. This instrument is the Climate Bonds Taxonomy. provided a limited recourse direct well positioned to fund solar projects, low- • BDO Unibank came to market with a senior secured loan of PHP1.8bn. carbon buildings, water and wastewater USD150m green private placement in management, low carbon vehicles and • Sindicatum Renewable Energy December 2017. According to BDO’s public transport, as well as other mitigation (Singapore) issued a two-tranche 7- press release, proceeds will finance and adaptation investments. year senior secured green bond renewable energy, energy-efficient totalling INR2.5bn (USD40m) in January Private placements equipment and green building projects in the Philippines.13 Due to insufficient 2018. Later in the year, the issuer returned to the market with another Private placements are directly placed with information on the energy efficient senior secured green bond of PHP1.1bn investors and are typically not listed. This projects and whether they allow (USD20m). GuarantCo provided a 100% gives the issuer the flexibility of negotiating efficiency improvements to fossil fuel- credit guarantee for both deals. certain deal terms such as tenor and based technologies, the deal has been currency to match investor preferences. classified as excluded under the CBI There are a wide variety of guarantees Details of the deal such as pricing and Green Bond Database Methodology.14 available to issuers that fully cover or maturity may remain confidential. minimise different types of risk, such as ASEAN Green Financial Guidelines Climate Bonds Initiative 6 currency exchange volatility, political risk To date, TLFF is the only facility from ASEAN The Indonesia Infrastructure Guarantee Fund and repayment risk (see Annex 3). to come to market with a green bond. There (IIGF) is financed by authorized capital of ca. is large scope for similar facilities in the USD1bn from the Government of Specialised finance facilities region to follow this structural approach. Indonesia’s budget, with financial assistance Green finance facilities act as a bridge provided by the World Bank. The fund’s An example of a regional facility that could between governments, the private sector objective is to support PPP infrastructure provide support for green infrastructure and communities to actively develop a projects through the provision of investments is the Credit Guarantee suitable project pipeline that supports government guarantees.21 As of Q1 2018, 21 Investment Facility (CGIF). This multilateral projects had been appraised by the IIGF.22 lending through green bond issuance. facility was established in 2010 by ASEAN+3 A blended finance approach is adopted to (China, Japan and South Korea) and the The ASEAN Infrastructure Fund (AIF) is a channel capital flows into the pipeline, Asian Development Bank (ADB) to provide multilateral fund established by ADB and implementing risk cover and credit credit guarantees for local currency bonds ASEAN members to help mobilise regional enhancement to improve the bankability of issued by investment grade companies in savings, including foreign exchange projects when required. Technical and ASEAN+3 countries. The guarantees enable reserves, to fund infrastructure projects – knowledge support is also usually provided issuers in the region to access capital for with co-financing by ADB funds.23 The fund’s during the project preparation stage to longer-dated debt and reduce the local first lending transaction was a USD25m improve project quality.16 capital market’s mismatches between participation in a loan to finance the Java- currency and maturity. This, in turn, Bali 500-Kilovolt Power Transmission Indonesia’s Tropical Landscapes Finance contributes to increasing the region’s overall Crossing Project.24 The AIF recently Facility (TLFF) is a government supported market stability.19 approved a ‘green window’ specifically to partnership between the United Nations finance ASEAN green infrastructure. Environment Programme, World At a national level, Credit Guarantee Agroforestry Centre, ADM Capital and BNP Corporation Malaysia (CGC) facilitates access GuarantCo, a subsidiary of the Private Paribas launched in 2016. The aim of the to funding for small and medium enterprises Infrastructure Development Group, facility is to deploy public capital to catalyse (SMEs) through the provision of loan encourages infrastructure development in private investments into commercial guarantees and financing facilities, advisory low income countries through the provision projects with a clear environmental and services, credit rating services in of credit guarantees that enable social benefit, mainly related to sustainable collaboration with SME Corp and Credit infrastructure projects to raise debt finance. agriculture – including improved forest Bureau Malaysia Sdn.Bhd. In December It is sponsored by five G12 governments.25 2018, MARC affirmed the institution’s triple- management and biodiversity preservation Leading Asia's Private Sector Infrastructure – and renewable energy.17 A rating. As a key DFI in supporting the Fund (LEAP) is an infrastructure co-financing development of SMEs in Malaysia, CGC is fund, established by ADB, that supports The facility issued its inaugural transaction well positioned to take up a bigger role in PPPs, joint ventures, private finance in the green bond market in February 2018 increasing financing directed to low carbon initiative projects, and privatizations, as well with a USD95m multi-tranche sustainability projects.20 bond deal as part of a USD350m project. as conventional project finance by providing The deal was arranged by BNP Paribas and financing to companies, projects, and issued through the financing vehicle TLFF I Funds supporting infrastructure financial intermediaries (e.g. holding Pte Ltd for a joint venture between France’s investment in ASEAN companies and local currency vehicles) Michelin and Indonesia’s Barito Group. linked to Infrastructure. The fund is Proceeds are earmarked for the creation of Specialised green funds aim to raise capital supported by the Japan International sustainable rubber plantations on heavily to finance companies and/or projects Cooperation Agency (JICA).26 degraded land in the Jambi and East deemed to be environmentally beneficial. A The Currency Exchange Fund (TCX) was set Kalimantan provinces of Indonesia. USAID brief description of regional funds already up in 2007 by a group of 22 DFIs and provided a partial credit guarantee of supporting infrastructure development that microfinance investment vehicles, alongside could be leveraged to finance green projects USD70m, protecting investors from 50% the Dutch and German governments to losses in principal on the guaranteed portion is presented below. offer currency risk hedging solutions in of the deal.18 developing and frontier markets.27 This is made possible by pooling the risk of TLFF Governance Structure currencies for which there are no long-term hedging products, or, in some cases, no market at all. TCX has, for example, provided hedging to facilitate local currency bond issuance in Myanmar in 2017/18.28 Currency risk can be a significant barrier to emerging market bond issuance. Accessing hedging solutions through DFIs or TCX can help catalyse capital from international investors to deals denominated in local currency or backed by local currency revenues. It can also help grow a domestic, local currency bond market, decreasing Source: Tropical Landscapes Finance Facility reliance on hard currency for funding..

