IMF-主权ESG债券发行：主权债务管理人指南（英）-2023.3

SovereignESGBondIssuanceAGuidanceNotefor

SovereignDebtManagersPeterLindnerandKayChungWP/23/58IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement.2023MAR©2023InternationalMonetaryFundWP/23/58IMFWorkingPaperMonetaryandCapitalMarketsSovereignESGBondIssuance:AGuidanceNoteforSovereignDebtManagersPreparedbyPeterLindnerandKayChungAuthorizedfordistributionby

ThorJonassonMarch2023IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.

TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,or

IMFmanagement.ThispaperaimstoprovideguidancetoissuersofsovereignESGbonds,withafocusonEmergingMarketandDevelopingEconomies(EMDEs).

AnoverviewoftheESGfinancingoptionsavailabletosovereignissuersisfollowedbyananalysisoftheoperationalrequirementsandcoststhattheissuanceofsovereignESGbondsentails.Whilegreenbondsaretheinstrumentsusedtodescribetheissuanceprocess,thepaperalsocoversalternativeinstruments,includingsocialandsustainability-linkedbonds

toprovideissuersandotherstakeholderswithacomprehensiveviewoftheESGbondmarketplace.G10,G20,G23,G28,G38,H27,H50,H63,Q00,Q48,Q54,Q57,JELClassificationNumbers:Q58Bondissuance;Climatefinance;ESGbonds;Greenbonds;PublicKeywords:FinancialManagement;Socialbonds;Sovereigndebtmanagement;Sustainablefinance;Sustainability-linkedbondsAuthor’sE-MailAddress:PLindner@;KChung@WORKINGPAPERSSovereignESGBondIssuanceAGuidanceNoteforSovereignDebtManagersPreparedby

PeterLindnerandKayChung11

Thisnotehasgreatlybenefitedfromconversationswithdebtmanagers,second

partyopinionproviders,underwriters,NGOs,andinvestors.TheauthorsaregratefulforhelpfulcommentsfromMichaelPapaioannou,ThordurJonasson,ErikoTogo,DavidGrigorian,GuilhermePedras,PatrickvanderWansem,BillNorthfield,ElviraEurlings,AlexanderWiese,ThomasLaryea,RobertAndreoli,JeroenVerleun,andStephanPouyat.TheircontributionshaveprovedinvaluableforthecompletionofthisNote,with

anydeficienciesanderrorstheresponsibilityoftheauthors.IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersContentsGlossary4ExecutiveSummary

6Introduction

8II.ESGDebtandSovereignFinance8A.ESGDebt:

DefinitionsandOverview8B.ESGBondIssuanceandPublicDebtManagement

11C.IntegrationofESGBondswithClimateandFiscalFrameworks

13D.ComparingOfficialSectorClimateFundingtoMarketFinancing14E.TheInvestorBaseforESGBonds16F.RefinancingSovereignESGBonds

18III.PreparingforaSovereignGreenBondIssuance:CapacityandOperationalRequirements19A.SGBIssuanceandPublicFinancialManagement20B.OperationalRequirements21C.DMOCapacity

22IV.SovereignESGBondIssuance

23A.TheGreenBondIssuanceProcess23Pre-Issuance

25ObtainingaSecond-PartyOpinion27DeterminingtheIssuanceSize28TheCoreIssuanceProcess

29Post-Issuance29B.IssuanceCostandTimeRequirements31C.SovereignGreenVersusConventionalIssuances:AnIssuerPerspective

34D.ESGBondIssuance:Why,Where,andHow36E.ConclusionandAreasforCapacityDevelopment

38Annexes

39I.TheMarketsforESGDebt39II.

ATypologyofESGDebt

41SocialBonds41SustainabilityBonds

42Sustainability-LinkedBonds

42SovereignSDGBonds

44SovereignESGSukuk45III.Greeniums46IV.BudgetandDebtMarketFragmentationRisks49V.SovereignESGBonds52VI.

