CSE introduces green bonds
For the first time in Sri Lankan stock market history, the Colombo Stock Exchange (CSE) announced the introduction of listing and trading of green bonds, with effect from April 25.
Under the green bonds concept, proceeds are invested exclusively in green projects that generate climate or other environmental benefits, for example in renewable energy, energy efficiency, sustainable waste management, sustainable land use (forestry and agriculture), biodiversity, clean transportation, and clean water.
The objective of enabling regulations for the issue of green bonds in the Sri Lankan stock market is to facilitate Sri Lankan corporates to raise capital that will be used for green projects and to foster greater transparency and accountability in the use of proceeds from the Green Bond, and to ensure reporting of the impact of the green projects for which the proceeds of the bond was used.
The use of proceeds from the green bond should be aligned with the green bond principles, which are accepted by the CSE. The accepted Green Bond Principles of the CSE are the Green Bond Principles by the International Capital Markets Association (ICMA), the European Green Bond Standards (EUGBS), and the Climate Bonds Initiative Standards (CBI Standards).
The Green Bonds will have the same features of a Corporate Debenture and will be listed on the Debt Market segment of the CSE. The main difference between a Corporate Debenture and a Green Bond is the usage of the proceeds.
The green bonds will be traded on the Automated Trading System (ATS), similar to Corporate Debentures. The trading parameters currently applicable to Corporate Debentures will also apply to Green Bonds as well. The potential issuers of green bonds are any public company incorporated under the Companies Act and any statutory body established/incorporated under a statute.
Green bonds could be identified as a new investment asset class for potential issuers and investors. By issuing green bonds, an issuer could access a broader pool of capital, including access to a foreign investor base that has an interest in investing in green projects. Green Bonds can also facilitate the establishment of public-private partnerships that might accelerate the pace of green investment.
As of January 2023, green bonds have globally raised $2.5 trillion, to support green and sustainable projects. Sri Lanka can tap into these funds and capitalize on by attracting foreign investments into Green Bonds. This will contribute positively towards the Sri Lankan economy whilst issuers get an opportunity to attract a new pool of investor base; especially foreign funds which are exclusively aimed at green projects. Based on the demand for bonds like green bonds, the CSE proposes to introduce blue bonds and Social and Sustainability Bonds in the future.