UNDP-Indonesia

SDG Bond Feasibility Study

International Consultant

Peiyuan Guo

04 December 2020
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 01 Introduction

Contents 02 SDG Bonds

03 Summary

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01
CHAPTER
Introduction

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Introduction
Objective: assessing the feasibility of the Government of Indonesia to issue SDG
sovereign Bond, potentially in the second semester of 2021.

Background:
• The financing gap to meet the SDGs is estimated to be USD 2.5 trillion per annum.
• The bond market matches the long-term nature of green and SDG investment.
• According to UNDP’s study of COVID-19 impacts to SDGs, potential COVID-19
recovery trajectories to 2030 and 2050 may bring three different futures:
a) Baseline scenario: 44 million more people living in extreme poverty by 2030
b) “High damage” recovery: above 1 billion total number of extremely poor
people in the world by 2030
c) With ambitious but feasible SDG investments: lift an additional 146 million
people out of extreme poverty by 2030 compared to the baseline

Methodology:
Documents and Reports Review, Desktop Research, and Stakeholder Interviews with
Crédit Agricole CIB, HSBC, CICERO Shades of Green, UNDP Mexico, ICMA
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02
CHAPTER
SDG Bonds

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 Issuing Process

1 2 3 4 5 6

Engage Issue the sustainability

government Identify eligible themed bond
stakeholders sustainability themed
budget items

Establish a sustainability
themed bond framework Arrange independent reivew Monitor and report

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 GSS Bond Principles
Process of Project Evaluation
Use of Proceeds Management of Proceeds Reporting
and Selection
• Green Projects with Communicate to investors:
clear environmental • The Environmental • Track the net proceeds
• Disclose up-to-date
benefits. sustainability objectives and prove its linkage to
information in the annual
• Clarify the share and • Process to determine Green Projects.
Green Bond report.
projects of refinancing. eligible Green Projects • Periodically adjust to
• Timely basis update in case
• List several categories • Eligibility criteria match allocations to
of material developments.
of eligibility for Green • Disclose other relevant Green Projects.
Projects. information.

Communicate to investors:
• Social Projects with • Track the net proceeds
• The Social objectives • Disclose up-to-date
clear social benefits. and prove its linkage
• Process to determine information in the annual
• Clarify the share and to Social Projects.
Social Bond eligible Social Projects report.
projects of refinancing. • Periodically adjust to
• Eligibility criteria Disclose • Timely basis update in case
• List eligible categories match allocations to
other relevant of material developments.
of Social Projects. Social Projects.
Information.

Sustainability
Bond Aligned with the four core components of both the GBP and SBP with the former being especially relevant to underlying Green
(nature of SDG Projects and the latter to underlying Social Projects.
Bond)

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 Framework
Based on the interviews with Crédit Agricole CIB and HSBC,
• UN SDGs have become recognized by investors, especially in Nordic countries.
• Many investors have investment portfolios mapped with SDGs, and some are measuring positive impacts of their
(bond) portfolios.

➢ If technically applicable, the Consultant would suggest developing an SDG bond

framework by expanding the current green sukuk framework for the following
reasons :
• Show Indonesia’s ambition in “do no harm” and “do more good”. It will bring SDG Bond

confidence to investors that under this SDG bond framework, the social
projects selected will do no harm to the environment and the green projects
selected will do no harm to the society.
Green
• Avoid competition between green sukuk and green excluded SDG bonds. Susuk
Under this SDG bond framework, Indonesia can still issue green sukuk when
needed.
• Re-emphasizing Indonesia’s commitment in green.
• Indonesia’s sovereign green susuk has a good reputation.

