Issue 2, 2018. April-May



Georgia needs billions of dollars to meet its climate and 'green' growth goals. While there is little chance of international investors footing the bill, a new investment product - green bonds - could provide much needed funding.

Sally White

$19 billion.

That is the estimated cost of meeting Georgia's climate and 'green' growth goals, according to the Organisation for Economic Co-operation and Development (OECD) in its latest paper on 'Mobilising finance for climate action in Georgia.'

Little of the funding is currently likely to come from international investors, so it looks as though consumers could ultimately bear the brunt of costs through higher costs, tariffs and taxes.

The OECD's suggestion for Georgia to issue 'green bonds' could offer some relief, however.

'Finance for climate action in Georgia is already available but is unlikely to be sufficient to achieve the country's overall climate goals. It is estimated that between 2017 and 2030, about $19 billion will be needed to achieve energy efficiency in industries, transport and buildings, non-energy related GHG emissions, activities related to land use, land-use change and forestry. The cost estimates for other sectors are less granular or more uncertain (e.g. for 'non-hydro' renewable energy and adaptation projects),' says the OECD. In all, the total could be nearer $25 billion at current prices,' the OECD said in the paper.

'Some major challenges still exist, such as scalability of projects and Georgia's nascent bond market. The government of Georgia, in collaboration with the National Bank of Georgia (NBG), should consider developing its green bond standard or adopt ones developed by other institutions or countries,' it added.

A Trillion Dollar Business

Green bonds could be timely for Georgia, as they can allow enable new classes of investors, such as pension funds and insurance companies, to invest in climate projects.

Green bonds are a rapidly developing new international financial market which is forecast by some to grow from last year's $180 billion to $1 trillion in a couple of years, according to Reuters.

'Although green bonds make up a small fraction of the overall $100 trillion international bond market, they are attracting more attention because meeting emissions-cut targets will require trillions of dollars of capital from public and private sectors worldwide,' Reuters reported.

Microfinance institutions, institutional investors and non-financial sector corporations could play a greater role in financial flows to climate action, it says, noting that Crystal Microfinance has started a green program funded by the Dutch Development Bank.

Among the Georgian banks, it cites ProCredit Bank as having made progress in designing and providing loans to energy-efficient activities and smaller-scale, often decentralized, renewable energy facilities. The major financial groups had 'limited' themselves to investing mainly in mega projects for wind and hydro energy.

'Limited availability of low-cost, long-term capital, especially from the private sector, in Georgia severely hampers investment in climate and environmental-related projects,' the OECD paper said.

Thus, acknowledging that currently 'Georgia's fiscal space is limited,' it suggests the government should also consider setting up a 'green bank' or a 'green fund.'

The National Bank has taken up the task of examining how to gradually integrate climate and environmental aspects into Georgia's ongoing capital market reform.

The OECD lists many reasons to do so: the non-environmental benefits of 'green bonds' include the opportunity to help develop 'a comprehensive financial sector' by enhancing the attraction and liquidity of the stock market and provision of finance will 'enhance business opportunities, technology transfer and job creation.'

The National Bank of Georgia has recently joined the Sustainable Banking Network (SBN), established by a World Bank subsidiary, the International Finance Corporation (IFC), to gain experience from its membership network. First steps include raising local 'awareness about sustainable finance' and strengthening environmental and social requirements in the corporate governance code.

Other plans are the:

Introduction of green bond and green credit guidelines, which aims to increase awareness and indicate the NBG's support towards green financing.

Introducing 'green credit' and 'green bond' definitions-as defined by the NBG-will make it easier for an investor to assess the actual greenness of the bond.

'These are all in the pipeline, and in order to successfully implement all those changes, while taking into account the experience of other countries, we are working in collaboration with IFC/SBN team,' says the NBG. There is no target timetable for green bond issuance as yet. Potential foreign investors are growing in number. Just launched, for example, is the $2 billion Amundi Planet Emerging Green One from the IFC and Amundi, Europe's largest asset manager, which is aimed at 'climate-smart projects in emerging markets.'

Green bonds could have a 'significant impact' in energy-hungry Georgia, IFC Regional Manager for the South Caucasus, Jan van Bilsen, said confidently at a press conference last year. 'According to estimates, Georgia could support about $1 billion in investments in projects ... through 2020,' he said.