## wpiea2023058-print-pdf

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### Executive summary: market expansion, objectives, and coordination
- Market expansion and channels:
  - Sovereign ESG debt market expanded rapidly; a great majority of ESG debt is raised in the bond and loan markets.
- Preconditions and additional requirements for ESG issuance:
  - Standard issuance preconditions apply; additional requirements for ESG debt, particularly climate debt, include cross-agency cooperation and additional data collection within government.
  - DMOs must communicate with often demanding ESG-focused investors.
- Primary audience and focus:
  - Primary addressees: sovereign debt managers and other public sector officials, with a focus on first-time issuers in EMDEs.
  - Paper centers on operational and strategic aspects of sovereign ESG bond issuance and provides practical guidance within a cost-benefit framework.
- Common objectives for ESG bond issuance:
  - Highlight commitment to environmental and social goals and boost global profile;
  - Lead market building for ESG debt domestically;
  - Access cost-effective funding, especially for ESG-related projects;
  - Diversify investor base;
  - Catalyze interagency cooperation.
- Risks and trade-offs:
  - Costs and risks should be assessed within debt management strategy; innovative, non-fungible instruments could hamper price discovery and reduce secondary market liquidity.

### ESG debt definitions, market standards, and investor base
- ESG bond typology and key features:
  - green bonds: funds raised are exclusively applied to environmental projects;
  - social bonds: funds raised are exclusively spent on projects advancing social objectives;
  - sustainability bonds: fund both environmental and social projects;
  - Sustainable Development Goal (SDG) bonds: similar to sustainability bonds but linked more closely to the UN’s SDGs;
  - sustainability-linked bonds (SLBs): funds can be spent on general purposes but debt servicing terms change if issuer does not achieve specific ESG milestones;
  - transition bonds: may finance projects that lock in GHG emissions and are not able to be issued under existing ESG bond frameworks.
  - green, social, sustainability, and transition bonds are generally use-of-proceeds (UoP) instruments; climate bond can be UoP or other means; unlabeled bonds issued when issuer operations are deemed to support transition.
- Market standards and credibility:
  - Alignment with ICMA Principles (GBPs, SBPs) has become a precondition; ICMA core components for UoP bonds: (i) use of proceeds; (ii) process for project evaluation and selection; (iii) management of proceeds; (iv) reporting.
  - Publication of a bond framework and an independent review (Second Party Opinion, SPO) are de facto market standards.
  - Ex post reporting on use of proceeds and environmental impact has become standard.
- Legal/credit structure:
  - ESG bonds issued pari passu with conventional bonds, usually labeled senior unsecured and carry identical credit risk.
- Greenium and costs:
  - Definition: greenium = yield of a conventional bond minus yield of a green bond, using primary market spreads.
  - Greeniums can yield interest savings and have been found larger for bonds with high spreads (mainly EMDE issuers); evidence is mixed and sensitive to sample, period, and methodology.
- Investor base and drivers:
  - End-investor demand (pension funds, individuals), portfolio managers’ concerns about climate, regulation, and reputation drive demand.
  - Investor approaches: ESG-inclusive investors and impact investors; governance historically main ESG input for sovereign debt decisions.
  - Assets under management (AUM) estimates vary: USD 7.2 trillion as of end-2020 (J.P. Morgan Research (2020)); USD 35.3 trillion as of early 2020 (GSIA (2020)).
  - Investor assessment criteria: ambition, additionality, greenwashing risk; many investors conduct proprietary analysis beyond SPOs.
- Sustainable finance taxonomies:
  - Taxonomy = classification system for sustainable economic activities; ICMA GBPs do not require a taxonomy but investors/SPOs increasingly align with taxonomies; EU taxonomy leaves room for gas and nuclear under conditions during a transition phase.

### Integration with sovereign debt strategy, fiscal and climate frameworks
- Integration into MTDS and borrowing plans:
  - ESG bonds should be analyzed within a country’s medium-term debt management strategy (MTDS) and borrowing plan to capture trade-offs (demand, local market development, recognition, FX needs).
- Domestic market considerations:
  - In less-developed local currency bond markets, domestic ESG issuance could fragment markets; DMO should ascertain investor base, focus resources, and consider primary dealer incentives or structures like Twin Bonds.
- Climate, green budgeting, and fiscal planning:
  - Climate frameworks should reference NDCs and the UN’s SDGs and may include formal targets; green budgeting increases effectiveness but has extensive data and capacity requirements and is not necessary for issuance.
  - UoP sovereign bonds have not so far imposed notable constraints on sovereign borrowing plans; issuance can be opportunistic and may reduce predictability of conventional issuance.
  - Legal restrictions on earmarking may favor SLBs over UoP bonds.

### Official concessional funding versus market financing
- Official sector advantages and constraints:
  - Official concessional financing provided by bilateral/multilateral sources and specialized lenders can be cheaper and provide expertise but often involve lender oversight, procurement conditions, and lengthy timelines.
- New funds and projections:
  - Examples listed: GCF, CIF, GEF (data as of 2019).
  - Climate funding from AEs to EMDEs projected to double from 2016 through 2025 (Figure 1 referenced).
  - Including private sector funding, climate funding to EMDEs projected at USD 97 billion in 2022.
  - AEs had promised at least USD 100 billion per year to EMDEs from 2020 on.
  - To achieve net zero GHG by 2050 would necessitate green investments amounting to about USD 1 trillion annually between 2022 and 2030 in EMDEs alone.
- Role of sovereign ESG bonds:
  - Can bolster public-sector funding but constrained by debt sustainability limits; may be cheaper at times and elevate international standing.

### Preparing for sovereign SGB issuance: governance, capacity, and operational requirements
- Public financial management (PFM) adjustments:
  - ESG debt introduces additional PFM complexity: measurement/recording of environmental effects in addition to fiscal impacts.
  - ICMA GBPs strongly encourage accounting of all project-related financial flows; MoF provision of required data to DMO simplifies reporting.
- Interagency cooperation and governance:
  - SGB issuance requires significant cooperation across ministries; political leadership paramount.
  - Common practice: convene interagency committee to draft Sovereign Green Bond Framework (SGBF) and guide issuance; consultants, TA providers, sustainability structuring advisor, SPO provider, and lead manager can assist.
- Climate Accounting Unit (CAU) and DMO roles:
  - CAU central to data collection/analysis; responsibilities should provide data for PFM, MTDS, and investor communications.
  - DMO must receive project eligibility decisions and comprehensive data on proceeds management and environmental/social impacts; DMO to lead investor communications.
- DMO capacity areas needing strengthening:
  - (i) bond issuance; (ii) market monitoring; (iii) investor communications; (iv) reporting; possibly (v) environmental expertise.
  - SGB issuance is more capacity intensive than conventional issuance; external reviews (SPOs) and post-issuance audits require DMO engagement.
  - Indicative fee reference: sustainability structuring advisory mandates have hovered around US$200,000 (subject to negotiation and competitive pressures).

### Sovereign green bond issuance process, framework, and SPOs
- Additional steps and issuance modalities:
  - SGB issuance requires tracking of proceeds, periodic allocation reporting, and impact reporting until proceeds are spent.
  - Ringfencing proceeds is no longer used; equivalence between described expenditures and issuance proceeds is expected and requires tracking.
  - Syndicated bonds are core method; auction issuance can be used with SGB-specific pre- and post-issuance steps.
- Sovereign Green Bond Framework (SGBF):
  - SGBF covers project types and timing, alignment with NDCs/SDGs/national policies, alignment with ICMA GBPs and taxonomies, and legal/operational issuance matters.
  - SGBF can support multiple issuances; SPO provides a point-in-time assessment and can be updated.
- Role, timing, and characteristics of SPOs:
  - SPOs assess SGBF alignment with ICMA GBPs; SPOs are most frequently used assessment and provide a point-in-time assessment.
  - SPO completion timing examples: can take only 10 days from contract signing though usually takes a few weeks; one provider median two weeks; another provider range 8-12 weeks for a sovereign SPO.
  - SPO providers may graduate reviews (qualifiers: “aligned,” “stronger,” “better aligned,” “Shades of Green”).
  - Four SPO providers active in sovereign market as of mid-2022: V.E, Sustainalytics, ISS ESG, CICERO Shades of Green (V.E and Sustainalytics had largest market shares).

### Post-issuance tracking, allocation, impact reporting, and verification
- Separation and management of proceeds:
  - Market practice gravitates to proceeds tracking (deposit in general treasury account with identification and tracking) to avoid fiscal ringfencing; alternatives: sub-account approach or full segregation (ringfencing).
  - Full segregation can expose issuers to negative carry by investing proceeds at yields below funding costs.
  - If legal frameworks prohibit proceeds tracking, consider SLBs.
- Allocation of proceeds:
  - Allocation central to SGB credibility; SGBF provides ranges for expenditure categories; planned expenditures must fit pre- and post-issuance timeframes.
  - Only projects with reliably trackable financial flows and environmental impacts should be funded.
- Reporting:
  - Recommended publication of expenditure report until all funds spent, usually by end of year two after issuance, including accounting of cash flows and project lists with shares financed and timing.
  - Impact report should include quantitative metrics (e.g., reduction in GHG emissions, number of EVs purchased).
  - Ex-post third-party financial reviews/audits are common; market practice is annual reporting though some investors request more frequent updates.
  - ICMA recommends allocation and impact reporting; issuers often combine into one publication.