FinancingESG-RelatedExpenditureswithDebt:AComparison

54INTERNATIONALMONETARYFUND2IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersReferences56Boxes1.SGBFsandSecondPartyOpinions272.BeyondSecondPartyOpinions

283.CaseStudy:Colombia—DomesticGreenBondIssuancethroughAuctions37Figures1.ClimateFunding:FromAEstoEMDEs152.SGBIssuanceandPFM—PDMCoordination213.SovereignGreenBondIssuance

254.IndicativeTimelineforFirst-timeSovereignSyndicatedGreenBondIssuance34Tables1.TopologyofESGBonds92.CostofIssuance:ESGversusConventionalBonds323.InvestorYieldandIssuer’sBondCost

33INTERNATIONALMONETARYFUND3IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersGlossaryABPAEAnnualBorrowingPlanAdvancedEconomyCountryAssetsunderManagementAUMBPSCAUCBIbasispoints(one-hundredthofapercentagepoint,1/10000)ClimateAccountingUnitClimateBondsInitiativeCDCapacityDevelopmentCIFClimateInvestmentFundsColombianPesosCOPCUCurrencyUnitDMODSADEDebtManagementOfficeDebtSustainabilityAnalysisDevelopingEconomyEBRDEMEuropeanBankforReconstructionandDevelopmentEmergingMarketsEMDEsESGEUEmergingMarketandDevelopingEconomiesEnvironmental,Social,andGovernanceEuropeanUnionEURFXEurocurrencyForeignCurrencyGBFGBPGCFGEFGHGICMAIFCGreenBondFrameworkGreenBondPrinciplesGreenClimateFundGlobalEnvironmentFacilityGreenhouseGasInternationalCapitalMarketAssociationInternationalFinanceCorporationKeyPerformanceIndicatorLocalCurrencyBondMarketLow-IncomeCountryKPILCBMLICLMOMDBMoFMTDSNDCOECDPFMRFPSBFSBPSDGSGBSGBFLiability-ManagementOperationMultilateralDevelopmentBankMinistryofFinanceMedium-TermDebtManagementStrategyNationallyDeterminedContributionOrganizationforEconomicCo-operationandDevelopmentPublicFinancialManagementRequestforProposalSocialBondFrameworkSocialBondPrinciplesSocialDevelopmentGoalSovereignGreenBondSovereignGreenBondFrameworkINTERNATIONALMONETARYFUND4IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersSLBSustainability-LinkedBondSustainability-LinkedBondPrinciplesSecondPartyOpinionSLBPSPOSPTSustainabilityPerformanceTargetSovereignWealthFundSWFTATechnicalAssistanceUNUnitedNationsUNDPUNFCCCUoPUnitedNationsDevelopmentProgrammeUnitedNationsFrameworkConventiononClimateChangeUseofProceedsU.S.DollarUSDWBWorldBankINTERNATIONALMONETARYFUND5IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersExecutiveSummaryTheissuanceofsovereigndebttomeetEnvironmental,Social,andGovernance(ESG)objectivesisopeningnewopportunitiesforsovereignborrowersbutalsopresentsnewchallengestodebtmanagers.ThemarketforsovereignESGdebthasrapidlyexpandedinrecentyears,providinggreaterfinancingchoicestogovernments,andincreasingthedecisionvariablesgovernmentsandespeciallysovereigndebtmanagementoffices(DMOs)needtoconsider.AgreatmajorityofESGdebtisraisedinthebondandloanmarkets,andthestandardissuancepreconditionsrelevantforfirst-timeissuersapply.2

However,additionalrequirementsmustbemetwhenissuingESGdebt,inparticulardebtthataimstomitigateclimatechangeandadapttoitseffects(“climatedebt”).Additional

capacityrequirementswithregardstocross-agencycooperationandadditionaldatacollectionwithinagovernmentcanbe

large,withDMOsfacingtheneedtocommunicateonthisnewtypeofdebtwithoftendemandingESG-focusedinvestors.ThispaperprovidesguidancetoissuersofsovereignESGbonds,withafocusonEmergingMarketandDevelopingEconomies(EMDEs).

