Climate change: BIS to create Asia-focused green bond fund for central banks
- Green bond fund will be the third in two years created by Basel, Switzerland-based BIS, provider of financials services to central banks
- Newest dollar-denominated fund will include green bonds offered by commercial banks for the first time
The Bank of International Settlements (BIS) plans to launch a dollar-denominated green bond fund focusing on investments in Asia in the first half of next year.
It will be the third green bond fund created by the Basel, Switzerland-based organisation in the past two years, but focusing on a region where it can have the most effect, according to Siddarth Tiwari, BIS’s chief representative for Asia and the Pacific.
“It is a tangible example of the central banking community stepping up and doing something that is consistent with their mandate in terms of financial stability and price stability, and being supportive of the general direction that the policymakers are taking,” Tiwari said.
The fund will allow central banks within Asia – and outside the region – to invest their reserves in environmentally sustainable projects in the region through green bonds offered by sovereigns, supranational institutions and commercial banks meeting strict international standards. It will be the first of the three funds to include investments in green bonds offered by commercial banks, reflecting the role those banks play in Asia.
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BIS debuted its first dollar-denominated green bond in September 2019 and a second euro-denominated fund in January of this year. Those two funds manage about US$2 billion in green bonds for central banks.
Founded in 1930, BIS is owned by 63 central banks and provides financial services to central banks, monetary authorities and international organisations worldwide.
The newest fund will work closely with the Asian Development Bank and other financial institutions focused on development, the BIS said.
The announcement comes just weeks after BIS sounded the alarm in its quarterly review that the fast growth of financing to deliver on environmental, social and governance (ESG) goals could lead to a bubble “unless market transparency can be ensured”.
“Rich valuations in credit markets would be more relevant for assessing possible risks of financial distress, given the potential for defaults. More analysis would be needed to evaluate this possibility, including by estimating the size of any ‘greenium’ or ‘socium’ – the lower premium that market participants require for bearing financial risk when their investments support environmental or social causes – as it could signal market overheating,” they added.
“The BIS green bond fund will invest in Asia, broadly speaking,” Tiwari said. “That’s a clear recognition that climate is a global externality, that spending in one country alone is not going to tackle it. There needs to be region-wide investment across countries, including in those jurisdictions where the central bank has not contributed.”