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 7 Annex 1: Debt instruments

Debt instrument Definition Example

Supra-national and sovereign Proceeds are allocated to nominated The Republic of Indonesia issued a USD1.25bn 5-year green bonds projects and assets. Debt securities carry green sovereign sukuk in 2018 to finance eligible projects the credit rating of the issuing State. under a range of categories: renewable energy, energy However, an independent rating may be efficiency, adaptation, transport, green buildings, assigned by ratings agencies. sustainable agriculture, sustainable management of natural resources and green tourism.

Sub-sovereign green bonds Proceeds are allocated to nominated In 2016, the Vietnam Ministry of Finance approved a pilot projects and assets within the sponsoring project for municipal green bonds.29 In September the region. Credit rating is based on that of the People's Committee of Ba Ria Vung Tau Province came to issuing municipality and the credit quality market with a VND80bn (USD4m) 5-year green bond to of the underlying assets. finance a water resource management project. Shortly after, Ho Chi Minh City Finance and Investment State- Owned Company issued a VND523.5bn (USD23m) 15-year green bond with proceeds allocated to 11 projects related to the water, adaptation and infrastructure sectors. Government-backed infrastructure financing company PT Sarana Multi Infrastruktur (Indonesia) issued a 2-tranche IDR500bn (USD50m) unsecured green bond in 2018. Proceeds will be allocated to refinancing three light rail transit projects, two mini hydro power plants, a water treatment plant and irrigation systems.

General obligation green bond Proceeds are allocated to nominated Singapore state development bank DBS Group issued a projects and assets within the sponsoring USD500m 5-year green bond in July 2017. Proceeds will region. As the green bonds are backed by be allocated to green buildings, transport, renewable balance sheet assets, the bond will carry energy, energy efficiency, waste and adaptation. the credit rating of the issuing entity.

