The Organization for Economic Co-operation and Development (OECD) has recently published a report that provides an overview of the engagement of development co-operation providers in support of the green, social and sustainability (GSS) bond market in developing countries. Based on extensive consultations with stakeholders as well as data provided by the Luxembourg stock exchange via the LGX DataHub, the report explores how donor institutions can collectively support GSS bond issuances in developing countries, while also strengthening impact and the quality of associated reporting and measurement. It highlights five major policy areas in which donors can support the growth of the GSS bond market: Investment, Insurance, (Market)-Infrastructure, Issuance and Impact. For these, the report presents detailed recommendations as well as provides three over-arching recommendations for OECD DAC members which, if implemented, would help co-ordinate efforts donor institutions are currently undertaking in a more coherent and ultimately more catalytic way:
- Co-ordinate on supporting large-scale blended finance instruments for GSS bonds through approaches such as investing in first loss mitigation in the form of funded junior, mezzanine tranches in large, fixed-income funds or through joint guarantee programmes. Such joint funds or programmes can leverage significant synergies and reduce transaction costs.
- Promote the comparability and interoperability of Taxonomies and Standards and encourage harmonisation of high-quality impact measurement and reporting on GSS bonds. Support consolidation of impact measurement and reporting by developing consensus on what is best practice, while leaving room for local considerations where necessary.
- Develop a strategic co-ordination mechanism for GSS bonds to facilitate co-ordination on impact and on blended finance instruments that aim for scale. A GSS Bond task force could convene donors, developing country stakeholders as well as private bond investors to strategically co-ordinate activities and initiatives. Key areas where co-ordination is currently needed include impact measurement and reporting, technical assistance approaches, anchor investments and guarantees. The platform could ensure knowledge sharing and dissemination of best practices and identify regions where there is a particular need for joint approaches. The OECD Community of Practice on Private Finance for Sustainable Development could serve as a forum for such discussions.
Click here to access the full OECD report.