WhilemanyAdvancedEconomies(AEs)experiencesimilarchallengesasEMDEswhenissuingESGbonds,theirinstitutionalchallengesarelessprominent.Atthesametime,AEscanusuallyfinancethemselvesintheirlocalcurrenciesandintheirdomesticmarkets,leadingtoalesschallengingESGbond

issuanceprocessthanforEMDEs.TheobjectiveforESGbondissuanceshouldbewelldefinedandintegratedintoasovereign’sdebtmanagementstrategyandissuanceplans.

CommonlycitedobjectivesforESGdebtissuanceare:(i)Highlightingtheissuer’scommitmenttoenvironmentalandsocialgoals

andboostingtheissuer’sprofileintheglobalarena;(ii)leadingthewayinbuildingmarketsforESGdebtinsidea

country;(iii)accessingcost-effectivefunding,especiallyforESG-relatedprojects;(iv)diversifyingtheinvestorbase;and(v)catalyzinginteragencycooperationwithinthegovernment.Whendevelopingthedebtmanagementstrategy,thecostsandrisksofintroducingESGdebttothedebtportfolioshouldbeassessedandincludemeasurestomitigateanyadverseeffects.Issuanceofinnovativedebtinstrumentsthatarenotfungiblewiththeexistingoutstandingdebtinstrumentscouldhamperpricediscovery

inprimarymarketsandreducesecondarymarketliquiditybyfragmentingthegovernmentbondmarket.Strongpoliticalsupportisacriticalfactorintheissuanceof

ESGbonds.PoliticalleadershipisanimportantprerequisiteforESGbondissuanceasahighdegreeofcooperationbetweendifferentgovernmentagenciesandlineministriesisrequired.Across-departmentalworkinggroupdedicatedtoclimatefinancewithinthegovernmentcanassembleneededinformationandmaketechnicaldecisions.Withinthis

contextdebtmanagersplayakeyrolewithregardstointernalcoordinationaswellasthecentralpointofcontactforexternalcommunicationintheissuanceofESGbonds.Syndicatedissuanceconstitutestheprimarytypeofissuancemethodofsovereign

ESGbonds.ThisextendsbeyondinternationalissuancetothedomesticmarketissuancesofsomelargeAEs.Sovereignissuersmayhireasustainabilitystructuringadvisor,usuallyabankoraspecializedadvisoryfirmwhoguidesthegovernmentontherequirementsrelatedtotheissuanceandhelpsittodraftacrediblebondframework.Thesustainabilitystructuringadvisorwillhelptolaythepreconditionstobringtheissuancetomarketandalignacountry’sESGbondissuanceobjectiveswithinvestorexpectations.Thisguidanceisparticularlyimportantfor2

Foranoverviewoffactorstoconsiderbyfirst-timeinternationalbondissuersseeJonassonandPapaioannou(2018),pp.81-85.INTERNATIONALMONETARYFUND6IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersaninauguralESGbondissuance.EMDEscouldalsoconsidertechnicalassistance(TA)InternationalfinancialInstitutions,UNDP,orbilateralpartnerstheyplantoembarkon

anon-syndicatedinauguralESGbondissuance.Financingfromofficialsectorsources,oftenonconcessionalterms,canbeavailableforprojectsthattargetenvironmentalandsocialobjectives.

Suchdebtismainlyprovidedbybilateralandmultilateralsources,aswellasspecializedlenders.Beforedecidingontheissuanceofmarket

basedESGdebt,sovereignsshouldevaluatewhichprojectscouldqualifyforexternalconcessionalfinancing.Whiletheuseofconcessionalfinancingusuallymeanscarefuland

long-termpreparation,costsavingscanbesignificant.INTERNATIONALMONETARYFUND7IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersIntroductionThisWorkingPaperprovidesguidanceto

sovereigndebtmanagersandotherpublicsectorofficials.Besidessovereigndebtmanagers,membersofgovernmentsoutsidetheDMOwhoareconsideringissuanceorhavedecidedtoissueESGdebtaretheprimaryaddresseesofthis

paper,withafocusonfirsttimeissuersofESGbondsinEMDEs.StakeholdersintheESGissuanceprocess—banks,debtadvisers,membersofnon-for-profitsandthinktanks—mightalsofindituseful.ThispaperisfocusedonthesovereignESGdebtissuanceprocessandrelatedtopics.

