Editing IPCC:AR6/WGIII/Chapter-15 (section)

=== 15.6.7 Development of Local Capital Markets ===

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'''International situational context.''' Developing countries make up two-thirds of the world’s population and carry carbon-intensive economies where 70% of investments (see Chapter 3) need to be conducted to limit warming to 2°C. The focus for climate investments has been on China, USA, Europe, India and the G20 ( [[#UNEP--2019|UNEP 2019]] ) but studies highlight Paris and SDG attention should be devoted to Africa, LDCs and SIDS ( [[#African%20Union%20Commission--2015|African Union Commission 2015]] ; [[#Feindouno--2020|Feindouno et al. 2020]] ; [[#GCA-AAI--2020|GCA-AAI 2020]] ; [[#Warner--2020|Warner 2020]] ; [[#AOSIS--2021|AOSIS 2021]] ). The ‘special needs, circumstances and vulnerability’ of African, LDC and SIDS nations are recognised under UNFCCC and UN agreements ( [[#UN--2009|UN 2009]] , 2015a,b,c; [[#UNFCCC--2010|UNFCCC 2010]] , 2015; [[#Pauw--2019|Pauw et al. 2019]] ). These nations currently contribute very little to global emissions. Developing countries with their growing economies, including the vast African continent roughly the size of China, Europe, USA, and India combined ( [[#IEA--2014b|IEA 2014b]] , p. 20) with a 1 billion population expected to double by 2050, growing reliance on fossil fuels and ‘cheap’ biomass (charcoal use and deforestation) amid rising urbanisation and industrialisation ambitions – collectively these nations hold large leap-frog potential for the energy transition as well as risks of infrastructure lock-in. Accelerated international cooperation is a critical enabler ( [[#IPCC--2018|IPCC 2018]] ) in recognising this potential. This could mobilise global savings, scale up development of local capital markets for accelerated low-carbon investment and adaptation in low- and lower-middle-income countries as well as tackle illicit finance including tax avoidance leakages that deprive developing countries of valuable resources ( [[#US%20DoJ--2009|US DoJ 2009]] ; [[#Hearson--2014|Hearson 2014]] ; [[#Hanlon--2017|Hanlon 2017]] ; [[#US%20DoJ--2019|US DoJ 2019]] ; [[#IATFD--2021|IATFD 2021]] ). Diversifying funding sources is important at a time hard-currency Eurobond issuances reach records ( [[#Panizza--2020|Panizza and Taddei 2020]] ; [[#Moody’s%20Investors%20Service--2021|Moody’s Investors Service 2021]] ). Otherwise, the structure of voluntary, nationally oriented, and financially fragmented arrangements under the Paris Agreement (Chapter 17) could lead to ‘regional rivalry’ (SSP 3) pathways ( [[#IPCC--2018|IPCC 2018]] ; [[#Gazzotti--2021|Gazzotti et al. 2021]] ). The benefits are many times greater than apparent costs in terms of expected decline in global GHG emissions and attaining SDGs. These could even generate large ‘win-win’ opportunities back in capital source countries which will benefit from a flow back in import demand ( [[#Hourcade--2021a|Hourcade et al. 2021a]] ).

'''Lessons from literature on policy options in mobilising capital for Paris and SDGs in developing countries can be summarised as follows:'''

1. development of national just transition strategies meet the USD100 billion commitment on a grant-equivalent basis to support NDCs that integrate policies on COVID-19 recovery, climate action, sustainable development and equity;

2. increase the leverage of public funds on diverse sources of private capital through de-risking investments and public-private partnerships involving location-based entities with AAA-rated players and institutional investors;

3. coordination of project preparation and development of project pipelines by infrastructure coordinator agencies, one-stop structuring and financing shops, project risk facilities provided by entities such as cities’ development banks, green banks, a world climate bank, global guarantee mechanism, and global infrastructure investment platform;

4. development of local currency bond markets backed by cross-border guarantees, technical assistance, remediation assets, especially by regional and national players whose mandates include nurturing local capital markets to support bond yield curve development and exchange listing options;

5. adopting advances in science-based assessment methods to foster accountability;

(a) for project assessment, measuring, reporting and verifying, and certification,

(b) for disclosures in climate, fossil fuels, SDGs, debt transparency and debt sustainability, and

(c) for progress on UN systems of national accounts particularly for public sector finance statistics.