### Issuance costs, greenium assumptions, and economic considerations
- Cost components for sovereign ESG issuance:
  - (i) Direct costs of obtaining an SPO and related services;
  - (ii) Government’s work on issuance, including operational changes;
  - (iii) Reputational costs if ESG commitments not fulfilled;
  - (iv) Explicit penalties (e.g., coupon step-ups for SLBs).
- Indicative cost assumptions (based on mid-2022 analysis for a USD 750 million, 10 yr., 6.125 percent coupon bond at a yield of 6.17%):
  - Fee of USD 30,000 assumed for the SPO of the SGBF.
  - SPO of a sovereign SLB framework assumed at USD 35,000.
  - Two annual post-issuance external financial reviews assumed at USD 5,500 each.
  - Total fees and expenses increase by USD 266,000 for an SGB and USD 271,000 for an SLB.
  - Total tangible costs increase by 10.9 and 11 percent, respectively.
  - Assumed greenium of 4 bps in illustrative calculations.
  - Document cites "1.95 million higher for both the SGB and the sovereign SLB than for the conventional bond."
- Economic trade-offs and greenium evidence:
  - Tangible issuance costs, when folded into yield, amount to 4.3 bps per year for conventional issuance and about 4.7 bps per year for SGB/SLB issuance.
  - SPO costs commonly between USD 20,000 to USD 30,000 in many cases.
  - For sufficiently large issuances, greenium savings can offset additional tangible costs; the 4 basis points greenium is an assumption and not guaranteed.
  - Empirical evidence on greeniums mixed; drivers include investor willingness to pay, lower volatility, supply-demand imbalance (scarcity premium), and liquidity effects. Examples of empirical results show wide variation (e.g., Doronzo et al. (2021): negative greenium at issuance for about two-thirds of sample; Ando et al. (2022): average greeniums of 3.7 and 30.4 basis points for euro- and USD-denominated bonds, respectively).

### Timelines, syndication, auctions, and country examples
- Pre-issuance timing and sequencing:
  - Hiring sustainability structuring advisor can occur several months prior, in some cases as early as 9 months prior to issuance.
  - Communications with investors and SPO provider should occur during issuance phases.
  - Timeline markers in guidance range across months -36 to 0 for preparatory stages (all numbers indicative and present upper end of time ranges).
  - Sustainability selection and lead manager selection commonly between 9-6 months before issuance; lead manager selection process often not more than three weeks.
- Syndication versus auction:
  - Syndicated issuance is primary for sovereign ESG bonds, especially for FX-denominated international issuances and inaugural deals; auctions can be used for follow-ons or domestic programs.
  - Examples: France syndicated initial sales of two green OATs in 2017 and 2021; the Netherlands relied only on auctions for its green bond.
- Colombia case (Box 3):
  - First sovereign green bond in local currency: 10-year, 750 billion Colombian pesos (equivalent to USD 200 million) — issued on September 29, 2021.
  - Bid-to-cover ratio: 4.6; submitted bids amounted to COP 2.3 trillion.
  - Issuance upsized by 50 percent from COP 500 billion to COP 750 billion.
  - The green bond yielded 7.56 percent at issue, estimated by the authorities to be 7 bps inside the regular government bond curve.
  - Tap one month later: another COP 650 billion sold, with a wider greenium of approximately 20 bps.
  - Allocation: about 40 percent to water management; 27 percent to transition of transport; 14 percent to migration to non-conventional renewable energies.
  - More than half of debut sales to domestic investors; about 45 percent to overseas funds.
  - Legal framework modified by lawmakers and framework drafted with technical support from IDB and World Bank.

### Risks, regulatory landscape, and market patterns
- Regulatory and enforcement context:
  - ESG issuances not subject to outright regulatory oversight; rely on compliance with general issuance standards.
  - No legal repercussions in many frameworks for non-compliance with ESG promises; UoP prospectuses usually state promises are not legally binding and do not constitute an event of default.
  - EU Green Bond Standard and regulatory scrutiny of asset managers could change landscape.
  - SLBs include monetary penalties for missed KPIs but penalties "may be not material" (examples: 12.5 or 25 bps coupon step-ups for three years).
- Refinancing and market evolution risks:
  - To retain SGB benefits, refinancings should use new SGBs while projects remain operational.
  - Demand-supply imbalances may turn greenium negative; evolving standards can reclassify previously acceptable projects as non-additional.
  - Liability management operations involving mixed ESG and non-ESG instruments complicate restructurings.
- Market patterns and statistics:
  - Total ESG debt issuance amounted to USD 4.0 trillion as of end-2021, of which bonds accounted for USD 2.8 trillion.
  - ESG debt issuance reached 1.7 trillion in 2021.
  - About 77 percent of issuances originated in Advanced Economy countries.
  - 2021: ESG debt issuance increased 2.1 times from 2020 for AEs and by a factor of 3.2 for EMDEs.
  - Sovereign share of total ESG issuance doubled from 2020 to 2021, accounting for 8 percent of total ESG debt issuance in 2021.
  - Sovereign issuance increased 2.7 times between 2020 and 2021; EMDE sovereign issuance increased by factor of 2.3 between 2020 and 2021.
  - Global bonds responsible for 68 percent of issuances in 2021.

### Policy implications, capacity development, and recommendations
- Political support and coordination:
  - Strong political support and high degree of cooperation across agencies required; cross-departmental working group recommended.
  - Debt managers play key role in internal coordination and external communications.
- Capacity development priorities:
  - Interagency committee formation; DMO-Fiscal coordination; financial and impact reporting capabilities; investor communications; climate data and CAU development where feasible.
  - DMOs should maintain active involvement throughout pre- and post-issuance processes despite advisor support.
  - TA from IFIs, UNDP, or bilateral partners can assist EMDEs embarking on inaugural non-syndicated ESG issuance.
- Issuance strategy and prudence:
  - ESG issuance objectives should be well defined and integrated into debt management strategy and borrowing plans.
  - Assess costs, reputation risks, market fragmentation, and PFM implications prior to issuance.
  - Consider concessional financing and blended finance before opting for market-based ESG debt.
  - Limit supply of ESG bonds if market conditions indicate potential negative greenium or liquidity fragmentation.

*Source: wpiea2023058-print-pdf — IMF WORKING PAPERS A Guidance Note for Sovereign Debt Managers.*

### Executive Summary ......................................................................................................

### Executive Summary

### Market expansion and challenges
- The market for sovereign ESG debt has rapidly expanded in recent years, providing greater financing choices to governments.
- A great majority of ESG debt is raised in the bond and loan markets.
- Standard issuance preconditions relevant for first-time issuers apply, but additional requirements must be met when issuing ESG debt, particularly climate debt.
- Additional capacity requirements include:
  - cross-agency cooperation; and
  - additional data collection within government.
- Debt Management Offices (DMOs) face the need to communicate with often demanding ESG-focused investors.

### Focus and audience of the guidance note
- Primary addressees: sovereign debt managers and other public sector officials considering or preparing ESG debt issuance, with a focus on first-time issuers in Emerging Market and Developing Economies (EMDEs).
- Secondary audiences: stakeholders in the ESG issuance process—banks, debt advisers, members of non-profits, and think tanks.
- The paper centers on operational and strategic aspects of sovereign ESG bond issuance and provides practical guidance within a cost-benefit framework.

### Objectives and integration with sovereign debt strategy
- The objective for ESG bond issuance should be well defined and integrated into a sovereign’s debt management strategy and issuance plans.
- Commonly cited objectives for ESG debt issuance include:
  - Highlighting the issuer’s commitment to environmental and social goals and boosting the issuer’s profile in the global arena;
  - Leading the way in building markets for ESG debt inside a country;
  - Accessing cost-effective funding, especially for ESG-related projects;
  - Diversifying the investor base; and
  - Catalyzing interagency cooperation within the government.
- Costs and risks of introducing ESG debt should be assessed as part of the debt management strategy and include measures to mitigate any adverse effects.
- Issuance of innovative debt instruments that are not fungible with existing outstanding debt instruments could:
  - hamper price discovery in primary markets; and
  - reduce secondary market liquidity by fragmenting the government bond market.

### Political support and coordination
- Strong political support is a critical factor for ESG bond issuance.
- High degree of cooperation between different government agencies and line ministries is required.
- A cross-departmental working group dedicated to climate finance can assemble needed information and make technical decisions.
- Debt managers play a key role in:
  - internal coordination; and
  - serving as the central point of contact for external communication in the issuance of ESG bonds.

### Issuance methods, advisory support, and capacity development
- Syndicated issuance constitutes the primary type of issuance method for sovereign ESG bonds; this extends beyond international issuance to domestic market issuances of some large Advanced Economies (AEs).
- Sovereign issuers may hire a sustainability structuring advisor (usually a bank or a specialized advisory firm) to:
  - guide the government on issuance requirements;
  - help draft a credible bond framework; and
  - align a country’s ESG bond issuance objectives with investor expectations.
- This advisory guidance is particularly important for an inaugural ESG bond issuance.
- EMDEs could consider technical assistance (TA) from International financial Institutions, UNDP, or bilateral partners when embarking on a non-syndicated inaugural ESG bond issuance.

### Financing choices and concessional funding
- Financing from official sector sources, often on concessional terms, can be available for projects targeting environmental and social objectives.
- Official concessional financing is mainly provided by bilateral and multilateral sources, as well as specialized lenders.
- Before deciding on market-based ESG debt issuance, sovereigns should evaluate which projects could qualify for external concessional financing.
- Use of concessional financing usually requires careful and long-term preparation but can yield significant cost savings.

### Scope and structure of the paper
- The paper focuses on sovereign ESG debt issuance processes and related topics, with emphasis on bonds and climate/environmental objectives.
- Reasons for focusing on bonds:
  - Bonds are the preferred funding instruments for sovereigns;
  - Issuance procedures and capacity required for ESG bonds—beyond conventional debt—are similar for bonds and loans; and
  - Climate and the environment attract global attention, making them relevant for many countries.
- The term “ESG debt” is used when both bonds and loans are the topic of discussion.
- Organization of the paper:
  - Section II: overview of ESG bonds and fit into debt management, fiscal, and climate frameworks;
  - Section III: capacity and operational requirements for ESG bond issuance;
  - Section IV: detailed description of the debt issuance process based on a stylized example of a green bond.