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 Which SDGs will attract the market

SDGs Mexico AFD HSBC CIMB ANZ • There is no specific focus to reflect the market
appetite
SDG 1 No poverty Geo V
• Justification of which SDGs to select is more
SDG 2 Zero hunger V V
SDG 3 Good health and well-being Geo, V V V V
important than which SDGs have been chosen,
SDG 4 Quality education Geo, V V V V
especially for a sovereign SDG bond
SDG 5 Gender equality V V • Need to show that the proceeds will be used in
SDG 6 Clean water and sanitation Geo, V V V V the most urgent SDGs/SDGs that align your
SDG 7 Affordable and clean energy Geo, V V V V national strategies to maximize the positive
SDG 8 Decent work and economic growth V V impacts of the bond
SDG 9 Industry, innovation and infrastructure V V V V V
SDG 10 Reduced inequalities V V V ➢ Mexico: the selected SDGs are those where
SDG 11 Sustainable cities and communities Geo, V V V V
tangible SDG contributions have been
SDG 12 Responsible consumption and production V V V
identified against budgetary expenditures.
SDG 13 Climate action V V V V V
SDG 14 Life below water V V
➢ CIMB: core SDGs in their bond framework are
SDG 15 Life on land V V V
SDG 16 Peace, justice and strong institutions V V
identified and selected due to their relevance
SDG 17 Partnerships for the goals V
to the CIMB Group’s sustainability strategies.

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Impact Reporting-Mexico (1/2)
Investors have started to look beyond the SDG label and concern about the contents, i.e. clear social
and environmental benefits of the projects.
Impact Reporting Strategy - Mexico

• Ministries monitoring metrics

• SDG National Platform: open-source tool fed with open

data monitored by the National Institute of Statistics and
Geography to enable greater collaboration towards an
accountable monitoring and effective delivery of the goals

• CONEVAL: a federal public agency with autonomy and

technical capacity to generate objective information
regarding social policies and measurements of poverty in
Mexico

➢ Role of UNDP: an observer and, as required, provide

technical assistance to SHCP in the development of the
impact report

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Impact Reporting-Mexico (2/2)
Impact Reporting Indicators - Mexico

• Expected environmental and social

benefits of the Eligible Sustainable
Expenditures

• Qualitative performance indicators

and, where feasible and available,
quantitative specific results of the
impacts of projects funded

• Continuous refining of the indicators

over time, shifting from outcome-
based to increasingly impact-focused

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Impact Reporting-AFD
Impact Reporting Indicators - AFD

• Developed aggregable impact measurement indicators and evaluation policies

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Impact Reporting-Existing Resources (1/2)

UNDP - SDG Impact Standards for Bonds

• Guide the impact measurement and proceeds management

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Impact Reporting-Existing Resources (2/2)
UNDP – SDG Finance Taxonomy (China)

• Offer a classification system with impact assessment and reporting criteria for finance and investment.

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Market Potential – Target Investors (1/4)

By geographical distribution
➢ Main GSS/SDG bond investors are from Europe.
• 5 SDG bond cases:
✓ 60% in EUR, 40% in USD
✓ 60% in European stock exchanges
• 20 sovereign GSS bond:
✓ 45% in EUR, 40% in USD
✓ 65% in European stock exchanges

By investor type
➢ Institutions with green/social/sustainability bond funds
➢ There are more investors for green bonds than that for social bonds,
some green investors also have strong interest in SDG bonds

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 Market Potential – Target Investors (2/4)
Issuer Issuance Currency Exchange Investors
1. 46% of the transaction (~EUR 349mm) was allocated to “strongly
committed” funds (i.e. dedicated green and/or sustainable bond funds
and/or mandates)
Berlin, Dusseldorf, 2. 20% of the transaction (~EUR 149mm) was allocated to “partially
Mexico 2020 EUR Frankfurt, London, Luxumberg, committed” funds (i.e. that incorporate ESG criteria in their investment
Stuttgart decisions)
3. 7% of the transaction (~EUR 52mm) was allocated to “lightly committed”
funds (i.e. PRI signatories, but not truly active players in the broader RI
market)
1. 43% of the transaction was allocated to “strongly committed” funds (i.e.
dedicated green and/or sustainable bond funds and/or mandates)
2. 15% of the transaction was allocated to “partially committed” funds (i.e.
AFD 2020 EUR N/A
that incorporate ESG criteria in their investment decisions)
3. 21% of the transaction was allocated to “lightly committed” funds (i.e. PRI
signatories, but not truly active players in the broader RI market)
Berlin, Frankfurt,
HSBC 2017 USD
New York, Stuttgart
CIMB 2019 USD STGX-ST, Taipei
2020 AUD ASX Primarily distributed to European and Asian investors
Australia, Dusseldorf, Frankfurt,
2019 EUR
Munich, Stuttgart
ANZ
Australia, Berlin,
2018 EUR Dusseldorf, Frankfurt, Munich,
SIX, Stuttgart
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 Market Potential – Target Investors (3/4)