TheoperationalandstrategicaspectsofsovereignESGbondissuance

standatthecenterofthepaper,providingsovereigndebtmanagerswithpracticalguidancewithinacost-benefitframework.Itdiscusses(i)thefitofdebtissuedinsupportofESGgoalsintoacountry’sdebtmanagementstrategy;(ii)thetypesofsovereignESGbondsthatareavailableandtheirrelationshipto

thegoalsthesovereignwantstoachieveandtothepreconditionsprevailingintheissuingcountry;(iii)theissuanceprocessesforESGbonds;and(iv)theoperationaldemandsontheDMOandthegovernmentingeneral.WhilethepaperbroadlycoversalltypesofsovereignESGdebt,itfocuseson

bonds,withmanyexamplespresentedusingESGbondsthattargetenvironmentalgoals.

ThisisespeciallythecasewhenthecapacityandoperationalrequirementsofanissuancearediscussedinSectionIII,andwhentheissuanceprocessisdescribedinSectionIV.Therearefourmainreasonsforthischoice:(i)Bondsarethepreferredfundinginstrumentsforsovereigns;(ii)theissuanceproceduresandcapacity

requiredfortheissuanceofanESGbond—beyondwhatisneededtoissueconventionaldebt—aresimilarforbondsandloans;(iii)

climateandtheenvironmentaretopicswhichattractmuchattentiononaglobalscale,makingthemveryrelevantformanycountries.Theterm“ESGdebt”usedwhenbothbondsandloansarethetopicofdiscussion.Thepaperisorganizedasfollows:SectionIIprovidesanoverviewofESGbondsandhowtheyfitintoacountry’sdebtmanagementframework,aswellasitsfiscalandclimateframeworks.SectionIIIdescribesthecapacityandoperationalrequirementsthataccompanytheissuanceofESGbonds,whileSectionIVfollowsupwithadetaileddescriptionofthedebtissuanceprocessbasedonthestylizedexampleofagreenbond.SectionVconcludes.II.ESGDebtand

SovereignFinanceA.ESGDebt:DefinitionsandOverviewTheissuanceofdebtinsupportofESGgoalshasexpandedfastsince2016,increasinglyattractingsovereignissuers.3

Whilethecorporatesector,multilateralorganizations,and

subnationalentitieswerethefirsttoissueESGdebt,sovereignshavebecomeactiveissuersinthissector(Annex1).ESGbondsissuesfallintofivedistincttypeswhichdifferbythetype

ofexpenditurestargetedandthewayinwhichESGgoalsareachieved(Annex2):

(i)greenbonds,wherethefundsraisedareexclusivelyappliedtoenvironmentalprojects;(ii)socialbonds,wherethefundsraisedareexclusivelyspentonprojects3

OntheinterestofsovereignissuersintheESGspace,seeTheWorldBank(2022).INTERNATIONALMONETARYFUND8IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersadvancingsocialobjectives;4

(iii)sustainabilitybonds,whichfundbothenvironmentalandsocialprojects;(iv)SustainableDevelopmentGoal(SDG)bonds,whicharesimilartosustainabilitybondsinthattheycanreferencebothenvironmentalandsocialobjectives,butarelinkedmorecloselyto

theachievementoftheUN’sSDGs;(v)sustainability-linkedbonds(SLBs),wherethefundsraisedcanbespendongeneralcorporateorbudgetarypurposesbenefitingtheissuer,butdebtservicingtermschangeiftheissuerdoesnotachievespecificESGmilestoneswithinasettimeframe;5

and(vi)transitionbonds,which,forinstance,mayfinanceprojectsthatlockinGHGemissions,andarethereforenotabletobe

issuedunderexistingESGbondframeworks.6Othertermsareusedbymarketparticipants,analysts,andstakeholderstodescribeESGbonds(Table1).ThetermsustainablebondsissometimesusedinlieuofESGbonds.