*IMF WORKING PAPERS — A Guidance Note for Sovereign Debt Managers. Executive Summary.*

### Section V concludes.

### II. ESG Debt and Sovereign Finance

### A. ESG Debt: Definitions and Overview
- ESG bond issuance expanded fast since 2016 and increasingly attracts sovereign issuers.
- ESG bond types (as listed in source): 
  - green bonds: funds raised are exclusively applied to environmental projects;
  - social bonds: funds raised are exclusively spent on projects advancing social objectives;
  - sustainability bonds: fund both environmental and social projects;
  - Sustainable Development Goal (SDG) bonds: similar to sustainability bonds but linked more closely to the UN’s SDGs;
  - sustainability-linked bonds (SLBs): funds can be spent on general corporate or budgetary purposes benefiting the issuer, but debt servicing terms change if the issuer does not achieve specific ESG milestones within a set timeframe;
  - transition bonds: may finance projects that lock in GHG emissions and are not able to be issued under existing ESG bond frameworks.
- Terminology and formats:
  - green, social, sustainability, and transition bonds are generally use-of-proceeds (UoP) instruments.
  - climate bond: funds raised or debt service related to environmental objectives, via UoP or other means.
  - unlabeled bonds: issued when issuer operations are deemed by many investors to support the climate transition.
- Market development notes:
  - Historically new ESG formats were first issued by multilateral organizations and corporates; sovereigns followed.
  - As of mid-2022: SLBs targeting environmental SPTs related to KPIs have been issued by sovereigns and corporates; SLBs referencing social or governance KPIs have only been issued by corporates.
  - Transition bonds as of June 2021: only corporates and the EBRD had issued them; only 17 transition bonds issued between 2017 and June 2021.
  - As of late 2022 no sovereign had issued governance-related or transition bonds.
- Market standards and credibility:
  - Alignment with ICMA Principles (e.g., Green Bond Principles, Social Bond Principles) has effectively become a precondition for sovereign issuances.
  - For UoP bonds ICMA core components: (i) use of proceeds; (ii) process for project evaluation and selection; (iii) management of proceeds; and (iv) reporting.
  - Publication of a bond framework (often covering several issuances) and an independent review (Second Party Opinion, SPO) are de facto market standards.
  - Ex post reporting on use of proceeds and environmental impact has become standard, especially for sovereign ESG bonds.
- Legal/credit structure:
  - ESG bonds are issued pari passu with conventional bonds and usually labeled senior unsecured; they carry identical credit risk to similar conventional debt.
- Cost implications:
  - ESG bonds are often issued at yields below equivalent conventional bonds (the “greenium”).
  - Definition used here: greenium = yield of a conventional bond minus yield of a green bond, using primary market spreads (secondary market greenium discussed separately).
  - Greeniums can yield interest savings, which can be significant for large issuances; greeniums have been found larger for bonds with high spreads (mainly EMDE issuers).
  - Evidence on positive greeniums is mixed and sensitive to sample, period, and methodology.

### B. ESG Bond Issuance and Public Debt Management
- Public debt management objective: meet financing needs and payment obligations at lowest possible cost over medium to long run, consistent with prudent risk (IMF/World Bank (2014)).
- Integration into debt strategy:
  - ESG bonds should be analyzed within a country’s medium-term debt management strategy (MTDS) and borrowing plan.
  - MTDS should capture trade-offs including demand in different markets, local market development, value of international recognition, and potential foreign currency needs.
- Domestic market considerations:
  - In less-developed local currency bond markets (LCBM), domestic ESG issuance could fragment markets; DMO should:
    - ascertain sufficient base of ESG investors to absorb ESG bonds;
    - ensure own resources remain focused and be prepared to act if ESG issuance adversely impacts liquidity;
    - consider primary dealer incentives for ESG bonds or structures like Twin Bonds.
- Funding context:
  - Four traditional public sources for ESG/climate funding: MDBs, official bilateral governments, regional/specialized organizations, aid agencies.
  - Blended financing increasingly emphasized to crowd in private capital.

### C. Integration of ESG Bonds with Climate and Fiscal Frameworks
- Climate finance as subset of ESG markets should be integrated into climate and fiscal frameworks.
- Climate frameworks:
  - Should reference NDCs and the UN’s SDGs.
  - Can include formal intermediate and final targets; some countries give climate transition plans legal force.
- Green budgeting:
  - Outcome-based budgeting evaluating fiscal measures’ environmental impact.
  - Green budgeting increases effectiveness but has extensive data and capacity requirements; not a necessary condition for issuance.
  - Many countries will introduce green budgeting progressively in line with capacity development.
- Sovereign UoP bonds and fiscal planning:
  - UoP sovereign bonds have so far not imposed notable constraints on sovereign borrowing plans; many SGBs issued opportunistically.
  - Issuance of UoP bonds can be subtracted from planned conventional issuance, potentially reducing predictability of conventional issuance program.
  - If issues become prominent, issuers could shift from UoP bonds to SLBs; legal restrictions on earmarking may favor SLBs over UoP sovereign bonds.

### D. Comparing Official Sector Climate Funding to Market Financing
- Official sector financing (including grants) historically major source for EMDE project finance, especially “hard” infrastructure; official lenders can provide long maturities and concessional terms.
- Advantages and drawbacks of official financing:
  - Advantages: cheaper than market debt for some countries, lender expertise, can crowd in private investments.
  - Drawbacks: lender oversight, procurement/purchasing conditions, lengthy planning and execution timelines.
- New and focused funds:
  - Examples: Green Climate Fund (GCF) — funding from 43 AEs and EMs; Climate Investment Funds (CIF) — works with six MDBs and 15 AEs; Global Environment Facility (GEF) — funding from about 40 donor countries. (Data as of 2019.)
- Bilateral concessional climate programs: new programs by Finland, Norway, Canada, United Kingdom, and France; some operate with MDBs to catalyze private funding.
- Funding gap and projections:
  - Climate funding from AEs to EMDEs projected to double from 2016 through 2025 (Figure 1 referenced).
  - Including private sector funding, climate funding to EMDEs projected at USD 97 billion in 2022.
  - AEs had promised at least USD 100 billion per year to EMDEs from 2020 on.
  - To achieve net zero GHG by 2050 would necessitate green investments amounting to about USD 1 trillion annually between 2022 and 2030 in EMDEs alone.
- Role of sovereign ESG bonds:
  - Can bolster public-sector funding but are constrained by debt sustainability limits; they may be cheaper at times, commit issuers to expenditures, and elevate international standing.

### E. The Investor Base for ESG Bonds
- Drivers of demand:
  - End-investor demand (pension funds, individual investors) has driven growth; portfolio managers’ concerns about climate, regulation, and reputation also important.
- Investor approaches:
  - ESG-inclusive investors: use ESG as input to minimize ESG-specific portfolio risk.
  - Impact investors: focus on tangible ESG outcomes from their investments.
  - Governance often historically the main ESG input for sovereign debt decisions.
- Communication and selection:
  - ESG investing increases need for intensive issuer communications pre- and post-issuance.
  - Passive ESG funds may rely on ESG scores and indices; impact investors require detailed information on ambition and realism of projects.
  - Minimum credit risk requirements still apply for most investors.
- Investor base size and uncertainty:
  - AUM estimates vary: USD 7.2 trillion as of end-2020 (J.P. Morgan Research (2020)); USD 35.3 trillion as of early 2020 (GSIA (2020)).
  - Early 2020s: about two-thirds of ESG-oriented AUM was in equities, remainder largely in fixed income.
- Investor assessment criteria:
  - Key considerations include ambition, project additionality (whether projects would be financed absent the bond), and greenwashing risk.
  - SPOs provide assurance but many investors conduct proprietary analysis.
  - Greenwashing or poor project execution can damage sovereign’s ability to issue ESG and conventional bonds.
- Sustainable finance taxonomies:
  - Taxonomy = classification system for sustainable economic activities.
  - Taxonomies can be public, nonprofit, or private; aid investors in gauging environmental/sustainability benefits.
  - ICMA GBPs do not require a taxonomy, but investors and SPOs increasingly align with taxonomies; EU taxonomy noted to leave room for gas and nuclear under conditions during a transition phase.

### F. Refinancing Sovereign ESG Bonds
- Refinancing considerations:
  - To retain SGB benefits, SGBs should be refinanced with new SGBs while projects remain operational.
  - New SGBs can fund refinancing of existing projects and new projects.
  - In demand-exceeding-supply environments, rollovers and liability management operations (LMOs) should be feasible.
- Risks and operational challenges:
  - Demand-supply imbalances for a specific ESG bond type may deteriorate, possibly making greenium negative.
  - Issuing ESG bonds at a premium contradicts DMO mandate to minimize long-term cost subject to risk; limit supply to contain negative greenium.
  - Market standards evolve; projects previously acceptable may be deemed non-additional or excluded in future, complicating rollovers.
  - Increased greenwashing scrutiny could tighten standards and reporting requirements.
- Complex operations and restructuring:
  - Liability management operations involving both ESG and non-ESG bonds may require offering different new bonds to accommodate investor preferences, complicating design and prolonging restructuring timelines.
  - Holders of SLBs anticipating coupon step-ups for missed SPTs may be less inclined to participate in LMOs.
- Recommendation:
  - DMOs should continuously evaluate market conditions for ESG bonds well in advance of rollovers to select appropriate securities for LMOs and exchange offers.

---

### III. Preparing for a Sovereign Green Bond Issuance: Capacity and Operational Requirements

### A. SGB Issuance and Public Financial Management
- PFM adjustments:
  - ESG debt introduces additional PFM complexity by requiring measurement/recording of environmental effects in addition to fiscal impacts.
  - Ex-ante projections of environmental benefits improve expenditure impact and credibility; they also facilitate post-issuance reporting.
- Data and reporting:
  - ICMA Green Bond Principles strongly encourage accounting of all project-related financial flows.
  - MoF provision of required data to the DMO simplifies reporting and investor communications.
- Interagency cooperation and governance:
  - SGB issuance requires significant cooperation across ministries and agencies; political leadership is paramount.
  - Common practice: convene an interagency committee to draft a Sovereign Green Bond Framework (SGBF) and guide issuance; consultants, TA providers, sustainability structuring advisor, SPO provider, and lead manager can assist.
- Legal constraints and instrument choice:
  - Legal restrictions on earmarking proceeds can influence choice between UoP SGBs and SLBs; SLBs may be chosen where proceeds earmarking is legally restricted.

### B. Operational Requirements
- Information flows and internal cooperation:
  - Enhanced collection and sharing of information across government departments required throughout SGB lifecycle.
  - DMO and fiscal units must cooperate more closely than for conventional bonds; may require additional staff or new units.
- Climate Accounting Unit (CAU):
  - Central function for data collection/analysis; could be placed in MoF, Ministry of Environment, or cross-agency.
  - CAU responsibilities should be clearly defined and provide data for PFM, MTDS, and DMO investor communications.
- Interagency Committee:
  - Formal establishment recommended to strengthen governance, select eligible projects, and coordinate SGB-related inputs to the budget framework.
- DMO responsibilities and data needs:
  - DMO must receive project eligibility decisions and comprehensive data on proceeds management and environmental/social impacts.
  - Investor communications should remain under DMO leadership and may need strengthening.
- Operational structure adaptability:
  - Final structure depends on administrative arrangements and institutional credibility; centralizing climate data and expertise often efficient.
  - In countries where CAU is infeasible, DMO may assume larger data collection and analysis responsibilities.