Country Use of Proceeds Year of First Issue Currency Reviewer Exchange Investors
Poland Green 2016 EUR Sustainalytics All German SE, Luxembourg, Milan
All German SE, Euronext-Paris, Eurotlx,
France Green 2017 EUR Vigeo Eiris
MTS France, Send
Fiji Green 2017 FJD Sustainalytics Not Listed
Nigeria Green 2017 NGN DNV Nigeria
Indonesia Green 2018 USD CICERO Nasdaq Dubai, SGX-ST
By Investor types, Fund Managers represented
33% of the transaction followed by Central
Banks and Official Institutions (26%) and
Pension Funds (16%)
All German SE, Euronext -bruss,
Belgium Green 2018 EUR Sustainalytics
Eurotlx, HI-MTF, MTS Belgium, Send
By geographical distribution, Eurozone
represented the bulk of demand (53%),
followed by Europe (non-Euro zone) –23% and
Asia (12%)
Lithuania[1] Green 2018 EUR N/A NOMX VILNIUS an Austrian investor
Ireland Green 2018 EUR Sustainalytics N/A

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 Market Potential – Target Investors (4/4)

Country Use of Proceeds Year of First Issue Currency Reviewer Exchange Investors
Private placement: Calvert Impact Capital,
Seychelles[2] Green 2018 USD N/A N/A
Nuveen, and Prudential
32 investors with green credentials were given
All German SE, Euronext-Amster, MTS an additional allocation of up to 10%. 22% of
Netherlands Green 2019 EUR Sustainalytics
Amsterdam, Send the overall issuance was allocated to such
green investors.
Hong Kong SAR Green 2019 USD Vigeo Eiris Hong Kong, London
Several European investors were interested.
Berlin, Dusseldorf, Frankfurt, London,
Chile Green 2019 USD/EUR Vigeo Eiris There was interest from up to 40 specialist ESG
Luxembourg, Munish, Stuttgart
investors.
South Korea Sustainability 2019 USD Sustainalytics Frankfurt, SGX-ST, Stuttgart
Ecuador Social 2020 USD Vigeo Eiris N/A
Guatemala[3] Social 2020 USD N/A
Sweden Green 2020 SEK CICERO Frankfurt, Nomx Stockholm, Stuttgart
Hungary Green 2020 JPY CICERO All German SE, London, Luxembourg
Germany[4] Green 2020 EUR ISS ESG All German SE, MTS Germany, Send
Berlin, Frankfurt, Luxembourg,
Luxembourg[5] Sustainability 2020 EUR Sustainalytics
Stuttgart
Berlin, Dusseldorf, Frankfurt, London,
Mexico SDG 2020 USD Vigeo Eiris
Luxumberg, Stuttgart

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Bond Pricing

According to a research on a total of 132

green bonds with sufficient data on the
issuer’s yield curve, green bonds do not
guarantee a lower cost.
• 28 green bonds exhibit a “greenium”,
indicating a lower yield compared with
that of conventional bonds.
• 43 green bonds are priced similarly to
conventional bonds.
• 61 green bonds are priced higher than
conventional bonds.

The mixed result may be influenced by factors

such as time periods, methodologies, ratings,
currencies, and the properties of the
respective issuing entity.

Source: Survey of Green Bond Pricing and Investment Performance

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03
CHAPTER
Summary

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Summary
➢ Framework
• Suggest: develop an SDG bond framework by expanding existing green susuk framework

➢ Which SDGs will attract the market

• No specific focus to reflect the market appetite
• Suggest: focus on the most urgent SDGs/SDGs that align your national strategies to
maximize the positive impacts of the bonds

➢ Impact reporting
• Strategy: multi-ministry collaboration
• Indicators: positive environmental and social impacts, possible ref. SDG Impact Standards for
Bonds, SDG Finance Taxonomy (China)

➢ Market potential - investor

• Institutions with GSS bond funds
• European investors
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THANK YOU

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