The $2 billion Green Cornerstone Bond Fund (GCB) will buy green bonds issued by banks in Africa, Asia, the Middle East, Latin America, Eastern Europe, and Central Asia – read Emerging Markets.
It is designed to simultaneously stimulate demand (through the fund) and supply (through targeted technical assistance to financial institutions) of green finance to “complete the circuit” and propel climate finance in emerging markets.
What are they doing?
Creating the $2 billion market for GB by selling Conventional Bonds (CB) of participating banks on the secondary markets in order to buy green bonds (GB) on the primary market. And those GB shall meet the GCB Fund’s investment criteria while all GCB Fund’s investment investment/divestments decisions will be taken by Amundi.
Amundi has the fixed income markets expertise and tools to analyze these opportunities, transact (example: need for a securities brokers network across emerging markets), manage risks, report to investors and regulators according to market standards, etc.
Because there is a strong demand for financial innovation to help investors align their portfolios with a low carbon economy, as encouraged by the COP 21.
The project is also timely in the sense that emerging markets offer investors an opportunity to deploy funds in fixed income markets instruments which are generating yields that are substantially higher than in developed markets, including risk/reward considerations, given the current prevailing low yield environment.
By sharing the risks and leveraging expertise.
The GCBF project is an example of financial innovation with a combination of:
(1) a layered fund that shares the risks in a proper manner in order to help investors invest into Emerging Markets Debt. This is combined with a progressive shift towards GB in order to build a diversified portfolio, and a listing of the fund shares on the Luxembourg Stock Exchange,
(2) an IFC-administered and managed technical assistance facility that aims at helping issuers (in this case the focus is on systemic banks in emerging markets & preferably those which are already issuing CB) to issue GB, which are listed and rated in order to meet institutional investors investment criteria.
- Two published papers co-written by Amundi’s Fred Samama with Patrick Bolton at Columbia University and Mats Andersen, ex-CEO of AP4. One of them describes low carbon indexes that are used by AP4/Sweden, CalSTRS, NY Common Retirement Fund, NZ Superannuation Fund, etc. It has the potential to be a game changer as it tackles the climate change time horizon issue
- A description of the Article 173 by French Treasury (a unique piece of legislation that makes the carbon footprint almost mandatory in France)