### C. DMO Capacity
- Areas needing strengthening within DMO:
  - (i) bond issuance; (ii) market monitoring; (iii) investor communications; (iv) reporting; and possibly (v) environmental expertise.
- Intensity and staffing:
  - SGB issuance is more capacity intensive than conventional issuance.
  - External reviews/assessments (e.g., SPOs) and post-issuance audits require DMO engagement: selecting providers, familiarizing them with fiscal/debt and environmental frameworks, and discussing framework changes.
  - Continuous market monitoring and communications with banks, SPO providers, NGOs, and stakeholders needed.
- Reporting and investor interaction:
  - Pre- and post-issuance investor information provision increases workload; existing fiscal capacity (e.g., a well-resourced CAU) can reduce DMO burden.
  - Where fiscal capacity is limited, DMO may need to build temporary or permanent environmental technical capacity.
- Example fee reference:
  - Indicative fees for sustainability structuring advisory mandates have hovered around US$200,000 (subject to negotiation and competitive pressures).

---

### IV. Sovereign ESG Bond Issuance

### A. The Green Bond Issuance Process
- Additional steps relative to conventional sovereign issuance:
  - SGB issuance requires tracking of proceeds, periodic allocation reporting, and impact reporting until proceeds are spent.
  - Ringfencing proceeds is no longer used for sovereign UoP bonds due to fiscal practice and potential negative carry; equivalence between described expenditures and issuance proceeds is expected and requires tracking.
- Issuance modalities:
  - Syndicated bonds: core conventional steps (hire legal counsel/advisors, draft prospectus, market, execute, settle) remain central; eight additional steps for syndicated SGBs identified in source (five pre-issuance, three post-issuance).
  - Auction issuance: same auction process as conventional bonds can be employed, complemented by SGB-specific pre- and post-issuance steps.
- Role of Sustainability Structuring Advisor:
  - Provides advice on internal processes, eligible project types, investor communications, and SPO engagement.
  - Advisor often selected via RFP prior to drafting SGBF; may also serve as lead manager in syndication to fold advisory fees into issuance fees.
  - Combining structuring advisor and lead manager roles can streamline costs and execution.
- Sovereign Green Bond Framework (SGBF):
  - Covers: (i) project types and timing of expenditures; (ii) alignment with NDCs, SDGs, and national climate policies; (iii) alignment with ICMA Green Bond Principles and taxonomies; (iv) legal and operational issuance matters.
  - SGBF can be used for multiple issuances over several years; SPO provides point-in-time assessment and can be updated.
- Obtaining a Second-Party Opinion (SPO):
  - External third-party review of SGBF (SPO) has become standard; SPO providers assess adherence to GBPs and framework credibility.
  - SPO providers often engage with country authorities, and many investors expect a positive SPO prior to purchase.
  - Other review types may be used in lieu of or in addition to SPOs; many investors conduct institution-specific analyses beyond SPO.

*Italic line: Source: wpiea2023058-print-pdf - Section V concludes.*

### Box 1. SGBFs and Second Party Opinions

### Box 1. SGBFs and Second Party Opinions

### Role and characteristics of Second Party Opinions (SPOs)
- SPOs are a tool used by issuers and expected by investors; they are provided by entities that offer advisory services to ESG debt issuers.
- SPOs are the most frequently used type of assessment in the ESG bond space among several types of opinions and review services.
- Key reasons for the development of SPOs:
  - The SPO’s focus on the issuer’s SGBF and its alignment with the ICMA’s GBPs. Currently all issuers of green bonds are referencing their alignment with the four pillars of the GBPs.
  - The country’s objectives with regards to climate change mitigation and adaptation and regarding its environmental track record also impact the SPO’s result.
  - SPOs can be completed relatively quickly:
    - It can take only 10 days from the time of the signing of the contract for an SPO to the receipt of the assessment, although it usually takes a few weeks to receive the assessment.
    - One SPO provider estimates the median time across all SPOs to be two weeks.
    - Another SPO provider provides a range of 8-12 weeks for a sovereign SPO.
    - Major factors affecting this period are the complexity of the SPO and the ease of communications with the authorities.
  - An SPO provides a point-in-time assessment of the issuer’s GBF; it is therefore not forward-looking by design. An issuer can decide to use it for future issuances or in support to follow-on offerings of outstanding issues.
  - Sustainability structuring advisors can provide significant support to the issuer in drafting its SGBF; SPO providers may direct most questions to the lead manager rather than the country authorities, accelerating reviews and contributing to similarity across many GBFs.
  - Market dynamics promote standardization: issuers, banks, and investors expect a SGBF and an SPO that assesses the credibility of the SGBF and may provide a rating, promoting economies of scale and faster, cheaper issuances.
  - Hybrid framework developments: some SPO providers consider offering “hybrid Frameworks” covering SGBs and sovereign SLBs. Chile received an SPO for a combined sustainable bond framework in November 2020, covering its future green, social, and sustainability bond issuances.

- If an SPO provider sees significant deficiencies in the country’s sustainable bond framework it will often point those out to the issuer, giving the sovereign the opportunity to address deficiencies via modification of the SGBF. If shortcomings cannot be addressed in time, the process might end without an opinion (such cases are usually not made public).
- Most SPO providers graduate their reviews to provide investors with a better impression of the framework’s strength (examples of qualifiers: “aligned,” “stronger,” “better aligned,” and “Shades of Green”).

### Market structure and alternative review services
- Only four SPO providers have been active in the market for sovereign SPOs and related services as of mid-2022: V.E (a Moody’s subsidiary), Sustainalytics (an MSCI subsidiary), ISS ESG, and CICERO Shades of Green. V.E and Sustainalytics had the largest market shares as of mid-2022.
- These firms offer integrated services (e.g., SPOs that cover frameworks spanning green, social, and sustainability bonds, and review services to verify internal tracking and funds allocation; integrated offerings combining SPOs and post-issuance review services).
- Alternative or complementary review services include single transaction evaluations, Corporate Sustainability Assessments, ESG Evaluations, ESG Ratings, and ESG Scoring; some of these have effectively been replaced by SPOs.
  - Single transaction evaluations have become less popular; among sovereign issuers only Ecuador made use of one.
  - ESG Evaluations, ESG Ratings, and ESG Scoring assess the ESG performance of an issuer (separate from issuance-related assessments).
- More demanding verifications include conformity to the Climate Bonds Initiative’s (CBI’s) Standard:
  - Example: Moody’s (now V.E) provided a bond assessment of “excellent” to Nigeria’s domestic issue of December 2017, while another third party (DNV GL) assessed alignment with the CBI’s Standard. This issuance constituted the first CBI-certified sovereign bond.
  - CBI Standard criteria show alignment with the goal to achieve a maximum of 1.5 degrees Celsius warming over pre-industrial temperatures.
  - CBI certification adds complexity and costs; donors have subsidized the cost of SPOs or CBI certification in some developing economy cases.

### Issuance timelines, process integration, and size determinants
- The size of an SGB issuance is influenced by conventional bond factors (budgetary needs, market conditions, index inclusion criteria) plus:
  - Eligible projects that the bond aims to finance (including subsidies that support the green transition and refinancings of existing green projects).
  - The lookback period for refinancing of existing projects and the time limit by which all funds must be spent.
  - A country’s ability to track project expenditures and reliably assess environmental impact post-issuance.
  - Expenditure volatility from poor project planning or dependence on household and corporate actions (especially for tax expenditures).
  - Investor expectations.
- Core issuance process:
  - Four steps at the center of the syndicated bond issuance process are almost identical to a conventional syndicated bond issuance.
  - Selection of lead manager and issuance advisor is central; selection of at least one credit rating agency is also important; legal advisor selected with issuance advisor and lead manager(s).
  - Issuance of a conventional international bond can take up to 18 weeks; a repeat issuance can proceed faster.
  - With sustainability structuring adviser and possibly lead manager selected at the start, parts of the core issuance process can proceed in parallel with ESG pre-issuance steps, reducing overall time requirements.

### Post-issuance: separation, allocation, and reporting of proceeds
- Separation of proceeds:
  - Funds raised should be separately tracked from line items in government accounts that finance general budgetary expenditures.
  - Market practice has gravitated towards proceeds tracking because full segregation is not consistent with sound fiscal practices.
  - Three common methods of segregating green bond proceeds:
    - Proceeds tracking: market standard by 2022. Funds deposited in the general treasury account(s), green funding identified and corresponding expenditures tracked. Generally not a legal obligation and does not violate laws that constrain or prohibit earmarking.
    - Sub-account approach: proceeds tracked in a sub-account within the general treasury account(s); can contain receipts from sequential green bond issuances.
    - Full segregation: proceeds kept in an account fully separated from other government accounts; funds can only be released to pay planned green projects; corresponds to ringfencing and can be modified to keep receipts from sequential issuances in the same account.
  - Full segregation can require EMDEs issuing international green bonds to invest part of bond proceeds until fully spent at yields below funding costs, exposing them to negative cost of carry (example: Poland’s 2016 issuance).
  - If an issuer’s legal framework equates proceeds tracking with earmarking and budget laws prohibit earmarking, issuance of an SGB could require legal changes; alternatively, consider issuance of an SLB.

- Allocation of proceeds:
  - Allocation is central to SGB impact and credibility. SGBF provides ranges for expenditure categories; allocations to specific expenditure items are made post-issuance.
  - Planned expenditures must fit pre- and post-issuance timeframes limiting allocation to projects that existed pre-issuance; projects not finalized must be ascertainable to be finished on time.
  - Only projects for which financial flows and environmental impacts can be reliably tracked should be funded.