Green revenue bond Proceeds are allocated on nominated In 2014 the State of Hawaii issued GEMS 2014-1, an ABS projects and assets. As the green bonds are deal secured on the green infrastructure fee collected by backed at least partially by the issuer’s three state utility companies via electricity bills. The bond revenue stream, bonds carry the credit raised funds for the Hawaii Green Infrastructure Loan rating of the issuing entity. Program, which aims at providing loans to finance the installation of renewable energy power systems and for energy efficiency projects. In 2017 Beijing Enterprises Water Group, which operates 19 water treatment plants under contracts with 16 municipalities, issued a securitisation backed by water treatment service fee receivables. The proceeds are to be invested in 9 new water infrastructure projects.

Green structured finance Debt securities backed by a pool of National Australia Bank placed AUD200m of secured underlying assets. Proceeds are allocated notes for the refinancing of wind and solar assets in June only to nominated projects and assets. The 2018. The structure is backed by loans to Australian credit risk is dependent on the asset risks. renewable energy developers.

Green securitisation Debt securities backed by a pool of FlexiGroup (Australia) has closed three ABS deals with underlying assets. Proceeds are allocated green tranches, mostly senior (Class A), for the Green tranches in ABS and MBS only to nominated projects and assets. refinancing of solar rooftops. Its 2018 deal contained a B deals Often an independent credit rating is note too. issued by a rating agency, but this is not a Harvest Capital (China) has issued Green CMBS secured requirement. The credit risk is dependent on a LEED Gold Certified office building owned by China on the asset risks. Energy Conservation and Environmental Protection Group (CECEP).

ASEAN Green Financial Guidelines Climate Bonds Initiative 8 Green convertible bond Proceeds are allocated on nominated Japan-based Sumitomo Forestry Co., Ltd issued the first projects and assets. The security can be green convertible in September 2018 to refinance the converted into a predetermined amount of acquisition of 30,000 hectares of FSC certified the company’s common stock. The bond timberlands and plantation forests in Nelson, New will carry the credit rating of the issuing Zealand. The Stock Acquisition Rights give bondholders entity. the option to acquire the company’s common stock.

Green project bond Proceeds are allocated on nominated In August 2017, the Inter-American Investment projects and assets. Credit rating is based Corporation (IIC), the private sector branch of the IDB on the quality of the backing green assets Group, arranged a USD135.8m 20-year B-bond to finance and the returns stream of the underlying a 70MW wind farm located in Uruguay and developed by project. US-based energy company Invergy. The B-bond was sold to institutional investors to refinance the A/B loan previously provided by IIC and DNB Bank for the construction of the wind farm.

Environmental impact bonds / Proceeds allocated to nominated green DC Water and Sewer Authority issued a USD25m private pay-for-results green bonds projects/assets. Part of the project’s risk is placement in 2016 to finance the construction of green transferred from the issuer to investors. infrastructure designed to mimic natural processes to The payments to investors are conditional absorb and slow surges of stormwater during periods of to the project achieving an expected heavy rainfall. If the outcome of the project meets outcome after a third-party evaluation has expectations, no contingent payment will be due to been conducted. investors. If it exceeds expectation, investors will make a Risk Payment Share of USD 3.3m to DC Water, if it does not achieve expectations, DC Water will make an outcome payment to investors.30 US cities of Atlanta and Baltimore recently announced plans to issue environmental impact bonds in the course of 2019.31

Private placement Green bond placed directly with the Thailand-based TMB Bank issued a USD60m 7-year green investor/s. Details of the deal such as private placement in June 2018 to finance solar, biomass pricing and maturity may remain and waste to energy projects. The IFC was the sole confidential, but the issuer is expected to investor in the deal. disclose details on the nominated projects and assets to be financed.

Green loans, syndicated loans Provide lending to encourage market Fraser Property Limited (Singapore) issued a SGD1.2bn and credit lines development in climate-aligned sectors in (USD876m) 5-year green loan to refinance existing loans line with the Climate Bonds Taxonomy and relating to the development of the Fraser Tower. in compliance with the Green Loan Principles. Interest rates are based on borrower credit scores or an ESG score assigned by an ESG rating agency.