'''Whole-of-''' '''society approach to mobilising diverse capital.''' There’s no shortage of money globally: it is simply that it has yet to travel to where it’s most needed. One challenge is unlocking unencumbered endowments to contribute to Paris and SDGs ( ''high confidence'' ) ''.'' The aggregate global wealth figures exceed USD200 trillion ( [[#Davies--2016|Davies et al. 2016]] ; [[#UBS--2017|UBS 2017]] ; [[#Credit%20Suisse--2020|Credit Suisse 2020]] ; [[#Heredia--2020|Heredia et al. 2020]] ). Some developing countries have run pilots for investing in government bonds capitalising on fintech growth discussed ( [[#The%20Economist--2017|The Economist 2017]] ; [[#Akwagyiram--2021|Akwagyiram and Ohuocha 2021]] ) ( [[#15.6.6|Section 15.6.6]] ). Others are developing green products to encourage uptake by middle class retail investors ( [[#Eurosif--2018|Eurosif 2018]] ; UK DMO 2021). Millennial-aged inheritors expected to receive intergenerational transfers mobilised by global citizen activism (Chapter 2) invest in green retail and tech products ( [[#Morgan%20Stanley--2017|Morgan Stanley 2017]] ; [[#UBS--2017|UBS 2017]] ; [[#Capgemini--2021|Capgemini 2021]] ). Historic inequity and diaspora-related private and public resources pledged and debated during the COVID-19 pandemic might have potential to contribute towards Paris and SDGs ( [[#Olusoga--2015|Olusoga 2015]] ; [[#Glueck--2020|Glueck and Friedman 2020]] ; [[#Hall--2020|Hall 2020]] ; [[#Piketty--2020|Piketty 2020]] ; [[#Timsit--2020|Timsit 2020]] ; [[#Goldman%20Sachs--2021|Goldman Sachs 2021]] ; [[#Guthrie--2021|Guthrie 2021]] ; [[#Mieu--2021|Mieu 2021]] ; [[#Wagner--2021|Wagner 2021]] ). Philanthropic institutions use grants, debt, equity, guarantees and issue investment grade bonds in using unencumbered endowments ( [[#Manilla--2018|Manilla 2018]] ; [[#Covington--2020|Covington 2020]] ; [[#Moody’s%20Investors%20Service--2020|Moody’s Investors Service 2020]] ) but only about 2% of their resources are dedicated to climate action (Williams T., 2015; [[#Kramer--2017|Kramer 2017]] ; [[#Morena--2018|Morena 2018]] ; [[#Delanoë--2021|Delanoë et al. 2021]] ). The pandemic exemplified the unprecedented collaboration and mobilisation of multilateral and scientific communities supported by the COVAX risk sharing mechanism for COVID-19 vaccines with pooling of financial and scientific resources ( [[#OECD--2021d|OECD 2021d]] ). This momentum in international cooperation can be harnessed to galvanise resources, including for teaching of sciences in developing countries important in tackling society challenges, alleviating poverty ( [[#TWAS--2021|TWAS 2021]] ) and inequity legacies compounded by climate impacts debated by many ( [[#Henochsberg--2016|Henochsberg 2016]] ; [[#Obregon--2018|Obregon 2018]] ; [[#Fernandez--2021|Fernandez et al. 2021]] ; [[#The%20Economist--2021|The Economist 2021]] ). Suggestions towards equitable models include ‘global adaptation funding approaches’ ( [[#Chancel--2015|Chancel and Piketty 2015]] ), a ‘world climate bank’ to finance climate investments through long-term bonds ( [[#Foley--2009|Foley 2009]] ; [[#Broome--2012|Broome 2012]] ; [[#Broome--2016|Broome and Foley 2016]] ), a ‘cities development bank’ ( [[#Alexander--2019|Alexander et al. 2019]] ), and ‘public debt financing models’ ( [[#Rendall--2021|Rendall 2021]] ) for generations to share the burden which has precedence in history ( [[#Draper--2007|Draper 2007]] ; [[#Fowler--2015|Fowler 2015]] ).

'''Local financial institutions with local markets knowledge could benefit from technical assistance and partnership to scale up their potential with institutional investors better mobilised''' ( ''high confidence'' ) ''.'' The Global South has some 260 public development banks/PDBs representing USD5 trillion in assets with a worldwide PDB capacity to provide more than USD400 billion yr –1 of climate finance (IDFC and GCF 2020). Case studies discuss the potential for diaspora bond issuance being deployed for climate investments including securitisation of remittances as collateral for infrastructure bonds ( [[#Ketkar--2010|Ketkar and Ratha 2010]] ; [[#Akkoyunlu--2012|Akkoyunlu and Stern 2012]] ; [[#Gelb--2021|Gelb et al. 2021]] ). Such instruments could help harness diaspora remittances, whose flows rose from under USD 100 billion to USD530 billion during 1990–2018 (World Bank 2019c). PDBs could benefit from technical partnership with multilaterals and other local banks ( [[#Torres--2016|Torres and Zeidan 2016]] ). Their knowledge of local markets, can help build project pipelines (Figure 15.7) to channel local, domestic and international capital ( [[#Griffith-Jones--2020|Griffith-Jones et al. 2020]] ). Institutional domestic and international investors have growing assets estimated to exceed USD100 trillion ( ''high confidence'' ) ( [[#Willis%20Towers%20Watson--2020|Willis Towers Watson 2020]] ; [[#UN%20PRI--2020|UN PRI 2020]] ; [[#Halland--2021|Halland et al. 2021]] ; [[#Heredia--2021|Heredia et al. 2021]] ; [[#Inderst--2021|Inderst 2021]] ) and could be better mobilised. Some 36% of total assets under management (AUM) by the 100 largest asset owners come from pensions and sovereign wealth funds in the Asia Pacific region, with the remainder split almost evenly across Europe, the Middle East, Africa and North America. The largest pension fund in South Africa held about USD130 billion AUM in 2019 and African institutional investors held USD1.8 trillion in 2020 ( [[#PwC--2015|PwC 2015]] ; [[#GEPF--2019|GEPF 2019]] ; [[#Bagus--2020|Bagus et al. 2020]] ; GCA 2021a). UK NGO War on Want’s (2016) analysis of 101 fossil fuel and mining companies on the London Stock Exchange estimates these as holding USD1 trillion assets inside Africa. The Latin America and Caribbean region holds just about USD1 trillion AUM ( [[#Curtis--2016|Curtis 2016]] ; [[#Serebrisky--2015|Serebrisky et al. 2015]] ; [[#Cavallo--2019|Cavallo and Powell 2019]] ).