- Allocation and impact reporting:
  - Issuers provide reports on expenditures and projects’ environmental impact. Recommended practice:
    - An expenditure report should be published until all funds are spent, usually by the end of year two after issuance; it should include accounting of cash flows in and out of the account holding the cash balances from the issuance and a list of projects financed, including share of project financed and timing of financing.
    - The impact report should describe projects and environmental impacts in depth and ideally include quantitative metrics (e.g., reduction in GHG emissions, number of EVs purchased with subsidies paid using SGB proceeds, number of passengers using a subway system that received funding).
    - Some issuers employ third parties to conduct reviews or audits of post-issuance reporting to increase credibility (example: France has its green expenditures audited by an accounting firm).
    - Market practice is to publish reports on an annual basis, although investors with a strong environmental focus may request more frequent updates.
    - Both allocation and impact reports are recommended by ICMA and have become market standards; issuers often combine them into one publication.
    - Some issuers have received ex-post SGB assessments summarizing operational aspects, use of proceeds, and reporting (example: Moody’s (2019)).

### Issuance costs and time requirements
- ESG bond issuance involves greater effort and additional transparency obligations compared to conventional bond issuance; reporting requirements for a UoP bond may not cease until maturity.
- Sovereign issuer cost components for ESG bond issuance:
  - (i) Direct costs of obtaining an SPO and related services.
  - (ii) Government’s work on the issuance, including changes to government operations.
  - (iii) Reputational costs if the government does not fulfill ESG-related commitments.
  - (iv) Any explicit penalties (for example, when SLB commitments are not fulfilled).
- Tangible costs are largely fixed in nature and for larger issuances do not represent an onerous burden beyond conventional issuance costs; costs associated with the core issuance process remain the same.
- Indicative cost assumptions and items (based on analysis and market contacts as of mid-2022):
  - Example reference issuance: a USD 750 million, 10 yr., 6.125 percent coupon bond at a yield of 6.17%.
  - Assumed fees and reviews:
    - Fee of USD 30,000 assumed for the SPO of the SGBF.
    - SPO of a sovereign SLB framework assumed somewhat higher at USD 35,000.
    - Ex-post third-party financial reviews are becoming more common; with most SGB issuances committing to spending funds within two years, two annual post-issuance external financial reviews are assumed, at a cost of USD 5,500 for each review.
  - The main additional cost is the sustainability structuring advisor fee (may be the bank receiving the lead manager mandate); issuer also pays for SPO and ex-post financial reviews.
  - Cost variability:
    - Fees charged by banks, advisors, and intermediaries depend on country specifics (budgetary and project complexity), competition among providers, and negotiation outcomes.
    - Issuers may separate or combine mandates for sustainability structuring advisor and lead manager in RFPs; if separated, a fixed fee is required for the sustainability structuring adviser; if combined, no direct fee might be required and lead manager reimbursed through higher share of syndicate fees.
    - Less standard issuances (e.g., blue bonds) could be much higher cost.
    - More complex SPOs and reviews would usually be higher cost than reflected in standard estimates.
    - Some SPO providers offer combinations covering more than one type of ESG bond; such packages might reduce overall cost.

- Indicative overall impact on costs (based on USD 750 million size and cost assumptions as of mid-2022):
  - Total fees and expenses increase by USD 266,000 for an SGB and USD 271,000 for an SLB.
  - Total tangible costs increase by 10.9 and 11 percent, respectively.
  - Assumed greenium of 4 bps in the illustrative calculations.

*IMF WORKING PAPERS A Guidance Note for Sovereign Debt Managers — INTERNATIONAL MONETARY FUND.*

### 1.95 million higher for both the SGB and the sovereign SLB than for the conventional bond. While the tangible

### A Guidance Note for Sovereign Debt Managers

### Costs, Greenium, and Issuance Economics
- Investor yield and issuer bond cost comparisons indicate the tangible costs of the conventional issuance come out to 4.3 bps per year when folded into the yield paid by the issuer, while the tangible issuance costs of an SGB or SLB issuance amount to about 4.7 bps per year.
- The document cites "1.95 million higher for both the SGB and the sovereign SLB than for the conventional bond."
- The green bond market has become quite standardized.
- Second party opinion (SPO) costs: between USD 20,000 to USD 30,000 in many cases.
- For sufficiently large issuances, savings achieved via the greenium can make up for the additional tangible costs of the SGB issuance.
- The 4 basis points greenium is an assumption made by the authors; while it aligns with some evidence, "there is no guarantee that a greenium can be achieved."

### Unquantified Preparation and Post‑Issuance Costs
- Tangible issuance costs are only a small part of total issuance costs; more significant are unquantifiable costs associated with:
  - (i) select projects;
  - (ii) collect data;
  - (iii) government processes associated with ESG bond issuance;
  - (iv) capacity additions to the MoF and the DMO; and
  - (v) process additions needed for post-issuance reviews.
- Except for staffing additions, many of these costs are one-time in nature and may not recur.
- Many issuers consider these one-time costs to be significant, though estimates are not available.

### Pre‑Issuance Preparations and Indicative Timeline
- Hiring of a sustainability structuring advisor can take place several months prior to the envisioned bond floatation; in some cases as early as 9 months prior to issuance.
- Communications with potential investors, other stakeholders, and SPO provider should occur during relevant phases of the issuance process.
- The timeline sections and labels appear with month markers such as:
  - Issuance
  - -36 - -9
  - -9
  - -8
  - -7
  - -6
  - -5
  - -4
  - -3
  - -2
  - -1
  - 0
- Political and operational preparatory steps include:
  - Political Stage Setting: Political announcements; Draft and publicize national climate strategy.
  - Operational Preparations: Move towards green budgeting; Build cross-ministerial coordination framework; Set up inter-agency committee.
  - Prepare the issuance: Select a lead manager; Develope green bond framework; Coordinate with the lead manager; Communicate with investors; Communicate with other stakeholders; Second Party Opinion (SPO) review.
  - Core issuance process follows these preparations.
- Notes on timing:
  - "All numbers are indicative and present the upper end of a time range for each stage."
  - "In most cases the Sustainability Selection of the lead manager should take place somewhere between 9-6 months before issuance, the process itself should not take more than three weeks."
  - "The core issuance process can take longer. It is assumed that some preparatory work has been done as part of the SGB issuance steps."

### Sovereign Issuer Perspective: Complexity, Syndication, and Auctions
- SGB issuance is more complex than conventional bond issuance and requires:
  - A pool of green projects and sufficient government capacity to execute and account for financing and environmental benefits;
  - Additional capacity at the DMO and other government agencies;
  - Awareness of potential fiscal encumbrances, domestic market fragmentation, and complications in future debt management operations.
- Syndicated issuance has played a considerable role in sovereign ESG bonds, even for countries with large domestic markets.
- Four main reasons for using syndications for ESG bond issuances:
  - (i) Reliance on sustainability structuring advisor(s) and lead manager(s) for project selection and drafting the SGBF;
  - (ii) Lead manager(s) bolster communications with ESG-focused investors during drafting and marketing;
  - (iii) Attract more ESG-focused investors;
  - (iv) Allow issuer to actively allocate parts of issuance to specific investors, often preferring green investors.
- Syndications are commonly used for first-time SGB issuance, with taps later conducted via auctions or syndications.
- Examples of auction and syndication usage:
  - France syndicated initial sales of two green OATs in 2017 and 2021 amounting to EUR 7 billion; one bond was tapped via 11 auctions and one EUR 4 billion syndication.
  - Germany and Ireland have used auctions and syndications; the Netherlands relied only on auctions when issuing its green bond.
- EMDEs examples:
  - Some EMDEs issued ESG bonds domestically without prior international issuance.
  - Colombia launched a domestic auction-based local currency green bond program without prior syndicated bond issuance.

### Box 3 — Colombia: Domestic Green Bond Issuance through Auctions (Key Figures)
- First sovereign green bond in local currency: a 10-year, 750 billion Colombian pesos (equivalent to USD 200 million) — issued on September 29, 2021.
- Bid-to-cover ratio: 4.6; submitted bids amounted to COP 2.3 trillion.
- Issuance upsized by 50 percent from the originally scheduled COP 500 billion.
- The green bond yielded 7.56 percent at issue, estimated by the authorities to be 7 bps inside the regular government bond curve.
- The bond was tapped one month later with another COP 650 billion sold, with a wider greenium of approximately 20 bps.
- Allocation of proceeds intended for projects: About 40 percent to water management; 27 percent in the transition of transport; 14 percent in migration to non-conventional renewable energies.
- More than half of the debut sales went to domestic investors (investment funds and banks); about 45 percent went to overseas funds.
- Colombia publicized its green bond framework in July 2021; the framework was drafted with technical support from the Inter-American Development Bank and the World Bank.
- Legal framework was modified by lawmakers to back the issuance.

### Regulatory, Enforcement, and Reputational Issues
- Currently, ESG bond issuances are not subject to outright regulatory oversight; they rely on compliance with general issuance standards for conventional bonds.
- There are no legal repercussions in case of non-compliance with ESG-related promises under many current frameworks.
- The EU’s Green Bond Standard may change the landscape; while currently voluntary, it could become a market standard with legal force in the EU and potentially influence other jurisdictions.
- Regulatory authorities in the EU and the U.S. are using powers over the asset management industry to supervise ESG investments; investigations into asset management firms for insufficient adherence to stated ESG goals could make asset managers more discerning.
- Non-fulfillment of expenditure commitments in Use-of-Proceeds (UoP) bonds may cause adverse reputational consequences; UoP prospectuses usually state promises are not legally binding and do not constitute an event of default.
- SLBs include monetary penalties for missed KPIs, but these penalties "may be not material"; examples include coupon step-ups of "12.5 or 25 bps coupon step-ups for three years."

### Drivers of Sovereign ESG Issuance and Market Patterns
- Main drivers for sovereign ESG bond issuance:
  - (i) Highlight commitment to environmental and social goals, the Paris Agreement, and the UN’s SDGs, and increase issuer’s global profile;
  - (ii) Bolster ESG capital markets and build a green yield curve;
  - (iii) Access cost-effective funding for ESG-related projects;
  - (iv) Widen and diversify the investor base;
  - (v) Catalyze interagency cooperation within government.
- Most sovereign ESG issuance by EMDEs has been in international bond markets; "Global bonds were responsible for 68 percent of issuances in 2021."
- International market preferences:
  - Market is focused on issuances denominated in the U.S. dollar and the Euro, mostly issued subject to New York or U.K. law.
  - Intermediaries—banks, advisers, law firms, and SPO providers—have standardized the market for global ESG bonds.
- Choice between syndication and auction:
  - For EMDEs issuing in international markets, syndication is typical for FX-denominated issuances.
  - Syndications have also been used for some local currency issuances (e.g., Uzbekistan, Chile).

