First Green Bonds Are Verified Pursuant to National Methodology Developed by VEB.RF
Russian Railways has plans to issue bonds intended for financing sustainability projects and already acknowledged by Expert RA rating agency as meeting the criteria of both the ICMA international methodology and the Russian national methodology developed by VEB.RF. VEB.RF’s Green Finance Committee has officially confirmed Expert-RA’s opinion on the bonds’ compliance with VEB.RF’s recommended guidelines on green financing. This is the first case of verifying a financial instrument pursuant to a new methodology co-developed by VEB.RF, the Bank of Russia, the Ministry of Economic Development and other Russian ministries and agencies, and the expert and business communities. We would like to remind you that the methodology is available on VEB.RF’s official website at VEB.RF, section Sustainable Development.
Experts from VEB.RF’s Green Finance Committee together with Expert-RA made a thorough examination of the bonds’ compliance with the criteria specified in the methodology. “The possibility to verify the bonds was used by us for testing the methodology, - VEB.RF’s Deputy Chairman and Chairman of Green Finance Committee Aleksei Miroshnichenko said. “It was particularly important for us to ensure that the bonds satisfied the market and experts, therefore we selected a company having considerable experience of issuing similar financial instruments in Western markets.”
According to Expert-RA’s report, Russian Railways will issue perpetual bonds “to finance green projects and refinance the costs of green projects meeting the major criteria of approved Environmental Strategy Until 2020 and for the Period till 2030”. The report states that the issuer fully satisfied the requirements for the project’s transparency, proper control over the yield on bonds, disclosure of information and other project features. That is why on 17 September 2020 Russian Railways published the Concept for Financing Sustainability Projects on its website.
Modern railways are one of the most environmentally friendly modes of transport. Projects of this kind are included in almost all domestic and international classifications. However, the offer of such green bonds is limited thus far: the transport sector has accounted for only about 5% in circulating green bonds globally. Therefore, Russian Railways’ bond issue should arouse considerable interest for investors wishing to invest in the transport sector and taking into account the ESG criteria.
Russian Railways is planning to invest the bond revenue in investment projects such as the purchase of advanced electric locomotives, Lastochka electric trains, Sapsan high-speed trains, construction of the Moscow Central Ring and Moscow Central Diameters, as well as electrification of important railway branches. Thus, the projects financed through funds raised will allow Russian Railways to achieve environmental goals under the Long-term Development Programme until 2025, which are specified in the Concept for Financing Sustainability Projects and include the reduction of: hazardous air pollutants from stationary and mobile pollution sources by 18%, greenhouse gas emissions by 4.5%, aquatic resources consumed by 20%, and disposal in streams by 18%.
VEB.RF, as a developer of the national green finance standard, expects to get enhanced government and market support for such instruments. “Obviously, to make the instrument more popular, we should provide combined stimuli to issuers and investors. It is logical that ministries and agencies could offer tax or regulatory stimuli to investors that intend to buy such bonds. This will arouse increasing interest of different players in the instrument,” Aleksey Miroshnichenko said. He also added that VEB.RF intends to improve the project assessment methodology in close cooperation with all stakeholders.
From Pandemic to Recovery: a long-term strategy of building robust development banks community
During this crisis world development banks have become true pillars of national economies, supporting businesses, allocating government funds and mobilizing private capital to support societies in these hard times. On September 9 their representatives and members of international bodies gathered for an online conference “From Pandemic to Recovery” to discuss the experience accumulated through six months of work in new circumstances. The conference was moderated from Moscow and organized by Russian development bank VEB.RF in partnership with IDFC and in line with the upcoming public development banks Summit “Finance in Common” that is going to take place in Paris in November this year. The banks and associations participating in the Conference represented financial institutions with total amount of assets in excess of $8 trillion.
Igor Shuvalov, chairperson of VEB.RF, outlined the major focus of the conference, namely sustainable infrastructure and support of small and medium enterprises. Remy Rioux, co-host of the conference, CEO of French Agency of Development and IDFC said that 450 public development banks that exit in the world is a formidable force in tackling the current crisis. They are perfectly positioned for building bridges between different economies, making a shared input into Sustainable Development Goals and planning a collective response to the pandemic.
The importance of the topic was underlined by high level of participation. In his opening speech UN General Secretary Antonio Guterres stressed that in the period of post-pandemic recovery there is an increased need for infrastructural and social projects while small and medium enterprises lack access to financial services and liquidity. OECD General Secretary Jose Angel Gurria was even more alarmed. According to him, the decline in world GDP in 2020 (estimated as about 6%) will be the biggest for the whole history of OECD existence. 38% of small and medium enterprises within the OECD would have completely lost liquidity during the pandemic if it was not for the state support, and a bulk of this support went through national development banks.
Many national and regional development banks shared their experiences in crisis support measures. President of the Islamic Development Bank Group and the current Chair of MDBs Dr. Bandar M. H. Hajjar said that his institution committed $10 billion of support as 80% of critical industries in the region of bank’s operation suffered a hit during the pandemic. Igor Shuvalov noted that during the pandemic VEB.RF revitalized its program of support for 100 biggest Russian cities (not counting Moscow and St.Petersburg) in order to help their economies by modernizing infrastructure, transportation systems and urban landscapes.
Deputy General Secretary of the UN Amina J. Mohammed noticed that the situation could be even worse if it was not for the programs provided by the national governments and in most cases distributed through the public development institutions. Development banks assisted businesses in adjusting to the new circumstances, provided liquidity, credit guarantees and subsidies, informational and other forms of support. Another important role for them is to be the frontrunners in search of new economic models, build new platforms for growth. She pointed at the necessity to mobilize private capital in support of government programs which is better done exactly through the mechanisms of public development institutions.
Other speakers ardently supported last point and shared their experiences of cooperation with private companies and institutions and outlined their view of the role of public development banks in battling the crisis.
The conference also featured Marie Lam-Frendo, Chief Executive Officer of the Global Infrastructure Hub; Marcos Troyjo, President of the New Development Bank; Stephen Groff, the Governor of Saudi Arabia National Development Fund; Patrick Dlamini, Chief Executive Officer of the Development Bank of Southern Africa; Octavio Peralta, Secretary General of the ADFIAP; Mr. Edwin Syahruzad, President Director PT Sarana Multi Infrastruktur; Mario Ohoven, President of European Confederation of Associations of small and medium enterprises; Edgardo Alvarez Chávez, Secretary General of the Latin American Association of Development Financing Institutions; José Ignacio de Mendiguren, President of the Bank for Investment and Foreign Trade of Argentina; Ayman Sejiny, Chief Executive Officer of Islamic Corporation for Development; Javier Diaz Fajardo, Chief Executive Officer of the Bancóldex; Ece Börü, Chief Executive Officer of Development and Investment Bank of Turkey.