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[[File:53cbb7a421725f1a3c51148f1aa47ecc IPCC_AR6_WGIII_Figure_15_7.png]]

'''Figure 15.7 | Bond refinancing mobilises institutional investors in mature project phase.''' '''De-risk early-stage infrastructure projects.''' Source: adapted from [[#PIDG--2019|PIDG (2019)]] .

'''Investors with accumulated private capital are reported as looking for climate investments to ensure Just Transition, alignment with Paris and SDGs. However, progress remains pilot, slow and piecemeal''' ( ''high confidence'' ). Global investors have published statements on their possible contribution, with recommendations to governments on de-risking to accelerate private sector investment to support Paris-aligned NDCs in developing countries ( [[#IIGCC--2015|IIGCC 2015]] ; IIGCC 2017; Global Investor Statement 2018; IIGCC 2018; [[#Global%20Investor%20Statement--2019|Global Investor Statement 2019]] ; IIGCC 2020). In March 2020, the UN Principles for Responsible Investment (PRI), had 3038 members representing USD103 trillion ( [[#UN%20PRI--2020|UN PRI 2020]] ); another coalition of investors published COVID-19 recovery plans ( [[#Investor%20Agenda--2020|Investor Agenda 2020]] ) and the Net Zero Asset Managers initiative was launched in December 2020 ( [[#NZAM--2020|NZAM 2020]] ). However, it is still unclear how these pronouncements will be transformed to adequate financial flows and volumes of investment pipelines ( [[#IEA--2021d|IEA 2021d]] ) (Chapter 3). [[#Rempel--2020|Rempel and Gupta (2020)]] posit that a proportion of institutional holding is in fossil fuels. Clean energy transition minerals raise ESG questions around inclusive development for indigenous populations and require changes to supply chains exploiting child labour ( [[#Herrington--2021|Herrington 2021]] ; [[#IEA--2021a|IEA 2021a]] ; [[#IEA--2021f|IEA 2021f]] ).

Options to mobilise institutional investors currently remain small pilots, relative to Paris and SDG ambitions ( ''high confidence'' ). In terms of examples: in the ''women of colour-led arena'' , a Chicago pension fund invested in a developing country using a ''private equity fund'' ; ( [[#Langhorne--2021|Langhorne 2021]] , USAID 2021). Institutional BlackRock’s blended finance vehicle with OECD MDB partners focuses on developing countries ( [[#BlackRock--2021|BlackRock 2021]] ). In regional AAA MDB partnerships, the African Development Bank (AfDB) collaborates with African nations through a ''regional infrastructure fund'' (Africa50 2019); the Asian Development Bank (ADB) collaborates with a Philippines state-owned pension fund and Dutch pension fund in using a ''private equity fund'' to catalyse private sector investment ( [[#ADB--2012|ADB 2012]] ). A UN entity with several pooled public-private investment platforms includes an SDG blended finance vehicle ( [[#UN%20CDF--2020a|UN CDF 2020a]] ; 2020b). A multilateral International Finance Corporation (IFC) blended finance fund, supported by a sovereign guarantee from Sweden’s SIDA, and separately a USD1 billion green bond fund by IFC and Europe’s Amundi asset manager buy green securities issued by developing country banks financing local currency climate investments ( [[#IFC--2018|IFC 2018]] , 2021; [[#Amundi%20and%20IFC--2019|Amundi and IFC 2019]] ). The key parameter is the ''investment multiplier,'' the ''ratio of private investment mobilised by a given amount of public fund'' s which varies by product type. IFC’s portfolio of blended finance investments point to a self-reported range of 3 to 15 times for project debt and even higher levels (10 to 30) for debt finance provided on concessional terms ( [[#IFC--2021|IFC 2021]] a). Although an AAA-rated IFC blended finance fund was established in 2013, most investors joined in 2017 with insurers AXA and Swiss Re investing USD500 million each to bring the fund to USD7 billion raised from eight global investors ( [[#Attridge--2021|Attridge and Gouett 2021]] ). Critics of blended finance mechanisms point to lack of data transparency hampering independent assessment on (i) value for public money and costs of blending versus other financial mechanisms, (ii) risks and benefits of de-risking private capital to collateralising climate-vulnerable Global South populations, (iii) lack of partnership with local players, and (iv) complex structures ( [[#Akyüz--2017|Akyüz 2017]] ; [[#Mawdsley--2018|Mawdsley 2018]] ; [[#Convergence--2020|Convergence 2020]] ; [[#Attridge--2021|Attridge and Gouett 2021]] ; [[#Gabor--2021|Gabor 2021]] ). Whilst blended finance transactions (BFTF 2018) are quite common in mature regulated markets with mandatory reporting requirements ( [[#Morse--2015|Morse 2015]] ; [[#ICAEW--2021|ICAEW 2021]] ), the additional finance mobilised and their developmental impact remain unknown due to poor reporting that hammpers evidence-based policy making ( [[#Attridge--2021|Attridge and Gouett 2021]] ). Projects that are aligned with blended finance principles in the UN Addis Agenda ( [[#UN--2015a|]] [[#UN--2015|UN 2015]] a ), and take account of local contexts by partnering with local actors, are much more likely to have sustainable impacts.