### Conclusion and Areas for Capacity Development
- Sovereign ESG bonds offer opportunities to advance environmental, social, and governance goals, potentially at reduced funding costs while diversifying the investor base.
- Risks and considerations:
  - Significant administrative preparations are required prior to issuance.
  - New investor expectations must be managed.
  - Issuing ESG bonds in small or underdeveloped local currency markets could fragment the market and conflict with goals of low-cost financing and market development.
- Capacity development needs at MoF and DMO levels:
  - Interagency committee formation;
  - DMO-Fiscal coordination;
  - Financial and impact reporting capabilities;
  - Investor communications.
- The extent of additional DMO capacity depends on existing fiscal capacity and division of labor among ministries and interagency structures.
- Issuers should maintain active involvement throughout pre- and post-issuance processes despite input from advisors, underwriters, legal counsel, and TA providers.
- Post-issuance responsibilities can be heavy; sovereigns should not underestimate resources required for credible post-issuance reporting.
- TA could be sought to develop internal capacity.

*Source: IMF staff — IMF WORKING PAPERS A Guidance Note for Sovereign Debt Managers*

### 1.7 trillion in 2021 (Figure A1.1, panel 1). About 77 percent of issuances originated in Advanced Economy

### 1.7 trillion in 2021 (Figure A1.1, panel 1). About 77 percent of issuances originated in Advanced Economy countries (AEs) (Figure A1.1, panel 2).

### Global ESG debt trends
- Total ESG debt issuance amounted to USD 4.0 trillion as of end-2021, of which bonds accounted for USD 2.8 trillion.
- ESG debt issuance reached 1.7 trillion in 2021.
- About 77 percent of issuances originated in Advanced Economy countries (AEs).
- 2021 was a watershed year:
  - ESG debt issuance increased 2.1 times from 2020 to 2021 for AEs.
  - ESG debt issuance increased by a factor of 3.2 for EMDEs.
- Cumulative and segment notes:
  - Most ESG bonds issued were by investment grade corporates.

### Sovereign and issuer patterns
- Issuer evolution:
  - Corporate sector, multilateral organizations, and subnational entities were early issuers of ESG debt.
  - Sovereigns have become active issuers over time.
- Share and growth of sovereign ESG issuance:
  - As a share of total (sovereign and corporate) bond issuance, ESG bonds increased from below 0.03 percent to slightly more than 5 percent of the value of all bond issuances between 2011 and 2021.
  - Sovereign share of all issuances doubled from 2020 to 2021, accounting for 8 percent of total ESG debt issuance in 2021.
  - Sovereign issuance of ESG bonds increased 2.7 times between 2020 and 2021.
  - Issuance by EMDE sovereigns increased by a factor of 2.3 between 2020 and 2021.
  - For AEs, growth of sovereign issuance exceeded the growth of overall ESG debt issuance; for EMDEs, growth of sovereign issuance was notably lower than overall ESG issuance by EMDE sovereign issuers.
- Geographic concentration:
  - Large European issuers like France or Germany have been dominant in green bond issuances.
  - Chile is the largest EM issuer, coming in at number eight.
  - Chile has the highest share of ESG bonds at about 1/6 of its total debt of any sovereign ESG bond issuer of size.

### Social bond issuance patterns
- Social bond timeline and issuers:
  - Corporate issuers, from the financial sector, first issued social bonds starting in 2015.
  - IFI issuances followed in 2017.
  - The first sovereign social bond was issued by Ecuador in January 2020.
  - Social bonds were more frequently issued after the start of the COVID-19 pandemic, with increased issuance especially by EMDE issuers after the start of the COVID-19 pandemic.
- EMDE dynamics:
  - Sovereign social bond and sovereign sustainability bond issuance increased the most in terms of EMDEs’ ESG bond issuances, with EMDEs’ SGB issuance volumes declining between 2019 and 2021 (Figure A1.1, panel 2).

### Typology of ESG debt (Section II)
- Five distinct ESG bond types (differ by expenditures targeted and mechanism to achieve ESG goals):
  - (i) Green bonds: funds raised are exclusively applied to environmental projects.
  - (ii) Social bonds: funds raised are exclusively spent on projects advancing social objectives.
  - (iii) Sustainability bonds: fund both environmental and social projects.
  - (iv) Sustainability-linked bonds (SLBs): funds raised can be spent on general corporate or budgetary purposes benefiting the issuer, but debt servicing terms change if the issuer does not achieve specific ESG milestones within a set timeframe.
  - (v) Transition bonds: issued when the issuer cannot attract sufficient demand for other types of sustainable bonds.
- Transition bond market note:
  - As of early 2022, transition bonds have only been issued by corporates and the EBRD, with only 17 bonds issued between 2017 and June 2021.
- Investor preferences:
  - Investor preferences can be strong and may lead some investors to exclude certain types of sustainable debt that others buy.
  - Market acceptance of SLBs could increase quickly if KPIs and SPTs or penalties associated with SLBs are strengthened.

### Social bonds: standards, process, and examples
- Use-of-Proceeds (UoP) definition:
  - Social bonds are UoP bonds used to finance or refinance eligible social projects.
  - Eligible expenditures can be aligned with the UN’s Sustainable Development Goals (SDGs) or the Millennium Development Goals (MDGs).
  - Examples include: (i) support payments during the COVID pandemic; (ii) microloan programs; (iii) funding of women-led small enterprises.
- Issuance process and institutional coordination:
  - The issuance process is similar to the process used to issue green bonds.
  - Project identification often involves different line ministries and government counterparts.
  - Project identification, proceeds management, and disclosure of information on project performance can require a high level of coordination among different agencies; an inter-agency committee often conducts this coordination most efficiently.
- ICMA Social Bond Principles (SBPs) (2017):
  - SBPs are based on four pillars:
    - (i) use of proceeds;
    - (ii) process for project evaluation and management;
    - (iii) management of proceeds;
    - (iv) reporting.
  - SBPs use the same transparency principles as the GBPs and provide recommendations regarding the formulation of Social Bond Frameworks (SBFs) and financial and impact reviews.
  - GBFs and post-issuance reviews should be subjected to external reviews by external entities with appropriate credentials (ICMA 2021a).

### Sustainability bonds
- Definition:
  - Sustainability bonds are UoP bonds used to finance a combination of green and social projects.
  - They finance projects in alignment with ICMA’s GBPs or its SBPs (ICMA (2021)).
- Sovereign sustainability bond issuance by EMDEs increased more than four-fold between 2020 and

*Sources: Bloomberg, and IMF staff calculations. IMF WORKING PAPERS A Guidance Note for Sovereign Debt Managers, INTERNATIONAL MONETARY FUND*

### 2021. Total issuance of those bonds by EMDEs of USD 13.2 billion was only USD 1.8 billion behind EMDEs’

### wpiea2023058-print-pdf - 2021. Total issuance of those bonds by EMDEs of USD 13.2 billion was only USD 1.8 billion behind EMDEs’

### Sustainability-Linked Bonds (SLB)
- SLBs: issuers promise investors that they will reach specific sustainability targets, with payoffs changing depending on whether those targets are reached.
- SLBs are forward-looking, performance-based financial instruments; they are not project-based and issuance proceeds can be used for general corporate or budgetary purposes.
- KPIs and SPTs:
  - A KPI is a variable or an index targeted by an SLB; an SPT is usually a threshold value that the KPI must outperform.
  - There can be more than one SPT per KPI and multiple KPIs per bond.
  - Example KPI: a sovereign SLB could target a country’s CO2 emissions in gigatons; an SPT could be a specific reduction five years after issuance versus a base year.
- Coupon structure:
  - The coupon step-up structure has become the market standard; a bond’s coupon ratchets upward when prespecified SPTs are not achieved.
  - Market-standard penalty: 25 bps; example: coupon of a 10-year SLB might increase by 25 bps if KPIs are not reached by end of year five until maturity.
  - Note: coupon step-downs or changes to principal have also been used, but some investors are reluctant to buy bonds whose coupons or principal might fall in the future.
- Credibility and design:
  - KPIs should be material and measurable: highly relevant to issuer’s core sustainability strategy, quantifiable, externally verifiable, and able to be benchmarked.
  - SPTs should represent material improvements and be consistent with the issuer’s overall ESG strategy.
- Advantages vs. Use-of-Proceeds (UoP) bonds:
  - Proceeds can be spent for general budgetary purposes, removing need to select specific projects and provide project-level reporting.
  - Useful when a country has exhausted its pool of projects or lacks infrastructure to select projects and report impacts.
  - KPIs could cover areas not suitable under project umbrellas (e.g., governance-related criteria like share of women members of parliament).
- Challenges for sovereigns:
  - Need long-term time series on KPIs that are reliably and constantly measurable.
  - SPTs must be ambitious to avoid greenwashing and to remain attractive to investors.
- Investor views:
  - Mixed: some see SLBs positively as complementary to UoP bonds; some impact investors raise concerns about additionality and greenwashing.
  - Chile’s March 2022 SLB illustrated divergence of views (see Box A2.1).

### Box A2.1 — The First Sovereign SLB: Chile 2022
- Issuance details:
  - USD 2 billion 20-year bond at 4.35 percent, 200 bps above US Treasuries.
  - More than 4 times oversubscribed; placed with an estimated greenium of 10 bps.
- Chile’s SLB framework KPIs and SPTs:
  - KPI 1 / SPT 1: emit no more than 95 million tons of carbon dioxide and equivalent by 2030.
  - KPI 2 / SPT 2: 60% of electricity production derived from renewable energy by 2032.
- Penalty structure:
  - Missing each target would lead to an increase in the coupon of 12.5 bps for a total of 25 bps in the worst case.
- Investor reactions:
  - Many investors described SPTs as ambitious; some saw many more sovereign SLB issuances ahead.
  - Some impact investors criticized penalties as too low, potentially making it easier to fail the SPTs.