Green,social,sustainability,andtransitionbondsareissuedinause-of-proceeds(UoP)format,wheretheissuanceproceedsarededicatedtospendingonspecificprojects.Forthepurposesofthisnote,climatebondreferstobondswherethefundsraisedorthedebtservicearerelatedtotheachievementofenvironmentalobjectives,whetherthroughUoPmechanismsorothermeans.

So-calledunlabeledbonds

arealsobeingissued,usuallybycorporateswhoseoperationsaredeemedbymanyinvestorstobesupportingtheclimatetransition.Table1.TypesofESGBondsESG

Bond

by

TypeEnvironmentSocialGovernanceESGGreenX=SocialSustainabilitySDGTransitionXXXUse-of-ProceedsSustainablXXXXThematice=LabeledKPI-based

Sustainability-linkedIssuer

or

issuanceis

deemed

fullyESG

compliant

by

someinvestorsXXXXUnlabeledXSource:IMFstaffThedifferentformatsin

whichESGbondsareissuedaccommodatedifferencesinissuers’objectivesandcircumstances,aswellasinvestors’preferences(Annex2).

Historically,newtypesofESGbondshavefirstbeenissuedbymultilateralorganizationsandcorporates,withsovereignsfollowing.7

ESGbondsare4

ExamplesofthosearesupportpaymentsduringtheCOVIDpandemic,fundingofmicroloanschemes,orsupportofwomen-ledsmallenterprises.5

InmostcasesSLBspromiseahighercouponiscertainobjectiveshavenotbeenachievedbyacertaindate.Coupon

reductionsincasetheobjectivearemet,oracombinationofcouponstep-upsandreductionscanalsobeoffered.6

Whiletheprojectstobefinancedwiththeproceedsfromatransitionbondissuance

willusuallyhaveclearclimateorotherenvironmentalbenefits,manyESGinvestorswouldexcludegreenbondslistingsuchprojectsfromtheirportfolios.Keyreasonsforthisarethattheissuer’soverallactivitiesarenotdeemedsufficientlygreen,ortheprojectspursuedare,forinstance,associatedwithfossilfuelusage(Shirmali(2021);Energymonitor(2021)).7

Forinstance,thefirstgreenbondwasissuedbytheEuropeanInvestmentBankin2007,whilethefirstSGBwasissuedInDecember2016byPoland.Thefirstsustainability-linkedbondwasissuedby

theItalianenergygroupEnelinSeptember2019,whileChileissuedthefirstsovereignsustainability-linkedbondinMarch2022.INTERNATIONALMONETARYFUND9IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersalsoknownas“thematic,”“labeled,”or“sustainable”bonds.8

Green,social,andsustainabilitybondshavebeenissuedbyeachofthefivemainissuercategories:sovereigns,corporates,multilateralorganizations,subnationalentities,andgovernmentagencies(Annex

2).9

SLBsthataretargetingenvironmentalSustainabilityPerformanceTargets(SPTs)relatedtoKeyPerformanceIndicators(KPIs)havebeenissuedbysovereignsandcorporatesasofmid-2022,withSLBsthatreferencesocialorgovernance-relatedKPIshavingonlybeenissuedbycorporates.TransitionbondshaveonlybeenissuedbycorporatesandtheEuropeanBankforReconstructionandDevelopment(EBRD),withonly17bondsissuedbetween2017andJune2021.10

ESGbondissuancebysovereignsbeganwithgreenbonds,followedbysovereignsocial,sustainability,andsustainability-linkedbonds.