'''De-risking tools to lower capital costs and mobilise diverse investors''' . Paris-aligned NDCs that integrate policies on COVID-19 pandemic recovery, climate action, sustainable development, just transition and equity can harness co-benefits including contribution to ''Invisible UN SDG 7 energy poverty sectors'' ( ''high confidence'' ) ''.'' Developing countries require access to affordable finance for projects ranging from clean cooking solutions ( [[#Accenture--2018|Accenture 2018]] ; World Bank et al. 2021); decentralised energy systems, intra-country power stations and regionally shared power pools with their associated energy distribution networks ( [[#IEA--2020d|IEA 2020d]] ; [[#IRENA--2020c|IRENA 2020c]] ). Close to 3 billion people in Africa and developing Asia have no access to clean cooking. For sub-Saharan Africa, the acute lack of electricity access lags behind all regions on SDG 7 indicators, impacting mostly women and children ( [[#IEA--2014b|IEA 2014b]] ; [[#IRENA--2020b|IRENA 2020b]] ,c; [[#IEA--2021|IEA et al. 2021]] ; ESMAP 2020; [[#Zhang--2021|Zhang 2021]] ) (Box 6.1). These dire statistics remind of compounding tensions: historical inequities and the associated ‘first comer’ exploiting African resources for development elsewhere, the local climate change, ‘latecomer’ capacity development and technology transfer challenges, illicit mining finance and stranded assets ( [[#Curtis--2016|Curtis 2016]] ; [[#Bos--2019|Bos and Gupta 2019]] ; [[#UNU-INRA--2019|UNU-INRA 2019]] ; [[#Arezki--2021|Arezki 2021]] ). The COVID-19 pandemic exacerbates this tension with more people pushed below the poverty line ( [[#Sumner--2020|Sumner et al. 2020]] ) (section 15.6.4, Box 15.6 on post-COVID). Recent analysis points to the 60 largest banks providing USD3.8 trillion to fossil fuel companies since 2016, includinginside Africa (Rainforest Action Network et al. 2021). IMF estimated fossil fuel subsidies totalling USD5.2 trillion or 6.5% of global GDP in 2017 ( [[#Coady--2019|Coady et al. 2019]] ) to be compared with the USD2.4 trillion yr –1 energy investments over the next decade to limit global warming to 1.5°C ( [[#IPCC--2018|IPCC 2018]] ). Analysts point to models in improvements to resources husbandry that include (i) developing strong minerals sector governance through sovereign wealth funds for domestic development ( [[#Wills--2016|Wills et al. 2016]] ) and (ii) compensation for Africa ( [[#Walsh--2021|Walsh et al. 2021]] ) leaving fossil fuels underground ( [[#McGlade--2015|McGlade and Ekins 2015]] ) in the ''Just Transition'' ( [[#15.2.4|Section 15.2.4]] ) and ''Right to Develop'' debates as assets continue to be mined ( [[#IEA--2019c|IEA 2019c]] ). In many developing regions, some of the world’s best renewable energy sources remain out of reach due to high costs which can be up to seven times those in developed countries ( [[#IEA--2021d|IEA 2021d]] ). Shifting some risks through financial de-risking approaches could be instrumental ( [[#Schmidt--2014|Schmidt 2014]] ; [[#Sweerts--2019|Sweerts et al. 2019]] ; [[#Drumheller--2020|Drumheller et al. 2020]] ; [[#Matthäus--2020|Matthäus and Mehling 2020]] ).

'''Combining approaches: (i) developed countries meeting UNFCCC USD100 billion commitment on a grant-equivalent basis, (ii) stepped up technical assistance, (iii) infrastructure coordination, (iv) knowledge sharing by project preparation entities, and (iv) harnessing project risk facilities such as guarantees could be instrumental for scaling climate finance for Paris-SDGs''' ( ''high confidence'' ) ''.'' Figure 15.7 illustrates the interplay between infrastructure project financing phases, bond refinancing and opportunities for developing bond yield curve benchmarks in nurturing local capital markets and mobilising diverse investors. These project financing phases have varying risk-return profiles and different benchmarks to track performance are often required by investors for different securities that might be created ( [[#Ketterer--2018|Ketterer and Powell 2018]] ).