### Sovereign SDG Bonds
- SDG bonds: UoP bonds targeting a subset of the UN’s SDGs; issued since September 2020.
- Early sovereign issuers:
  - Mexico: first SDG bond in September 2020, followed by a larger issuance in July 2021.
  - Benin: SDG bond in July 2021.
  - Indonesia: sustainability bond in sukuk format in October 2021.
- Treatment in paper:
  - SDG bonds are considered as sustainability bonds where appropriate because:
    - (i) Social and environmental goals targeted overlap with other sustainable bond issuances;
    - (ii) Investors for green, social, and SDG bonds are the same;
    - (iii) SDG bond frameworks aim to align with ICMA’s GBPs and SGPs.
- Note: SDG goals have a target date of 2030; climate goal target dates often 2030, 2050, or other dates derived from NDCs.

### Sovereign ESG Sukuk
- Indonesia and Malaysia have issued sovereign green and sustainability bonds; Indonesia has issued international green bonds, two domestic green retail bonds, and one global sustainability bond.
- Other Islamic countries: further sovereign ESG bond issuances can be expected; non-sovereign issuers have issued green sukuk in local currency and USD.

### Box A2.2 — Sovereign Green Sukuk: Indonesia
- Issuance history and sizes:
  - 2018: first green sovereign sukuk for USD 1.25 billion.
  - 2019: USD 0.75 billion.
  - 2020: USD 0.75 billion.
  - 2021: USD 0.75 billion and a Euro 0.5 billion issuance in 2021.
- Purpose: build Green sukuk curve and diversify investor base; proceeds can only fund environmentally friendly projects.
- 2018 issuance achievements:
  - First sovereign green issuance from Asia; biggest emerging market green deal and biggest green sukuk at the time.
  - Listed on NASDAQ Dubai; reached about 30 percent more investors compared to a conventional sukuk issuance.
- Investor geography and composition for first issuance:
  - Middle East 32 percent, Asia 25 percent, Europe 18 percent, USA 15 percent, Indonesia 10 percent.
  - By institution: asset managers 32 percent, banks 25 percent, pension funds and insurance 18 percent, SWFs and public sector funds 15 percent.
  - 29 percent of issuance allocated to green investors; greater share to SWFs compared to conventional sukuk.
- Alignment and SPO: Indonesia’s SGBF aligns with ICMA’s Green Bond Principles and the Asian Green Bond Standard; Cicero provided the SPO.

### Greeniums (Annex III)
- Existence and measurement:
  - Evidence of greenium exists, though no agreed measurement method; unequivocal measurement only when twin bonds are issued.
  - New issues are generally placed at a premium to issuer’s existing curve; premium depends on market conditions.
- Observations:
  - Estimated sovereign bond greeniums are positive, with greeniums larger for higher spread issues.
  - Correlation between spread and greenium at issue is 0.97.
  - Secondary market greeniums vary over time.
- Empirical evidence:
  - Mixed conclusions depending on issuer universe, sample period, and methodology.
  - Some studies find positive greeniums; others find negative greeniums in parts of samples.
- Box A3.1 — Drivers and liquidity:
  - Possible drivers of greeniums (Preclaw and Bakshi (2015)):
    - Investors paying more for non-monetary payoffs (positive externalities, regulatory/political pressures, showcasing ESG commitment).
    - Lower volatilities of ESG bond spreads versus conventional peers.
    - Supply-demand mismatch and low turnover leading to scarcity premium and a “virtuous greenium cycle.”
  - Liquidity effects:
    - Lower liquidity of ESG bonds identified as a cause of negative sovereign greenium by market participants.
    - Primary and secondary market dynamics and “new issue premium” complicate greenium calculations.
  - Empirical study results (examples):
    - Doronzo, Siuracusa, and Antonelli (2021): negative greenium at issuance for about two-thirds of their sample; secondary market greenium of 0.5 basis points.
    - Ando, Roch, Wiriadinata, and Fu (2022): average greeniums of 3.7 and 30.4 basis points for euro- and USD-denominated bonds, respectively.
    - Grzegorczyk and Wolff (2022): evidence of a small positive greenium.
  - Summary: greeniums, magnitude and dynamics determined by tradeoff between ESG bond liquidity and scarcity premium; greeniums can become negative.

### Budget and Debt Market Fragmentation Risks (Annex IV)
- Risk of encumbrance:
  - If SGB funding comprises a large share of eligible projects, dedicating funds to specific expenditures can reduce budgetary flexibility and encumber future expenditures.
  - Example: issuing an SGB at start of budget year t might commit government to start projects in year t+2, limiting ability to change plans.
- Flexibility and investor expectations:
  - Flexibility around conditions for expenditures must be aligned with investor expectations.
  - Common time frames for lookback periods: 1-2 years prior to issuance and 1-2 years post-issuance.
  - Types of eligible projects should fall into ICMA’s GBPs categories and be tailored to country’s environmental needs.
- Recommendations to reduce encumbrance and increase credibility:
  - Retain flexibility to fund past projects where possible.
  - Consult advisers, SPO, and investors and adjust prospectus if needed.
  - If time windows are too wide or ICMA’s full catalogue used without reference to country needs, investors might view issuance as opportunistic.
- Box A4.1 — Green Funding Allocation: an illustrative numerical example:
  - Country budget: CU 3,000 in year t and year t+1.
  - CU 1,000 out of CU 3,000 directed to green projects in each year.
  - Country issues SGB at end of year t for CU 1,000.
  - Allocation approaches illustrated:
    - Full allocation to new projects in year t+1 (reduces flexibility).
    - Mixed allocation where half of green project universe already completed in year t and CU 500 for year t+1 (reduces risk of non-fulfillment).
    - Larger universe of eligible projects including past projects allows greater flexibility (up to three quarters of funding could be spent on existing projects).
  - Policy suggestions (high-level):
    - Plan to spend funds raised within 2 years before and after issuance.
    - Set share allocated to past projects.
    - Focus future expenditures on projects within authorities’ capacity and with feasible reporting.
    - Issue sustainability bonds instead of SGBs if broader eligibility desired.
    - Bond documentation should state that insufficient performance of UoPs does not constitute an event of default nor provide right to put bond back to issuer; if not achievable, issue sustainability-linked or transition bonds.

### Sovereign ESG Bonds: Patterns and Statistics (Annex V)
- Formats issued: green bonds, social bonds, sustainability bonds, and sustainability-linked bonds.
- Advanced economies (AEs):
  - Issuances have been exclusively focused on Green Bonds (GBs).
  - AEs issued all in their home currency.
- EMDEs:
  - Issuances have seen almost as much issuance of sustainability bonds as of green bonds.
  - Assuming equal distribution of environmental vs. social expenditures within EMDE sustainability bonds implies 58 percent of funds raised were related to the environment and 42 percent financed referenced social goals.
  - Greater reliance on syndicated issuance: share of syndications is 93 percent for EMDEs versus 67 percent for AEs.
- Tabulated country issuance data (as presented):
  - AE Total171.10.04.20.0175.310067
  - EMDE Total28.718.424.92.073.919.192.6
  - Grand Total195.718.429.12.0245.275.574.1
  - Note: Table lists country-level Green, Social, Sustainability, Sustainability-linked, Total, Share Local Curr. (percent), Share Syndicated (percent) entries (data through June 9, 2022).

### Financing ESG-Related Expenditures with Debt: Comparison (Annex VI and Table A6.1)
- Main multidimensional aspects of funding decisions:
  - (i) Funding terms: interest rate and repayment schedule.
  - (ii) Conditionality: oversight or procurement conditions for concessional loans.
  - (iii) Long and demanding application process for concessional debt.
  - (iv) Refinancing risks associated with market debt.
  - (v) Currency risk with external debt.
  - (vi) Potential detrimental effects on development of local currency bond market.
- Table A6.1 summary of pros and cons for EMDEs (categories preserved as in source):
  - External ESG Financing — Concessional:
    - Pros: Low cost (below market interest rates or explicit grants); Long grace periods; Provision of donor project management expertise.
    - Cons: Long and demanding application process; Projects must conform to donors’ priorities and selection criteria; Reporting and compliance; Competitive application processes for climate funds.
  - External ESG Financing — Market:
    - Pros: More diverse and larger investor base; Represents a more reliable source of funding; Potential for quick issuance of large volumes; Long maturities; ESG bonds can carry a lower interest rate than conventional debt (greenium); Reduced refinancing risk compared to international issuances.
    - Cons: Higher cost than concessional funding (explicit fees); Higher interest rates compared to concessional funding; Green market reputational risk; Refinancing risks; FX risk; Operational capability demands.
  - Domestic ESG Financing — Market:
    - Pros: Frequent issuance possible; Less demanding process to tap capital market; Flexible size depending on LCBM development; Longer maturities/lower refinancing risks; Provision of a green benchmark; No FX risk.
    - Cons: Shorter maturity depending on LCBM development; Crowding out of the private sector; Lengthy/ridgid project execution due to donor-like oversight if applicable; Reporting/compliance requirements; Changing ESG issuance requirements.

*Italic: IMF Working Papers — A Guidance Note for Sovereign Debt Managers (content as provided).*

### References

### References

### Green bond and sustainable finance literature
- Affirmative Investment Management (2019), From Molten Brown to Liquid Green. Available at: https://affirmativeim.com/wp-content/uploads/2019/12/LiquiditySK29Oct19Finalfinal.pdf
- Affirmative Investment Management (2021), Greenium – fact or fiction?, March 4. Available at: https://affirmativeim.com/greenium-fact-or-fiction/
- Ando, Sakai, F. Roch, U. Wiriadinata, and C. Fu (2022), Sovereign Climate Debt Instruments: An Overview of the Green and Catastrophe Bond Markets, Staff Climate Notes 2022/004, IMF, July 7. Available at: https://www.imf.org/en/Publications/staff-climate-notes/Issues/2022/06/29/Sovereign-Climate-Debt-Instruments-An-Overview-of-the-Green-and-Catastrophe-Bond-Markets-518272
- Baker McKenzie (2019), Critical challenges facing the green bond market, IFLR.com, October/November. Available at: https://www.bakermckenzie.com/-/media/files/insight/publications/2019/09/iflr--green-bonds-(002).pdf?la=en
- Doronzo, Rafaele, V. Siracusa, and S. Antonelli (2021). Green Bonds: The Sovereign Issuers’ Perspective, Bank of Italy Markets, Infrastructures, Payment Systems Working Paper No. 3, May 27. Available at: Green Bonds: The Sovereign Issuers’ Perspective by Raffaele Doronzo, Vittorio Siracusa, Stefano Antonelli :: SSRN
- IFC (2018). Guidance for Sovereign Green Bond Issuers: With Lessons from Fiji’s First Emerging Economy Sovereign Green Bond. Available at: https://www.ifc.org/wps/wcm/connect/Guidance-for-Soverign-Green-Bond-Issuers_v1.pdf?MOD=AJPERES&CVID=m940tsS.
- The World Bank (2022), Sovereign Green, Social, and Sustainability Bonds: Unlocking the Potential for Emerging Markets and Developing Economies. Available at: WB-GSS-Bonds-Survey-Report.pdf (worldbank.org)
- The World Bank (2018), Green Bond Proceeds Management and Reporting, September 1. Available at: https://documents.worldbank.org/en/publication/documents-reports/documentdetail/246031536956395600/green-bond-proceeds-management-and-reporting
- Sustainalytics (2018), Second-Party Opinion: Irish Sovereign Green Bond, August 31. Available at: https://mstar-sustops-cdn-mainwebsite-s3.s3.amazonaws.com/docs/default-source/spos/ireland-green-bond-spo.pdf?sfvrsn=58035410_3