Mezzanine and subordinated Proceeds are allocated on nominated Global investment manager AMP Capital provided a debt projects and assets. Hybrid capital EUR245m mezzanine finance facility of EUR245m to investments, from development banks Neoen, a French renewable-energy provider. seeking to support private investment in In May 2018, Canadian insurance company Manulife the senior debt or from investors with a Financial issued a CAD600m (USD464m) 10-year green higher risk appetite. subordinated secured bond.

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 9 Annex 2: Equity instruments

Equity instruments32 Definition Example

Islamic finance, including Sukuk Islamic financial certificate in compliance Malaysian project company Tadau Energy issued the world’s with the Sharia law. The certificates give first green sukuk in July 2017. The 16-year MYR250m partial ownership in the underlying assets (USD58m) deal was issued to finance solar power assets. and/or the earnings from those assets. Five other green sukuk issuers have come to market since, totalling USD2.13bn in cumulative issuance.

Public-Private Partnership A long-term contract between a public PT Sarana Multi Infrastruktur (PT SMI), a state-owned entity and a private party aimed at infrastructure financing company, plays an active role in developing and supporting a public asset or facilitating infrastructure financing, project development service. The private party takes on and infrastructure advisory services in Indonesia. PT SMI significant risk and management supports the Government’s infrastructure development responsibility, and remuneration is linked agenda for Indonesia through partnerships with private to performance.33 and/or multilateral financial institutions in PPP projects.34

Joint venture, partnership Business agreement between two or more SunPower Capital and Hannon Armstrong Sustainable parties that pool their capital, skills and Infrastructure Capital entered into a joint venture - resources to achieve a specific project or SunStrong Capital Holdings, LLC - to acquire, manage and business activity. finance a portfolio of residential solar PV systems. The JV issued a USD400m solar ABS in November 2018.35

Private equity, venture capital Fund allocations to innovative pilot-scale In April 2017, the Clean Energy Innovation Fund invested and unlisted equity funds green projects including for qualified green AUD5m in Zen Ecosystems’ series-B funding round. infrastructure. Aid project developers and entrepreneurs to secure a funding stream for green projects. PE often incorporates green indicators into process.

Mezzanine/subordinated debt Hybrid financing typically from AMP Capital’s GBP37m mezzanine investment stake in a and preferred stock (B-shares) development banks and international GBP247m refinancing of UK solar parks. finance institutions supported by subordination of equity tranches. Often, lenders are allowed to convert the loan into subordinate equity shares according to pre-specified conditions. Alternatively, shares may be used as loan collateral.

Subsidiary / project financing Use of proceeds to fund a portfolio of (off- City Developments Limited (CDL) issued an SG100m vehicles / YieldCos balance sheet) green projects. Private or (USD71m) senior secured Certified Climate Bond in April publicly traded vehicle consisting of pools 2017 through its wholly owned subsidiary CDL Properties of long-term cash-generating green assets, Ltd to refinance an intercompany loan extended by CDL to may have tax advantages. CDLP for Republic Plaza, one of Singapore’s tallest skyscrapers and a premium Grade A office building in the heart of Singapore’s Central Business District. US YieldCos Terraform Global and Terraform Power were established by SunEdison in 2015 and issued green bonds to finance solar, hydro and wind assets.

Investment Trusts Use of proceeds to fund a portfolio of US REIT Hannon Armstrong issued a debut USD100m ABS in green projects. Publicly traded vehicle 2013. The deal was secured on ground lease receivables consisting of pools of long-term cash- from 78 solar and wind farms. Leasing land to renewable generating green assets, may have tax energy operators carries lower risk than owning and advantages. operating the solar and wind farms. Pooling the leases creates diversity of income streams, a prized feature of securitisations, which further lowers deal risk.36

Infrastructure/property funds Fund directly investing in nominated Glennmont Partners is a European-based fund manager infrastructure projects. Funds can have a focusing on clean energy infrastructure investments. In mixed financing structure by both investing October 2017, the fund completed a EUR190m refinancing directly in assets and through debt of a portfolio of operating wind turbines located in Sicily and subscription. Puglia, Italy.37