An [[#ODI--2018|ODI (2018)]] survey of private and public project preparation facilities internationally showed high failure rates in ''early project preparation phases'' with recommendations on ‘ ''one-stop-shops'' ’ and knowledge sharing on effective approaches. During the very high-risk ''concept phase'' (Figure 15.7) ''–'' grants and technical assistance de-risk with design concepts, project proposals and feasibility studies completed to ‘kick-start’ the right projects. The early-stage developmental phase is characterised by short-term debt in the two to five years phase to complete construction enabled by concession finance. Bank loans are paid back by issuing bonds once the construction phase is completed. Such bond refinancing over say, 15–25 years, in the low-risk ''mature project phase'' can provide a lower cost of capital. Market-making to develop a pipeline of investment opportunities uses a complimentary mix of high-risk capital options in the form of grants, guarantees, equity, and mezzanine financing that can help ( [[#Attridge--2021|Attridge and Gouett 2021]] ): (i) reduce up-front risks in the early phases, (ii) allow banks to recycle loans to new projects, and (iii) galvanise multilateral technical assistance for building bond yield curve benchmarks and de-risking local currency bond issuance of long tenors such as green bonds/resilience bonds ( [[#Berensmann--2015|Berensmann et al. 2015]] ; [[#CBI--2015|CBI 2015]] ; [[#Mercer--2018|Mercer 2018]] ; [[#Dasgupta--2019|Dasgupta et al. 2019]] ; [[#PIDG--2019|PIDG 2019]] ; [[#Braga--2021|Braga et al. 2021]] ; CBI et al. 2021; [[#Hourcade--2021a|Hourcade et al. 2021a]] ,b). [[#Convergence--2019|Convergence (2019)]] points to investment from commercial banks with commercial debt of 11–15 years maturity being covered by guarantees. To achieve scale, some have issued special purpose vehicle (SPV) green infrastructure project bonds combining tenors up to 15 years with credit ratings assigned to mobilise investors with community trusts for local participation ( [[#Kaminker--2012|Kaminker and Stewart 2012]] ; [[#Mathews--2012|Mathews and Kidney 2012]] ; [[#Mbeng%20Mezui--2013|Mbeng Mezui and Hundal 2013]] ; [[#Essers--2016|Essers et al. 2016]] ; [[#Moody’s%20Investors%20Service--2016|Moody’s Investors Service 2016]] ; [[#Ng--2016|Ng and Tao 2016]] ; [[#Harber--2017|Harber 2017]] ). Bond refinancing could be facilitated through standardised national infrastructure style bonds, national infrastructure funds ( [[#Amonya--2009|Amonya 2009]] ; [[#Ketterer--2018|Ketterer and Powell 2018]] ) and country SPV infrastructure funds issuing bonds ( [[#Cavallo--2019|Cavallo and Powell 2019]] ) embedding MDBs.

'''Existing project risk facilities including guarantees could benefit from coordination, scaling and better reporting frameworks''' ( ''high confidence'' ) ''.'' Individual and clubs of developed and developing countries currently provide public guarantees ( [[#ADB--2015|ADB 2015]] , 2018; [[#IIGCC--2015|IIGCC 2015]] ; [[#Pereira%20Dos%20Santos--2018|Pereira Dos Santos 2018]] ; [[#GGGI--2019|GGGI 2019]] ; [[#Garbacz--2021|Garbacz et al. 2021]] ). However MDB business models impose limitations on use of guarantees and collaboration with other MDBs ( [[#Gropp--2014|Gropp et al. 2014]] ; [[#Schiff--2017|Schiff and Dithrich 2017]] ; [[#Lee--2018|Lee et al. 2018]] ; [[#Pereira%20dos%20Santos--2018|Pereira dos Santos and Kearney 2018]] ). Loans continue to dominate as the financial instrument of choice by MDBs and DFIs, with guarantees mobilising the most private finance for OECD reported data, even if their use remains limited ( [[#IATFD--2020|IATFD 2020]] ; [[#OECD--2020c|OECD 2020c]] ; [[#Attridge--2021|Attridge and Gouett 2021]] ). Ramping up the use of guarantees to mobilise private investment raises questions around understanding efficacy in the design as there is no one size that fits all and more research is required to better understand this aspect ( [[#Convergence--2019|Convergence 2019]] ). Sample guarantee forms in literature: (i) single-country Sweden and USA DFI forms (SIDA 2016, DCA 2018), (ii) multilateral institution offerings ( [[#Pereira%20Dos%20Santos--2018|Pereira Dos Santos 2018]] ; [[#IRENA--2020e|IRENA 2020e]] ), (iii) multi-sovereign guarantees one-stop platforms such as those on the PIDG/GuarantCo ( [[#PIDG--2019|PIDG 2019]] ) and Africa Guarantee Fund owned by DFIs, including the African Development Bank (AfDB), the French Development Agency (AFD), the Nordic Development Fund (NDF), and the KfW Development Bank ( [[#AGF--2020|AGF 2020]] ), (iv) MIGA, established to provide political risk guarantees (enhanced green MIGA) ( [[#Déau--2018|Déau and Touati 2018]] ), (v) multilateral partnerships with developing nations via infrastructure funds ( [[#15.6.7|Section 15.6.7]] .2) and green infrastructure options ( [[#de%20Gouvello--2010|de Gouvello and Zelenko 2010]] ; Studart and Gallagher 2015), (vi) guarantees embedded in project risk facilities such as currency fund TCX established by 22 DFIs ( [[#TCX--2020|TCX 2020]] ), and (vii) ASEAN and African multi-sovereign regional local currency bond guarantee funds and a co-guarantee platform ( [[#GGGI--2019|GGGI 2019]] ; [[#Garbacz--2021|Garbacz et al. 2021]] ). Fossil fuels currently benefit from de-risking tools from export credit agencies ( [[#Lawrence--2021|Lawrence and Archer 2021]] ), with questions around sustainable development ( [[#Wright--2011|Wright 2011]] ); [[#Gupta--2020|Gupta et al. (2020)]] argue that these could be deployed for renewable energy. Sample project facilities reflecting the diverse project types across developing country regions can include i) UNEP Seed Capital ii) C40 Cities Facility iii) Blue Natural Capital Facility ( [[#IUCN--2021|IUCN 2021]] ); iv) Clean Cooking Fund ( [[#ESMAP--2021|ESMAP 2021]] ) v) opportunities for guarantees in LDCs ( [[#Garbacz--2021|Garbacz et al. 2021]] ) vi) World Bank’s Renewables Risk Mitigation ( [[#GCF--2021|GCF 2021]] ) and World Bank’s Global Infrastructure Facility ( [[#GGGI--2019|GGGI 2019]] ).. Multilaterals offer credit enhancement to manage both actual and perceived risks: in India’s corporate sector, renewable energy SPV project bonds have been guaranteed jointly by ADB and an infrastructure company raising the credit rating from sub-investment grade to investment grade to lower borrowing costs ( [[#ADB--2018|ADB 2018]] ; [[#Agarwal--2018|Agarwal and Singh 2018]] ; [[#Carrasco--2018|Carrasco 2018]] ).