### ESG investing, greenium, and market performance studies
- BlackRock Institute (2021), The big emerging question-How to finance the net-zero transition in EMs, October. Available at: https://www.blackrock.com/corporate/insights/blackrock-investment-institute/financing-the-net-zero-transition
- Boffo, R., and R. Patalano (2020), ESG Investing: Practices, Progress and Challenges, OECD Paris. Available at: www.oecd.org/finance/ESG-Investing-Practices-Progress-and-Challenges.pdf
- Grzegorczyk, Monika, and G. Wolff (2022), Greeniums in Sovereign Bond Markets, Working Paper 17/2022, Bruegel, September 29. Available at: https://www.bruegel.org/working-paper/greeniums-sovereign-bond-markets
- Meyer, Sebastian, and K. Henide (2020), Searching for ‘Greenium’, IHS Markit: Sustainable Finance. October 1. Available at: https://www.icmagroup.org/assets/documents/Sustainable-finance/Public-research/Greenium-whitepaper-110521.pdf
- Preclaw, Ryan, and A. Bakshi (2015), The Cost of Being Green, Barclays Credit Research, September 18. Available at: https://www.environmental-finance.com/assets/files/US_Credit_Focus_The_Cost_of_Being_Green.pdf
- Hyman, Jay (2022), Performance of ESG-Tilted Portfolios of Sovereign Bonds, Barclays FICC Research, January 26.
- Goldman Sachs (2021), The ESG borrower discount: Lower for Green issuers, higher for other categories, April.
- Grantham Research Institute on Climate Change and the Environment (2018), 10 years of the UK Climate Change Act – Summary, London School of Economics, April. Available at: https://www.lse.ac.uk/granthaminstitute/publication/10-years-uk-climate-change-act-summary/

### Guidance, principles, and public finance management related to climate and sustainability
- EU, IMF, OECD (2021), Green Budgeting-Towards Common Principles, November. Available at: https://ec.europa.eu/info/publications/green-budgeting-towards-common-principles_en
- European Commission (2022a), EU taxonomy for sustainable activities, accessed on April 17, 2022. Available at: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en
- European Commission (2022b), Regulation on sustainability-related disclosure in the financial services sector, April 6. Available at: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/sustainability-related-disclosure-financial-services-sector_en
- ICMA (2020a), Green, Social and Sustainability Bonds: A High-Level Mapping to the Sustainable Development Goals, June. Available at: https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/mapping-to-the-sustainable-development-goals/
- ICMA (2020b), Sustainability-Linked Bond Principles, June. Available at: https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/sustainability-linked-bond-principles-slbp/
- ICMA (2021a), Green Bond Principles, June. Available at: https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-bond-principles-gbp/
- ICMA (2021b), Social Bond Principles, June. Available at: https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/social-bond-principles-sbp/
- ICMA (2021c), Sustainability Bond Guidelines, June. Available at: https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/sustainability-bond-guidelines-sbg/
- IFC (2022), The Canada-IFC Blended Climate Finance Program, accessed on June 1, 2022. Available at: https://www.ifc.org/wps/wcm/connect/topics_ext_content/ifc_external_corporate_site/bf/focus-areas/bf-climate/bcfp
- IMF (2022), Global Financial Stability Report, Chapter 2-Scaling Up Private Climate Finance in Emerging Market and Developing Economies: Challenges and Opportunities, October 11. Available at: https://www.imf.org/en/Publications/GFSR/Issues/2022/10/11/global-financial-stability-report-october-2022
- IMF/World Bank (2014), Revised Principles for Public Debt Management, April 1. Available at: Revised Guidelines for Public Debt Management (imf.org)
- Gonguet, Fabien, C. Wendling, O. Aydin, and B. Battersby (2021), Climate-Sensitive Management of Public Finances—"Green PFM”, IMF Staff Climate Note 2021/002, August. Available at: https://www.imf.org/en/Topics/climate-change/staff-climate-notes
- Jonasson, Thordur and M. Papaioannou (2018), A Primer on Managing Sovereign Debt-Portfolio Risks. IMF Working Paper No. 18/74, April. Available at: https://www.imf.org/en/Publications/WP/Issues/2018/04/06/A-Primer-on-Managing-Sovereign-Debt-Portfolio-Risks-45746
- Knight, James and Northfield, Bill (2020), Sovereign Investor Relations: From Principles to Practice. IMF Working Paper No. 20/204, September. Available at: Sovereign Investor Relations: From Principles to Practice (imf.org)
- Potter and Diamond (1999), Guidelines for Public Expenditure Management, IMF, Washington DC. Available at: https://www.imf.org/external/pubs/ft/expend/
- van der Wansem, Patrick B. G.; L. Jessen; D. Rivetti (2019). Issuing International Bonds: A Guidance Note. MTI Global Practice Discussion Paper No. 13. World Bank, Washington, DC. April. Available at: https://openknowledge.worldbank.org/handle/10986/31569

### Legal, country, and transition frameworks
- Carrasco, Edesio, R. Benitez, and A. Sas (2022), The Environment and Climate Change Law Review: Chile, The Law Reviews, February 2. Available at: https://thelawreviews.co.uk/title/the-environment-and-climate-change-law-review/chile
- Clean Energy Wire (2021), Germany’s Climate Action Law, July 12. Available at: https://www.cleanenergywire.org/factsheets/germanys-climate-action-law-begins-take-shape
- Shirmali, Gireesh (2021), Transition Frameworks: Goals, Issues, and Guiding Principles, The Journal of Impact and ESG Investing, Summer 2022. Available at: https://jesg.pm-research.com/content/early/2022/03/30/jesg.2022.1.042

### Market commentary, news articles, and practitioner perspectives
- Financial Times (2022), Rising green bond issuance erodes premiums, July 18, 2022. Available at: https://www.ft.com/content/32dbf37c-8ff5-436b-88f3-9873fc864a7b
- Reuters (2022), Japan lays out plan to issue $157 bln in 'green transition' bonds, May 19. Available at: https://www.reuters.com/business/sustainable-business/japan-lays-out-plan-issue-157-bln-green-transition-bonds-2022-05-19/
- Wall Street Journal (2022), Russia War in Ukraine Exposes Weakness in ESG Fund, April 1. Available at: https://www.wsj.com/articles/russia-war-exposes-weakness-in-esg-fund-11648765019#:~:text=Investors%20who%20bought%20a%20%242.1,data%20from%20S%26P%20Capital%20IQ.
- White, N., (2022), Banker to Ultra-Rich Says War Raises Questions Over ESG Lab, Bloomberg News, March 29. Available at: https://www.bloomberg.com/news/articles/2022-03-29/banker-to-ultra-rich-says-war-raises-questions-over-esg-labels
- Energymonitor (2021), Why investors are unconvinced by transition bonds? June 2 (updated November 6, 2021). Available at: https://www.energymonitor.ai/finance/sustainable-finance/why-investors-are-unconvinced-by-transition-bonds
- Investments and Pensions Europe (2022), Chile prices first sovereign sustainability-linked bond, March 4. Available at: https://www.ipe.com/news/chile-prices-first-sovereign-sustainability-linked-bond/10058440.article
- Investmentmonitor (2022), What impact will the Russian invasion of Ukraine have on ESG investing? March 28. Available at: https://www.investmentmonitor.ai/special-focus/ukraine-crisis/russian-invasion-ukraine-esg-investing
- Ground, Jessica (2022), ESG Global Study 2022, The Harvard Law School Forum on Corporate Governance, June 17. Available at: https://corpgov.law.harvard.edu/2022/06/17/esg-global-study-2022/
- Lev, Baruch, E. Demers, J. Hendrikse, and P. Joos, (2022), The False Promise of ESG, Harvard Law School Forum on Corporate Governance, March 16. Available at: https://corpgov.law.harvard.edu/2022/03/16/the-false-promise-of-esg/
- V.E (2021), Second Party Opinion on the sustainability of Mexico’s SDG Sovereign Bond Framework, July 2. Available at: https://esg.moodys.io/spo/mexicos-sdg-sovereign-bond-framework
- Sustainalytics (2018), Second-Party Opinion: Irish Sovereign Green Bond, August 31. Available at: https://mstar-sustops-cdn-mainwebsite-s3.s3.amazonaws.com/docs/default-source/spos/ireland-green-bond-spo.pdf?sfvrsn=58035410_3

### Ratings, evaluation, and practitioner tools
- Moody’s (2019), Moody’s Green Bond Assessment – 2019 update, September 23. Available at: https://www.gov.pl/web/finance/issues-international-bonds
- S&P Global Ratings (2021), ESG Evaluations. Available at: https://www.spglobal.com/ratings/en/research/pdf-articles/190401-esg-evaluation-brochure
- S&P Global Ratings (2022), ESG Evaluations, accessed on June 6, 2022. Available at: https://www.spglobal.com/ratings/en/products-benefits/products/esg-evaluation
- Principles for Responsible Investment (2019), A Practical Guide to ESG Integration in Sovereign Debt, August 29. Available at: https://www.unpri.org/fixed-income/a-practical-guide-to-esg-integration-in-sovereign-debt/4781.article

*Source: wpiea2023058-print-pdf - References*

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_Source: https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023058-print-pdf.pdf_