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 10 Annex 3: Credit enhancement mechanisms

Credit enhancement Definition Example mechanisms38, 39, 40, 41

Full or partial credit guarantee A credit guarantee or PCG is created to Sindicatum Renewables (Singapore) issued a two-tranche 7- (PCG) absorb part or all the debt service default year senior secured green bond deal totalling INR2.5bn risk of an infrastructure project, (USD40m) in January 2018. Later in 2018, it returned to the irrespective of the cause of default. PCGs market with a senior secured green bond of PHP1.1bn can be used for any commercial debt (USD20m). GuarantCo provided an 100% credit guarantee instrument (loans, bonds) from a private for both deals. lender. The existence or proposed Energy company AP Renewables (Philippines) issued a implementation of a PCG is indicative of PHP10.7bn (USD226m) 10-year senior secured Certified confidence in the product being floated by Climate Bond to finance the Tiwi-MakBan geothermal power the guaranteeing entity and can even assist plants, which have a combined capacity of 390MW. The in bringing new lenders to the table. Asian Development Bank (ADB) provided a Partial Credit Guarantee covering up to 75% of scheduled principal repayments and interest payments. The ADB also provided a limited recourse direct senior secured loan of PHP1.8bn.42

Partial risk guarantee / PRGs cover private lenders and investors There have been no green bonds using this type of for certain risks of lending to sovereign or guarantee to date. However, PRGs are used quite often and Political risk guarantee sub-sovereign borrowers. A PRG needs to favourably in renewable energy and energy efficiency include private participation in the project. projects. A PRG can cover a number of sovereign or sub-sovereign risks such as currency inconvertibility, repatriation, expropriation, political force majeure such as war, regulatory risk and government payment obligations (such as tariffs).

Partial risk swap guarantees Partial Swap Guarantees cover investors Brazil-based private sector bank Unibanco issued JPY25bn against the risks arising from currency 10-year amortising notes backed by the banks’ USD- swaps in cross-border transactions or denominated offshore remittance flows. The deal was where the debt service cash flow is in a placed with Japanese institutional investors, who required a different currency from the deal cash hedging on the currency mismatch. To reduce the credit flows, which would require the issuer to exposure for the institution providing the currency swap, hedge the currency mismatch to provide the issue obtained a PSG from the IFC.43 comfort to investors that payments can be made in the debt currency.

First-loss provisions First-loss provisions refer to any device The Green Cornerstone Bond Fund, created by the IFC and designed to protect investors from the loss Amundi and launched in March 2018, is the world’s largest of capital that is exposed first if there is a targeted green bond fund focused on investing in emerging financial loss of security. These could be markets. To lower risk and attract private sector debt, equity or derivatives instruments investments, the IFC will provide a first-loss coverage including mezzanine finance, cash facilities through a junior tranche. or guarantees. They could also take the The Credit Guarantee Investment Facility provides credit form of insurance that insures debt guarantees for local currency denominated bonds issued by security providers who are liable to pay investment grade companies in ASEAN+3 countries (see p5). compensation to the investors, irrespective of the cause of the loss.

Contingent loans Contingent loans are often used in project There have been no green projects using contingent loans finance to backstop the main debt by to date. providing a payment option for specific case scenarios. For instance, if the government fails to obtain quality cash flows, the contingent loan is triggered, and investors are paid.

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 11 Concessional loan Concessional loans are loans that are The Republic of Seychelles issued the world’s first blue bond granted on substantially more generous of USD15m in October 2018 to finance sustainable marine terms compared to market loans, which is and fisheries projects. GEF provided a USD5m concessional achieved through below-the-market loan that will partially cover the bond’s interest payments. interest rates, longer grant periods or a The deal is also supported by a USD5m partial guarantee combination of both. from the World Bank.44

ESCOs Energy Service Companies (ESCOs) provide Malaysia Debt Ventures, a government-backed technology technical and financial services for the financier, set up an Energy Performance Contracting fund to implementation of energy efficiency provide credit financing to ESCOs for implementing energy solutions. Under a Guaranteed Saving efficiency projects.45 Schemes, the ESCO guarantees a certain level of energy savings, thus assuming the performance risk. With a Shared Savings Model, higher energy savings determine a lower cost of the energy service. In both schemes, financing can come either from the ESCO or a third party.

