BIS to leverage fintech solutions for sustainable finance

February 19, 2024|Written by |African Development Bank, World Bank, Monetary Authority of Singapore

Global standard setter eyes AI and big data, development banks issue novel green bonds, the EU considers EBA recommendations on green loans, plus more in the latest roundup.

BIS to leverage fintech for sustainable finance

The BIS has added two green finance projects to the work programme for its global innovation hub. The projects will examine the potential for using novel technologies to advance sustainable finance goals.

The hub’s Hong Kong centre will utilise artificial intelligence (AI) and big data technologies to enhance tracking of scope 3 emissions. It will collaborate with private sector and civil society organisations to create AI-supported emissions disclosures for small and medium-size enterprises.

Meanwhile, the Singapore centre will revamp the Network for Greening the Financial System’s data directory platform. The “data directory 2.0” will redesign the platform to create a searchable and usable public resource.

These projects complement work already underway by the Monetary Authority of Singapore to leverage fintech solutions in green finance.

African Development Bank issues groundbreaking sustainable hybrid capital note

The African Development Bank (AfDB) recently became the world’s first multilateral development bank to launch a sustainable hybrid capital note. The move is part of the AfDB’s efforts to lead development banks to better leverage their balance sheets to boost their sustainability lending capacity.

The bank issued US$750mn of perpetual AA- rated notes under its sustainable bond framework. The transaction was launched with a coupon rate of 5.7% until 2034, with a 10.5 year first call back date.

While some investors were sceptical about whether the novel debt instrument would take off, due to the perceived risk and relatively small yield, demand was strong. The AfDB reported an orderbook peak of US$6bn, with central banks and official institutions buying 6.7% of the final deal

“This is not a one-off transaction, it is definitely one of many more transactions to come,” Hassatou N’Sele, chief financial officer for the AfDB Group, told Reuters.

World Bank prices plastic waste bond

The green bond universe saw another first when the World Bank priced a seven-year US$100mn bond linked to plastic waste reduction last month.

The principal-protected bond mobilises private capital, through partially foregone coupon payments, to support the financing of two independent recycling projects: one in Accra, Ghana and the other in Surabaya, Indonesia.

Investors will receive a fixed interest rate of 1.75%, down from the typical 4%, with the equivalent amounts being provided through a hedge transaction with Citibank to support the financing of the projects.

Financial returns will be linked to carbon and plastic credits generated from the recycling projects.

While the World Bank says this will create a win-win for local communities, environmentalists have criticised the credit for not dealing with the root causes of plastic pollution.

EU is considering EBA recommendations on green loans

The EU is considering the European Banking Authority’s recommendations on how it could step up its game on green loans, said finance commissioner Mairead McGuinness at the EU’s Sustainable Investment Summit.

Developing a clear concept of green loans and setting standards for them at the EU level will provide a promising route for Europe to boost green loans, said McGuiness.

Green loans could be used to direct financial flows towards more efficient or breakthrough transition technologies. She named smart grids – digital technologies to help coordinate energy supply and demand – as a suitable example.

The commissioner also urged investors to utilise regulations already passed by the EU, in particular she stressed the EU’s green taxonomy, green bond standards and climate benchmarks, which she said have created a solid foundation.

Napier: climate changes the ‘biggest concern’ for South African insurance industry

Climate change is the “biggest concern” for the insurance industry and may cause premiums to rise by 10% this year, said Garth Napier of Old Mutual, one of South Africa’s largest insurance firms, in a recent interview with Bloomberg.

After staying consistent for the decade up to 2020, catastrophe insurance has increased by up to 30%, according to Napier.

Elsewhere, Old Mutual’s chief actuary, Ronald Richman, has seen a 50% increase in catastrophe events in the period 2012 to 2022 when compared with the previous decade. Average annual claims increased 10-fold in the same period, added Richman.

Richman also wrote about the importance of improving modelling of climate risks, stressing that traditional catastrophe models need to be more detailed and granular.

Old Mutual is engaged in research projects using deep and machine learning techniques to more accurately quantify and price risk – and Richman urged governments to follow a similar path.

This page was last updated February 19, 2024

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