Investment vehicles into green infrastructure come in various forms ( ''high confidence'' ) and can include indirect corporate investment such as bonds; semi-direct investment funds via pooled vehicles such as infrastructure funds and private equity funds and project investment (direct) in green projects through equity and debt including loans, project bonds and green bonds. For pension funds in Australia and Canada, direct investment in infrastructure is about 5% of total AUM ( [[#Inderst--2013|Inderst and Della Croce 2013]] ) whilst less than 1% for OECD pension funds goes to green infrastructure ( [[#Kaminker--2013|Kaminker et al. 2013]] ). Some regional developing country institutional investors use a variety of investment vehicles that span SPVs, private equity, domestic and regional local currency bond markets with statutory level mandates to address historic inequities ( [[#GEPF--2019|GEPF 2019]] ). Cross-border collaboration in regional power markets such as Europe’s Nordpool; for developing countries could be led by repository of technical partnership from infrastructure funds and multilaterals ( [[#Oseni--2016|Oseni and Pollitt 2016]] ; [[#Juvonen--2019|Juvonen et al. 2019]] ; [[#Chen--2020|Chen et al. 2020]] ; [[#Nordpool--2021|Nordpool 2021]] ). Barriers to investments include non-standardised investment vehicles of scale and lack of national infrastructure road maps to give investor confidence in government commitment. Some have set up infrastructure coordinating entities embedding local science and engineering R&amp;D ( [[#IPA--2021|IPA 2021]] ; National Infrastructure Commission 2021). [[#Arezki--2016|Arezki et al. (2016)]] argue that coordination within existing platforms could create a global infrastructure investment platform for de-risking through guarantees and securitisation; Matthäus and (Mehling (2020) point to a global guarantee mechanism. Such AAA multilateral approaches create credibility-enhancing effects in developing capital markets. [[#Hourcade--2021a|Hourcade et al. (2021a)]] suggest that the overall economic efficiency could be higher with guarantees calibrated per tonne on an agreed ''‘social, economic, and environmental value of mitigation actions [and] their co-benefits’'' (Article 108, Paris Agreement) basis, which would operate as a notional carbon price ( [[#High-Level%20Commission%20on%20Carbon%20Prices--2017|High-Level Commission on Carbon Prices 2017]] ). The grant equivalent of guarantees and induced equity inflows could be far beyond the USD100 billion promise. Such cooperative solutions in adopting development of local capital markets would end the drawbacks of the current plethora of low-scale fragmented project-by-project and ‘special-purpose’ pilots and programmes.

