Multilateral development banks’ use of green, social and sustainability (GSS) bonds: lessons for private investors
This report explores approaches taken by multilateral development banks (MDBs) to the just transition and details how private investors seeking to engage in just transition principles and impact can embed the concept within green, social and sustainability (GSS) bonds and other private financial investments. The authors present a methodology for identifying emerging best practice within MDB approaches to the just transition which can be leveraged by private finance. Using the methodology the authors assess all global and regional MDBs that issue GSS bonds, finding that MDBs are committed to the just transition and have been developing sophisticated and complex approaches to embedding it throughout their operations. They have made a coordinated commitment but have also tailored their approaches to their regional contexts. This has been reflected in their GSS bonds, including in their bond frameworks and impact reporting.
Insights and examples of emerging best practice:
- MDBs demonstrate that just transition finance needs to reflect context and transition priorities. Treating the just transition as a simple ‘add-on’ to generic finance risks ignoring its critical role in the structural transformations needed to address climate change fairly and effectively.
- MDBs recognise the importance of ensuring a ‘social licence’ for successful climate action. This includes — but goes beyond — managing social risks when delivering climate finance and impact and demonstrates the importance of these issues for investment cases.
- There is a need for credible third-party analysis to determine the alignment of financing with just transition principles. These analyses can draw insights from MDBs’ just transition strategies and tools but must also recognise ongoing limitations and areas for development.
- GSS bond issuers should adopt holistic and context-specific approaches that integrate environmental, social and economic dimensions. Integrating climate mitigation, adaptation and resilience Use of Proceeds (UoP) under single bond frameworks can ensure financing flexibility and support for holistic projects. Adopting the ‘just transition’ as a framework can help organise these efforts.
- Private investors assessing bonds for potential just transition impact should look beyond the formal elements of GSS bond frameworks, Second Party Opinions (SPOs) and impact reporting to consider the issuer’s context, overall strategy and institutional commitment towards a just transition.
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