Asoflate2022,nosovereignhadissuedgovernance-relatedortransitionbonds.11AlignmentwiththeInternationalCapitalMarketAssociation’s(ICMA’s)PrinciplesfortheissuanceofdifferenttypesofESGbondshaseffectivelybecomeapreconditionfor

sovereignissuances.TheICMAhasformulatedsetsofguidelinesfortheissuanceofdifferenttypesofESGbonds–forinstance,theGreenBondPrinciplesandtheSocialBondPrinciples,amongstothers(seeICMA(2021a)and(2021b),respectively).ForUoPbonds,theprincipleslistprojecttypesthatthereceiptsofanissuancecanbespenton.Theprinciplesalsonotethattherefinancingofexistingprojectsfallsundereligibleexpenditures.Importantly,theyalsoprovidethecorecomponentsthatanissuanceneedstoaddresstobealignedwiththeICMAprinciplesfortheparticularsecuritytype.

Forinstance,inthecaseofUoPbonds,thosecorecomponentsare(i)useofproceeds;(ii)processforprojectevaluationandselection;(iii)managementofproceeds;and(iv)reporting.12WhileseveraladditionalmeasuresproposedbytheICMAtobolstertheefficacyandcredibilityofESGbondsarevoluntary,theyhavebecomedefactomarketstandardsfortheissuanceofESGbonds.Bondissuanceframeworksandpost-issuancereportinghavebecomecommonforESGbonds,especiallywhensovereignsareconcerned.Publicationofaframeworkdescribingtheadherenceof

aplannedbondissuancewith

theICMAPrincipleshasbecomeastandard.Suchaframeworkusuallycoversaparticularbondtype–e.g.,greenorsocialbonds–andareoftenutilizedforseveralissuances

thattakeplaceoveraperiodofafewyears.MostframeworksgobeyondwhattheICMAPrinciplessuggestandprovideinformationonthealignmentoftheplannedissuanceswithacounty’sbudget,itsclimateframework

inthecaseofgreenbonds,anditsNationallyDeterminedContribution(NDCs)towardstheachievementoftheParisAgreement

andtheUN’sSDGs.Athoroughframeworkprovidespotentialinvestorswithacomprehensiveviewofthecountry’sclimateambitionsandthecontributionsoftheplannedissuances.Bondframeworksusuallyundergoareview,theso-calledSecondPartyOpinion(SPO),whichisprovidedbyanindependententity,theso-calledSecondPartyOpinionprovider.Thisreviewcanbolsterinvestorconfidenceintheframeworkandtheissuancesbasedonit.13Expostreportingontheuseofproceedsfromabondissuanceandtheenvironmentalimpact

oftheprojectsthatwerefundedhasbecomethestandard,especially

forsovereignESGbonds.Inthecaseof8

“Thematic”usuallyreferstoinvestingalongspecifictopicsorlong-termtrends.9

Greenprojectbondsorgreensecuritizations(bondsforwhichinterestorprincipalpaymentsdependonthevalueofspecific

assetsoroncashflowsderivedfromprojectsorportfoliosofunderlyingassets—likeloans—arenotseparatelybrokenoutinthisNote.10

Bymid-2022transitionbondshadonlybeenissuedwithreferencetoenvironmentalobjectives.Giventransitionbonds’closealignmentwithenvironmentalobjectives

ledustoexcludesocialandgovernanceobjectivesforthesebondsinTable1.11

Japan’sgovernmentwasexploringtheuseofsovereigntransitionbonds(Reuters(2022)).12

FordetailsandfurtherguidanceonUoPbonds,seeICMA(2021a),ICMA(2021b),andICMA(2021c).13

ForfurtherdetailsandotherapproachesthatareusedtovalidateESGbondissuancesandframeworks,seeBoxes1and2.INTERNATIONALMONETARYFUND10IMFWORKINGPAPERSAGuidanceNoteforSovereignDebtManagersUoPbonds,manyinvestorswanttoknowthatexpenditureswereconducted

inlinewiththerespectiveframework.Expostimpactreporting,whether

forclimate-relatedorsocialexpenditureswillsupportacountry’scredibilitywithESG-focusedinvestorsandeasethewayforfutureESGbondissuances.ESGbondsareissuedparipassuwithanissuer’sconventionalbonds,meaningthatESGbondsandconventionalbondscarryidenticalcreditrisk.