'''Harnessing existing bond markets and securities exchanges in nascent markets''' . The G20 has an action plan to support strengthening local currency bond markets and development of local capital markets is also part of the option for financing UN SDGs in developing countries ( [[#UN--2015a|]] [[#UN--2015|UN 2015]] a , 2019, 2020; [[#IATFD--2016|IATFD 2016]] , 2021). Primers are available on bond market development to support policy choices ( [[#World%20Bank%20and%20IMF--2001|World Bank and IMF 2001]] ; [[#Silva--2020|Silva et al. 2020]] ; [[#World%20Bank--2020|World Bank 2020]] ; Adrian et al 2021; [[#IMF%20and%20World%20Bank--2021|IMF and]] [[#World%20Bank--2021|]] [[#World%20Bank--2021|World Bank 2021]] ). Developing government bond yield curves with different maturities can be an important policy objective ( ''high confidence'' ) '''.''' This can support pricing discovery, liquidity ( [[#Wooldridge--2001|Wooldridge 2001]] ) and can be achieved through step by step tranches from shorter to longer maturities to boost confidence and encourage municipals and other quasi-sovereigns. Money market instruments (such as, green commercial paper) anchor the short end of the yield curve with bonds of varying maturity issued by sovereign/quasi-sovereign entities (national treasuries, SOEs, municipalities) to mobilise investors ( [[#Goodfriend--2011|Goodfriend 2011]] ; [[#LSEG--2018|LSEG 2018]] ; [[#Tolliver--2019|Tolliver et al. 2019]] ). A variety of bonds are being used for developing countries including green ( [[#Ketterer--2019|Ketterer et al. 2019]] ), blue-water ( [[#Roth--2019|Roth et al. 2019]] ), transition, SDG/social, biodiversity bonds ( [[#Aglionby--2019|Aglionby 2019]] ), green/resilience bonds (AAC 2021); gender bonds ( [[#Andrade--2020|Andrade and Prado 2020]] ) diaspora ( [[#LSEG--2017|LSEG 2017]] ) and infrastructure project bonds (CBK 2021). Local policymakers would gain from technical and financial assistance in building green yield curves, for example with support from multilaterals ( [[#EIB--2012|EIB 2012]] ; [[#IATFD--2016|IATFD 2016]] ; [[#Shi--2017|Shi 2017]] ; [[#EIB--2018|EIB 2018]] ; Impact Investing Institute 2021). Green bonds are one of the most readily accessible to help fund Paris goals ( [[#Tolliver--2019|Tolliver et al. 2019]] ; [[#Tuhkanen--2020|Tuhkanen and Vulturius 2020]] ). [[#15.3.2|Section 15.3.2]] refers to the growth in labelled bond markets ( [[#CBI--2021a|]] [[#CBI--2021|CBI 2021]] a ), low borrowing costs and yield curve building in Europe ( [[#Bahceli--2020|Bahceli 2020]] ; [[#Serenelli--2021|Serenelli 2021]] ; [[#Stubbington--2021|Stubbington 2021]] ; UK DMO 2021). For developing countries, labelled bonds have mostly been in hard currency (e.g. [[#Smith--2021|Smith 2021]] ) despite local currency markets making up more than 80% total debt stock ( [[#IMF%20and%20World%20Bank--2016|IMF and]] [[#World%20Bank--2016|World Bank 2016]] ; [[#Silva--2020|Silva et al. 2020]] ; Adrian et al 2021; [[#Inderst--2021|Inderst 2021]] ). The labelled bonds issuance by multilaterals do not currently mobilise the trillion levels needed. Research studies show that participating in green bond markets in part depends on a country having credible NDCs ( [[#Tolliver--2020a|Tolliver et al. 2020a]] ; [[#Tolliver--2020b|Tolliver et al. 2020b]] ) and highlights diverse approaches working together to support local bond market development ( [[#Amacker--2021|Amacker and Donovan 2021]] ; [[#ICMA--2021|ICMA 2021]] ; [[#IMF%20and%20World%20Bank--2021|IMF and]] [[#World%20Bank--2021|]] [[#World%20Bank--2021|World Bank 2021]] ).