Viability gap funding (VGF) VGF is used specifically in infrastructure to The Government of India launched in 2004 a Viability Gap cover for the heavy upfront funding that is Funding (VGF) scheme for public-private partnerships required to kick start projects. An analysis infrastructure projects. The scheme was also used to set up of the viability of a proposed project points 5,000MW of grid-connected solar PV projects. out the weak areas that prevent large-scale funding from being obtained. A VGF scheme can be implemented through capital grants, subordinated loans or even interest subsidies to target specific issues that are affecting the viability of the project. A blended finance approach could also be used to reduce project risk.

A/B loans or grants A/B loans or grants are where a Italian transmissions system operator Terna issued a Multilateral Development Bank (MDB) USD81m green loan in project finance format in July 2017. offers the “A” portion of the loan while The Inter-American Development Bank offered the USD56m attracting other lenders to join in a second A loan and BBVA subscribed a B loan for USD25m. The deal (or “B”) tranche. The MDB will be the will finance the design and construction of a 213km lender-of-record, lead lender and transmission line of 500kv in the north-east of Uruguay. administrative agent in the transaction. This reduces part of the risks of the operations, by also being covered by the “umbrella” of the MDBs that include a preferred creditor status and de jure immunity from taxation.

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 12 Annex 4: Risk transfer / risk sharing mechanisms

Risk transfer instruments Definition Example

First-loss capital May provide a risk-buffer for green structures and The Clean Energy Finance Corporation’s thereby encourage institutional investors. First loss (CEFC) AUD100m equity investment in capital incorporated into the capital structure usually Australian Prime Property Fund Commercial. as a junior equity tranche or as subordinated debt.

Synthetic green capital notes or Risk management (de-risking) to release loss reserves, A global example is Credit Agricole’s USD3bn securitisation with the use of freed capital to fund green projects. synthetic ABS used to free up risk capital for Reduce risk weighting of assets, while keeping the green loan origination. assets tied to the banks’ balance-sheet and the current operations.

Loan loss reserves Pooled public funds set aside by a financial institution to partially recover loss in their loan portfolio in the event of borrower defaults. If the institution issues green bonds, loan loss reserves can improve the risk profile of the deal by providing additional assurance on the issuer’s cash flows.

Risk sharing facility These structures support a transaction involving a In jurisdictions where securitisation is not yet (RSF)/Default swap loss-sharing agreement, where the originator will be feasible due to legal or institutional reimbursed in the case of a loss of principal on a constraints – or originators have not yet been portfolio of eligible assets (mortgages, consumer or able to develop a performance history for the student debt, energy efficiency loans, SME loans, relevant product line – an RSF may be used as receivables). Originators are mainly banks and a preparatory step towards securitisation.46 corporations.

Annex 5: Climate Bonds Taxonomy

ASEAN Green Financial Instruments Guide Climate Bonds Initiative 13 More on green finance and low carbon investment opportunities in ASEAN

ASEAN State of the Market 2018 Coming soon: Green Infrastructure Investment

Climate Bonds’ new ASEAN State of the Opportunities in ASEAN Market 2018 report covers the As part of the Green Infrastructure progress of the region’s green finance Investment Opportunities (GIIO) market to date and the opportunities report series, Climate Bonds is lying ahead in ASEAN countries. The investigating green and climate report looks at regional themes in resilient infrastructure projects in the green bond issuance and issuance from ASEAN countries to develop a companies, which operate in climate- pipeline of investment opportunities. aligned sectors such as rail transport. It The research aims to facilitate also provides country-level overviews engagement on this topic between for Indonesia, Singapore, Malaysia, the project owners and developers, and Philippines, Thailand and Vietnam. investors.