MostinternationalESGbondsandconventionalbondsissuedbyasovereignarelabelledseniorunsecuredandwillhavethesameclaimsasotherdebtwiththesamestatusincaseofasovereigndefault.ThisfeatureallowsinvestorstofocusontheESGpropertiesofasovereignESGbondoncetheissuer’screditriskhas

beenascertained.ESG-focusedinvestorscanthenfocusontheESGbenefitsoftheissuance.ESGbondsareoftenissuedatyieldsbelowwhattheissuerwouldhavehadtopayonanequivalentconventionalbond,resultinginlowerinterestcostsfortheissuer,

theso-called“greenium.”14

ThisNotefollowsmuchoftheliteraturebyapplyingtheterm“Greenium”totheyielddiscountof

anESGbondcomparedtoasimilarconventionalbond,especiallyanon-greenbond.15

Withgreeniumsoftenpositive,issuingESGbondsresultsininterestsavingstotheissuers.Thesesavingscanbesignificantwhenissuancesarelarge(Annex3).16

Greeniumshavebeenfoundtobelargerforbondsthatareissuedwithhighspreads,mainly

byEMDEissuers.However,thegreatercomplexityofESGbondissuancecanoffsetsomeofthosecostsavings.However,itshouldbenotedthattheevidenceinfavorpositiveGreeniumsisnotclear,withtheconclusionsofempiricalstudiesdependingonthesetofissuersconstitutingthesample,thesampleperiod,andthemethodologyused(AnnexIII).Theterms“green,”“climate”and“environmental”areusedinterchangeablyfor

thepurposesofthisnote.Whileanobvioushierarchybetweenthethreetermswouldconsider“environmental”astheall-encompassingterm,with“climate”comprisingallclimate-relatedenvironmentalissues,and“green”representingmanyissuesthatcanbeclimate-relatedbutcouldhaveotheraspects

consideredbeneficialforhumansandanimalswithoutbeyondhavingaclimateimpact.However,wehaveseenotherhierarchies,andinESGfinancetheproceedsfromgreenbondissuancescangotoprojectsthatmitigateclimatechange,financeadaptationto

climatechange,bolsterbiodiversity,andcanalsofinancemarineandocean-basedprojectswithpositiveenvironmentaleffects(bluebonds).Ontheotherhand,othertypesofbondsthataimtohavepositiveenvironmentalimpactoraimtomitigateclimatechangemaybe

sustainability-linkedbondsortransitionbonds.Giventhevarietyofusageoftheseterms,wedecidedto

taketheeasyrouteofinterchangeability,reducingconflictswhenusingthesetermsintheandthecapital

marketterminology.B.ESGBondIssuanceandPublicDebtManagementThemainobjectiveofpublicdebtmanagementistoensurethatthegovernment’sfinancingneedsanditspaymentobligationsaremetatthelowestpossiblecostoverthemediumtolongrun,

consistentwithaprudentdegreeofrisk(IMF/WorldBank(2014)).Prudentriskmanagementtoavoidriskydebtstructuresand14

Formally,thegreeniumisthedifferenceintheyieldofaconventionalbondminustheyieldofagreenbond,withtheconventionalbondbeingidenticaltoagreenbondinallrespectsotherthanitbeingnotgreen.15

Byonlyconsideringprimarymarketspreads,thedefinitionusedherealsodiffersfromotherdefinitionsthatlookatsecondarymarketspreads(MeyerandHenide(2020)).Wewillrefertothe“secondarymarketgreenium”whendiscussingthesecondarymarketyielddiscountofanESGbond(Annex

3).16

WithmuchoftheadditionalissuancecostsofanESGbondabovethecosttoissueaconventionalbondbeingfixedinnature,evenafewbasispointsinannualinterestsavingscanexceedthetangibleissuancecostsofanESGbond.Thisexcludesthecostofanyadditionalcapacityonthesover