SDG Bonds: Leveraging Capital Markets for the SDGs

Document Summary: 

This publication addresses key considerations in the creation of a market for mainstream SDG investments, including ensuring that the
market is sufficiently large, liquid, diversified and transparent for institutional investors. 

Section I defines a broad portfolio of SDG investments that can be financed through SDG Bonds. The authors envision that a market for corporate SDG Bonds could develop quickly, as a growing number of companies will require capital to pursue opportunities associated with the SDGs or to transition to a sustainable business model. There is also a large potential market around sovereign, municipal and project bonds that can support the implementation of countries’ national plans for the SDGs. Demand for SDG Bonds could also develop around structured products to de-risk and scale investments in public-private partnerships and blended capital products.

Section II identifies gaps in the current market for corporate SDG investments and suggests several paths forward. These include expanding the scope of the asset and project-based market for green, social and sustainability bonds. Another path is to introduce a model for corporate SDG finance whereby corporate-level SDG contributions are integrated into companies’ strategies and governance, and can be financed by general-purpose bonds and equity. 

Section III explores how a broad and liquid market can contribute to maximizing the scale and credibility of SDG investments. This can be achieved through the self-disciplining effect of broad, public and transparent capital markets and risk mitigation inherent in sustainable
investments.

Section IV explores how a diversified market for SDG investments can attract the growing but equally diverse investor base interested in the SDGs, based on a trade-off between impact and risk/return considerations. 

Lastly, in Section V, the authors focus on SDG Investments in emerging markets where access to finance and capital markets is more limited than in developed countries and where sovereign bonds, direct investment by foreign companies and bank loans constitute the main channels of private finance.

Author
The UN Global Compact & UN Environment
Publication Date
Friday, 01 February 2019
Applicable location
Africa
Americas
Asia
Europe
Oceania
Topic/Theme
Forest conservation and management
Financing policies and mechanisms
Climate change
Database
Learning materials