2023-Public-Sector-Perspectives

Sustainability bonds The green, social, sustainability and sustainability-linked (GSSS) bond market has grown at the spectacular pace of 80% per year on average since 2014 and cumulative issuance amounted to over $2.7 trillion by the end of 2021. However, this growth performance has been both highly uneven with a predominance of green bonds and developed country issuers, and still only constitutes a fraction of the global bond market (1% of total assets outstanding and 2% of new issuances) (Figure 3). Figure 3 Carbon credits Carbon credits is the process of issuing tradeable securities to projects ensuring carbon sequestered or avoided greenhouse gas emissions. Each carbon credit awarded to the developer of such a project represents one ton of carbon dioxide emissions or its equivalent in other greenhouse gas emissions, whose occurrence must be verified by an international, domestic, or independent registry. Offsetting unavoidable emissions through a carbon crediting market is an alternative to facilitate and ensure the undertaking of actions toward decarbonization by hard-to- abate industries. Citi analysts estimate the market value of international and independent carbon credit markets doubled last year to over $1 billion and, depending on price trajectory, GSSS bonds therefore present a great opportunity for raising the necessary financing for the climate and development agendas. First, the maturities of GSSS bonds lend themselves well to the financing of the types of long- term investment projects that are crucial to achieving countries’ development strategies. Second, and more importantly, GSSS bonds also offer the opportunity to transform the way public budgets are planned and executed, by building structures to identify and incentivize projects based on sustainability criteria, and thus facilitating the alignment of public sector financing with sustainable development objectives. This is especially relevant for developing countries, as they are more exposed and vulnerable to climate risks than others and, in general, lack the human, institutional, and financial resources to adequately anticipate and respond to the effects of climate change. 600 400 200 0 EUR billion 2014 2015 2016 2017 2018 2019 2020 2021 Issuer Category DM EM EM — ODA Eligible Supranational Developed Markets (DM) Supranational Emerging Markets (EM) ODA — Eligible EM Source: OECD: Green Social Sustainability and Sustainability-linked Bonds, 2022 Citi Perspectives for the Public Sector 81