A major new emerging markets green bond issuer is set to begin a US$5bn–$7bn borrowing programme this year. First announced at the COP26 international climate summit in Glasgow in November 2021 – but still to make its market debut – the CIF Capital Markets Mechanism will fund the scaling up of clean technologies in developing economies.
No news on CCMM has emerged for nearly 18 months. But the new entity, part of the multilateral Climate Investment Funds, should launch officially later in 2023 with the World Bank as treasury manager – the same role it performs for the similar International Finance Facility for Immunisation.
“After an in-depth review, the World Bank finance team has determined that the CCMM has the potential to increase the volume of concessional funding available to mobilise co-financing from participating MDBs, in addition to crowding in the private sector, bilateral aid and domestic resources that work together to provide an essential stream of financial support for developing countries in the fight against climate change,” a CIF spokesman said.
“The World Bank and relevant stakeholders continue to work on the CCMM design, efficiency and effectiveness.”
Capital commitments
Like IFFIm, an established capital markets issuer set up in 2006, CCMM will issue against capital commitments from donor countries. The 14 donors to the World Bank-managed CIF are led by the UK, which has provided £2.7bn since the funds’ creation in 2008 despite lowering the share of GDP committed to development to 0.5% from 0.7%.
Donors will capitalise CCMM by “reflows” – forgone returns on past CIF investments.
IFFIm accelerates funding of vaccination programmes by issuing bonds against its sovereign owners’ capital pledges.
Its chair, former World Bank treasurer Ken Lay, told IFR last year that donors – particularly the UK – wanted to replicate the model for “other global public goods”.
Both Japan and the US endorsed the original plan for the entity at COP26, with US Treasury secretary Janet Yellen terming it an “innovative initiative” – though the scale of their involvement is still unclear.
The UK confirmed the CCMM plan on Thursday as part of its updated green finance strategy. It said the entity will issue London-listed green bonds for EM countries “to develop clean technologies at scale” and anticipated that its borrowing would leverage 10 times the volume of project co-financing.
At COP26 then-UK chancellor Rishi Sunak (now prime minister) illustrated CCMM's typical use of proceeds as “cheap, reliable and clean electricity to power schools and hospitals in rural Africa”. He said CCMM would “turbo-charge” green investment in developing economies.
CCMM will mark the first time a multilateral climate fund has leveraged its balance sheet in capital markets.
After the original announcement bankers anticipated that the new entity would issue US$500m–$700m of green bonds a year. Proceeds will be disbursed through CIF's five supranational partners as equity, debt, mezzanine finance, guarantees and other instruments.
CIF has said it expects the entity to achieve investment-grade ratings. Its sovereign support potentially puts it in Double A or even Triple A territory, though its degree of leverage will determine the final grade.