Thematic bonds are financial instruments issued by governments, municipalities, or companies to finance projects that have a positive impact on the environment and society: climate change, health, food, education, access to financial services, and other Nationally Determined Contributions (NDC) and Sustainable Development Goals (SDG) targets.
These include green, social and sustainability bonds (GSS) and sustainability-linked bonds (SLB).
Green, social and sustainability bonds: A type of fixed-income instrument whose proceeds are earmarked to finance projects in the areas of climate change, health, nutrition, education, access to financial services and other NDC goals.
Sustainability-linked bonds: A type of bond instrument whose financial and/or structural characteristics may vary depending on whether the issuer meets predefined sustainability targets. Importantly, the proceeds of SLBs are intended to be used for general purposes, so the use of the proceeds is not a determining factor.
Why issue a thematic bond? – Financial and non-financial benefits
The issuance of thematic bonds brings various financial and non-financial benefits, such as lower interest rates, a diversified investor base, better coordination between finance and sustainability teams, increased visibility, and an increased flow of private sector finance into mitigation and adaptation projects. Learn more >>
Thematic bonds for sustainable development in emerging economies
To fight climate change, emerging economies need to invest an estimated $4 trillion in green infrastructure. As public funding is insufficient to achieve these goals, mobilizing significant private sector resources for climate action is crucial to limit the rise in global temperatures.
The emerging but fast-growing thematic bond market can play an important role in developing countries. These bonds cover a wide range of actors involved in achieving climate goals and social inclusion, including companies, governments, municipalities, or development banks, and offer a broad range of actors as well as the size and liquidity necessary for investors. In this sense, the bond market is a longer-term and lower-risk asset class that fits the profile of climate action.
Despite bonds being the primary capital source for most governments with an estimated global capitalization of USD129.3 trillion as of 2021, thematic bonds constitute less than 1% of total issuances, highlighting an untapped potential in climate finance.
GGGI’s Global Thematic Bonds Program
The Global Green Growth Institute (GGGI) supports developing and emerging economies in issuing thematic bonds to achieve sustainable economic growth. Governments, national development banks, exchanges, and donors highly value GGGI’s expertise and seek its technical assistance to enhance their capacity and systems for entering the thematic bond market.
GGGI’s Global Thematic Bonds Program aims to improve sustainable finance in developing countries by enhancing policy frameworks, strengthening national green finance ecosystems, and building the capacity of market participants. It facilitates thematic bond issuance by providing countries with key policy documents, technical assistance, and guidance.
The 4-year programme (2023-2026) aims to reduce greenhouse gas emissions, create green jobs, and enhance climate resilience while improving access to sustainable services for communities in member countries. The ambitious target is to issue 10 thematic bonds by the end of the programme, raising $2 billion for the fulfilment of NDCs.
GGGI Thematic Bond Framework
A key contribution from GGGI is the development of Thematic Bond Frameworks, which define the issuer’s processes, methodology, and governance framework that regulate:
- use of the bond proceeds;
- process for project identification, evaluation, and selection;
- management of proceeds; and
- monitoring and reporting.
All GGGI-led Thematic Bond Frameworks have received positive Second-Party Opinions from an external verifier, confirming their alignment with NDC targets, principles of the International Capital Market Association (ICMA), and international best practices.