Endnotes

1. https://www.aseanstats.org/wp-content/uploads/ 15. https://www.adb.org/sites/default/files/project- 32.https://www.iisd.org/sites/default/files/publications/c 2017/08/ASEAN_economic_progress.pdf document/171771/48423-001-rrp.pdf redit-enhancement-green-projects.pdf 2. http://unepinquiry.org/wpcontent/uploads/2017/11/ 16.https://www.adb.org/sites/default/files/publication/3 33. https://ppp.worldbank.org/public-private- Green_Finance_Opportunities_in_ASEAN.pdf 57156/catalyzing-green-finance.pdf partnership/overview/what-are-public-private- 3.https://www.adb.org/sites/default/files/publication/22 17. tlffindonesia.org/lending- partnerships 7496/special-report-infrastructure.pdf platform/#InvestmentApproach 34. https://www.ptsmi.co.id/ 4.https://www.adb.org/sites/default/files/publication/16 18. https://www.climatebonds.net/files/files/2018- 35. http://newsroom.sunpower.com/2018-11-28- 7313/local-currency-bonds-and-infrastructure-finance- 02%20SG%20TLFF%20I%20Pte%20Ltd%281%29.pdf SunStrong-Capital-Holdings-LLC-Successfully-Completes- asean-3.pdf 19. http://www.cgif-abmi.org/ 400-Million-Asset-Backed-Securitization 5.https://ifcextapps.ifc.org/ifcext/pressroom/IFCPressRoo 20. https://www.cgc.com.my/overview/ 36.https://www.climatebonds.net/files/reports/cbi_sotm m.nsf/0/F4D6285A3177879A85258252005DE769 21.http://projects.worldbank.org/P118916/infrastructure _2018_final_01k-web.pdf 6. https://www.westpac.com.au/about- -guarantee-fund?lang=en 37. http://www.glennmont.com/news-media/ westpac/media/media-releases/2018/26-november2/ 22.http://projects.worldbank.org/P118916/infrastructure 38.https://www.unescap.org/sites/default/files/Finance% 7. https://www.icmagroup.org/green-social-and- -guarantee-fund?lang=en&tab=results 20for%20Climate%20Action.pdf sustainability-bonds/green-bond-principles-gbp/ 23. https://www.adb.org/site/funds/funds/asean- 39.https://www.adb.org/sites/default/files/publication/3 8.http://www.lma.eu.com/application/files/8415/2162/5 infrastructure-fund 57156/catalyzing-green-finance.pdf 092/ LMA_Green_Loan_Principles_Bookletpdf.pdf 24.https://www.adb.org/sites/default/files/publication/2 40. UNEP Inquiry, Green Finance Opportunities in ASEAN 9. https://www.climatebonds.net/standard/taxonomy 21281/aif-brochure-2016.pdf 41.https://www.iisd.org/sites/default/files/publications/c 10. https://www.oecd-ilibrary.org/finance-and- 25. https://www.guarantco.com/about-us redit-enhancement-green-projects.pdf investment/institutional-investors-and-green- 26. https://www.adb.org/site/funds/funds/leap 42. https://www.adb.org/sites/default/files/project- infrastructure-investments_5k3xr8k6jb0n-en; 27. https://www.tcxfund.com/about-the-fund/ document/171771/48423-001-rrp.pdf jsessionid=RfDK__MccI_1XK2sSXycdvkd.ip-10-240-5-154 28. https://www.ft.com/content/31abf598-03b0-11e9- 43.https://www.ifc.org/wps/wcm/connect/96596780485 11.http://www.djppr.kemenkeu.go.id/uploads/files/dmod 9d01-cd4d49afbbe3 1d8c3bac6fbfc046daa89/DRALM.UBB.pdf?MOD=AJPERES ata/in/6Publikasi/Offering%20Circular/ROI%20Green%20 29. http://gizmacro.ciem.org.vn/Content/files/3- 44. https://www.worldbank.org/en/news/press- Bond%20and%20Green%20Sukuk%20Framework.pdf Presentation%20and%20Reports/Green%20Financial%20 release/2018/10/29/seychelles-launches-worlds-first- 12. http://www.pnbmerdekaventures.com.my/ Sector%20Reform/TL%20Hoi%20nghi%20phat%20trien% sovereign-blue-bond 13. http://www.pds.com.ph/wp-content/uploads/2017/ 20thi%20truong%20von%20xanh%20EN.pdf 45. http://bseep.gov.my/App_ClientFile/df08bc24-99fb- 12/Disclosure-No.-2878-2017-Press-Release-BDO-Issues- 30. https://www.goldmansachs.com/media- 47a3-937f-dc25df9d3997/Assets/BSEEP%20NCA2017/ First-Green-Bond-for-150-Million-First-Green-Bond- relations/press-releases/current/dc-water- PAPER%206%20%20EPC%20Energy%20Efficiency%20Fina Investment-for-IFC-in-East-Asia-and-the-Pacific.pdf environmental-impact-bond-fact-sheet.pdf ncing%20Program%20%20BSEEP%20National%20Confere 14.https://www.climatebonds.net/files/files/Climate%20 31.https://www.globalcapital.com/article/b1c0v0xxqmk1 nce%202017%20New%20Template%20xNMN.pdf Bonds%20Initiative_Green%20Bond%20Methodology_Se xm/atlanta-and-baltimore-prep-pay-for-results-green- 46.https://www.ifc.org/wps/wcm/connect/1d022f00487c p2018_final%285%29.pdf bonds 8d409ca4bd84d70e82a9/Risk+Sharing+Facilities.pdf?MO D=AJPERES