'''Technical assistance options would benefit from coordination. Labelled bond costs remain high. Developing countries are using fiscal incentives, grants, and guarantees to support nascent bond markets with most taxonomies under development''' ( ''high confidence'' ). Technical assistance requirements to improve the investment climate and bond market development will vary across national capacities. These would benefit from the USD100 billion UNFCCC grant equivalent basis to develop (i) regulatory and policy frameworks; (ii) UN national statistical systems ( [[#Singh--2016|Singh et al. 2016]] ; [[#MacFeely--2017|MacFeely and Barnat 2017]] ; [[#Paris21--2018|Paris21 2018]] ; [[#Bleeker%20and%20Abdulkadri--2020|Bleeker and Abdulkadri 2020]] ); (iii) credible NDC and SDG investment plans; (iv) project assessment certification and taxonomies; (v) bond market guidelines; and (vi) public finance management ( [[#US%20DoJ--2009|US DoJ 2009]] ; [[#US%20DoJ--2019|US DoJ 2019]] ). Other technical assistance channels include diaspora entities, universities and learned societies ( [[#ICEAW--2012|ICEAW 2012]] ; [[#UNFCCC--2021|UNFCCC 2021]] ). LDCs supported by humanitarian entities are least likely to have active capital markets (ICRC 2020; [[#IDFC--2020|IDFC 2020]] ; [[#Cao--2021|Cao et al. 2021]] b). Clubs of LDCs are partnering with AAA MDBs in aggregation approaches ( [[#AfDB--2020|AfDB 2020]] ; [[#GCF--2020b|GCF 2020b]] ). Some UN entities provide technical assistance on municipal aggregation of projects ( [[#UN%20CDF--2021a|UN CDF 2021a]] ) ''',''' with Africa, LDC, SIDS nations and cities accessing green technical facilities and listings for labelled bonds ( [[#C40%20Cities%20Climate%20Leadership%20Group--2016|C40 Cities Climate Leadership Group 2016]] ; [[#Gorelick--2018|Gorelick 2018]] ; [[#Jackson--2019|Jackson 2019]] ; FSD Africa and CBI 2020; [[#Gorelick--2020|Gorelick and Walmsley 2020]] ; MoE Fiji 2020; [[#IFC--2021|IFC 2021]] c). Elevated climate risks imperil developing country ability to repay debts ( [[#Schmidt--2014|Schmidt 2014]] ; [[#Buhr--2018|Buhr et al. 2018]] ; [[#Volz--2020|Volz et al. 2020]] ; [[#Dibley--2021|Dibley et al. 2021]] ). To lower overall costs and achieve more, entities have accessed technical assistance, listed local currency labelled bonds, and used credit enhancing bond guarantees, regulatory treatments and philanthropy schemes ( [[#Europe%202020%20Project%20Bond%20Initiative--2012|Europe 2020 Project Bond Initiative 2012]] ; [[#SBN--2018|SBN 2018]] ; [[#Agliardi--2019|Agliardi and Agliardi 2019]] ; [[#Banga--2019|Banga 2019]] ). In the regions, China issued guidelines for stock exchanges and regulatory support for green bonds (Cao and Ma 2021), India issued regulations for local issuance of green bonds ( [[#CBI--2019a|CBI 2019a]] ), while in the Latin America and Caribbean region, both plain vanilla and labelled bonds use the same authority ( [[#Ketterer--2019|Ketterer et al. 2019]] ). African, LDC and SIDS nations are reviewing ways to harness local exchanges ( [[#SSE--2018|SSE 2018]] ; [[#GCF--2019|GCF 2019]] ; World Bank et al. 2021b; [[#UN%20CDF--2021b|UN CDF 2021b]] ). For taxonomies, the differences reflect the multitude of local Just Transition pathways, some with a purely environmental focus and others incorporating livelihood improvements ( [[#ICMA--2021|ICMA 2021]] ). The sustainable bond market has been expanding as transition bonds become listed in anticipation of future developments ( [[#Roos--2021|Roos 2021]] ).

'''Progress towards transparency using scientific-based methods to build trust and accountability.''' After 60 years of development finance, critics underline limits coming from i) multilaterals model, lack of transparency around aid and debt ( [[#Mkandawire--2010|Mkandawire 2010]] ; Lee 2017; PWYF 2019; Bradlow 2021; Gianfagna et al. 2021) ii) illicit finance ( [[#Plank--1993|Plank 1993]] ; [[#Sachs--2001|Sachs and Warner 2001]] ; Hanlon 2016; [[#US%20DoJ--2019|US DoJ 2019]] ) ) iii) lack of developed country commitment to pledges ( [[#Nhamo--2016|Nhamo and Nhamo 2016]] ) iv) unregulated players as financial intermediaries in blended finance ( [[#Pereira--2017|Pereira 2017]] ; [[#Donaldson--2018|Donaldson and Hawkes 2018]] ; [[#Attridge--2019|Attridge and Engen 2019]] ; [[#Tan--2019|Tan 2019]] ) v) weak accountability reflected in soft SDG data and vi) burden of responsibility in mobilising Paris and SDG resources to countries with historically soft institutional capacity ( [[#Hickel--2015|Hickel 2015]] ; [[#Donald--2016|Donald and Way 2016]] ; [[#Scheyvens--2016|Scheyvens et al. 2016]] ; [[#Liverman--2018|Liverman 2018]] ). Literature around trust in blended finance pinpoints four progress areas in accountability. First, debt transparency through public debt registries, centralised UN legacy debt restructuring and science-centred UN national statistical systems ( [[#Donaldson--2018|Donaldson and Hawkes 2018]] ; [[#Jubilee%20Debt%20Campaign--2019|Jubilee Debt Campaign 2019]] ; [[#Stiglitz--2020|Stiglitz and Rashid 2020]] ). Second, international reporting bell-weathers could be called upon to produce harmonised mandatory reporting frameworks that capitalise on TCFD to capture climate, debt sustainability ( [[#15.6.7|Section 15.6.7]] .3), SDG and fossil fuels ( [[#GISD--2020|GISD 2020]] ). Third, standardisation of assessment by third parties of the quantity and values of carbon saved by green projects ( [[#Hourcade--2012|Hourcade et al. 2012]] ) and of their contribution to quantified performance biodiversity targets ( [[#Finance%20for%20Biodiversity%20Initiative--2021|Finance for Biodiversity Initiative 2021]] ) to facilitate their bundling, securitisation and repackaging in standardised liquid products and bonds ( [[#Arezki--2016|Arezki et al. 2016]] ; [[#Blended%20Finance%20Taskforce--2018a|Blended Finance Taskforce 2018a]] ).

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