Authors: Design: Source data from Thomson Reuters Eikon, Giulia Rado Climate Bonds Initiative climatebonds.net and other parties. Monica Filkova, CFA Godfrey Design All figures are rounded.

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual or organisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication. ASEAN Green Financial Instruments Guide Climate Bonds Initiative 14 How to issue a green bond/sukuk/loan

Who can issue green bonds? Any entity which has suitable green assets can issue green bonds, green sukuk or obtain a green loan. Suitable green assets include renewable energy, low carbon transport, low carbon buildings, sustainable water and waste management, sustainable land use as well as climate change adaptation measures such as flood defences.

Develop a green bond framework 1 Available guidelines & standards: • Define eligibility criteria for projects/assets DevelopInternational: a green Green bond Bond framework Principles (GBP), • Create selection process Green Loan Principles, Climate Bonds • DefineTaxonomy eligibility and Climate criteria Bonds for projects/assets Standard Set up tracking & reporting • Create selection process • Regional: ASEAN Green Bond Standards Set up tracking & reporting • Country-specific: Sustainable and Responsible Investment Sukuk Framework (Malaysia) Best practice: 2 Arrange an external review Check for local subsidies & support Assurance report: an 3 mechanisms: external party confirmation of $ compliance with GBP/GLP Singapore: Monetary Authority of Singapore’s green bond grant scheme can absorb the full cost an external Second Party Opinion: of external reviews assessment of the issuer’s green bond framework, confirming GBP compliance Malaysia offers tax deduction of issuance costs for issuers and and analysing the eligible asset categories tax exemptions for investors until 2020 for socially responsible sukuk and green sukuk. The Green SRI Sukuk Grant Scheme is an evaluation of the Green rating: available to cover the cost of external reviews green bond and framework against a third-party rating methodology, which considers the environmental aspects of the investments. These 4 Issue the bond, sukuk, loan! include products developed by international and local rating agencies such as RAM Malaysia Verification report for Certified Climate Bond: third party verification, pre- and Post-issuance reporting post-issuance, which confirms that 5 the use of proceeds adheres to the Report annually to confirm that the funds are Climate Bonds Standard and Sector allocated to green projects / assets Criteria and the Paris agreement to keep global warming to 2˚C and achieve full Best practice: Disclose environmental impacts of financed projects decarbonisation by 2050 in absolute terms and relative to an appropriate benchmark

Prepared by the Climate Bonds Initiative Sponsored by ClimateWorks Foundation ASEAN Green Financial Instruments Guide 2018 4