SDG Bonds: A strong effort into the forefront of financial solutions for Indonesia’s SDGs agenda

Jakarta, June 6 – Achieving the lifesaving Sustainable Development Goals (SDGs) that constitute the 2030 Agenda requires enormous financial investment, not least in innovation, and climate change mitigation and adaptation strategies.

As part of UN efforts to advance innovative financial mechanisms to boost SDG financing in Indonesia, UNDP under the UN Joint Programme ‘Accelerating SDGs Investments in Indonesia (ASSIST)’, recently hosted a webinar entitled “Leveraging Capital for Inclusive Growth & Sustainable Recovery through SDG Bonds.” It provided a platform for financial experts and policy makers from across the Asia Pacific region share best practices on maximizing the impact of thematic bonds.

The webinar comes at an opportune moment as Southeast Asia’s biggest economy gears up to issue its second SDG Bond in 2022,  building on its success last year as the first country in the region, and only the third globally, to issue an SDG Bond in the global debt capital market. The 2021 Indonesia SDG Bond raised 500 million Euros and has financed critical projects that improved the lives of many Indonesians in sectors related to health, education, and access to telecommunications.

UN Resident Coordinator in Indonesia, Valerie Julliand said that tapping into innovative sources of financing is key to addressing the  financing gaps that inhibit developing countries from achieving the SDGs, estimated at around USD 3.7 trillion annually.

“Leveraging innovative and sustainable financing instruments is one of the answers to our massive financing challenge,” the Resident Coordinator said. “The market’s appetite for sustainable finance instruments such as bonds is well-established, with the green, social, and sustainability bond market surpassing USD 1 trillion in 2021 alone.”

UNDP Indonesia Resident Representative Norimasa Shimomura called on all stakeholders to capitalize on the momentum of the 2021 Indonesia SDG bond.

“Our success story should not stop here. We will take it forward by focusing on boosting the impact of the SDG Bond, and by looking more closely at the instrumental role the SDG Bond can play in attracting new investment to promote sustainability agenda,” said Mr. Shimomura in his opening remarks at the regional webinar.

Global financial experts took part in the event and shared some of the best practices and know-how behind the formulation and management of SDG Bonds.

Dr. Suminto Sastrosuwito, Assistant Minister for Financial Services and Capital Market at the Ministry of Finance, emphasized that it would not be possible for countries to rely solely on government budget to minimize this gap. “The Government realizes that the public fund cannot bear the burden itself and therefore it needs private sector participation. Over the last few years, innovative financing instruments have been developed in the market in order to accelerate the achievement of SDGs, and one of them is SDG Bond,” he said.

The successful launch of Indonesia’s SDG bonds in the global debt capital market last year combined with Indonesia’s global visibility as G20 President, provides a strategic opportunity to encourage other countries to develop innovative financing schemes for the SDGs.

The issuance of SDG Bonds—and similar bonds, such as green bonds and sustainability bonds—is crucial in keeping up with recent developments in capital market trends. Deni Ridwan Director of Government Securities, Directorate General of Financing and Risk Management noted that investors are increasingly interested in projects that are aligned with the Sustainable Development Goals.

“One key takeaway from an investor update meeting that we previously held is that almost all investors have interest and plan to increase ESG papers” he said in a presentation on thematic bonds, using an acronym for Environmental, Social, and Governance, three non-financial factors investors are increasingly applying as part of their analysis process to identify material risk and growth opportunities.

With the Indonesian Government gearing up to issue its second SDG Bond, representatives from Uzbekistan outlined how a similar Uzbekistan issuance had helped finance projects to advance the SDGs. According to Nargiza Nigmatova, Head of the Uzbekistan Ministry of Finance's External Financial Market Division, several projects in sectors including education, health, natural resource management, irrigation, reconstruction, green power generation, and gender equality programs, had benefitted from financing through the Bond issuance.

To guarantee that financing is allocated to SDG-oriented projects, the government of Uzbekistan is committed to measuring and reporting on the impact of the bond- financed projects within a one-year time frame following its SDG Bond issuance. The Uzbek government has been working with UNDP to undertake this monitoring and reporting process, Nigmatova added.

Clear measurement is crucial because private investors are also keen to track the impact of SDG bonds projects.  “Issuers must ensure that the bonds benefit society. It won’t be easy, but the key point lies in information transparency and disclosure,” said Yoshiyuki Arima, Lead Financial Officer, Capital Markets and Investments-Treasury World Bank.

The importance of disclosure and transparency to public and investors took center stage at the webinar’s second discussion session, "Ensuring Sustainable Impacts: Maximizing the Leverage of Thematic Bonds for SDGs & COVID-19".

Belissa Rojas, Impact Measurement and Management Lead at UNDP, said that transparency is essential to reassure investors that their investments into SDG Bonds are delivering genuine impact, as opposed to “greenwashing” or paying lip-service to the sustainable development agenda.

Cheryl Tay, Manager of Sustainable Corporate Solutions (Asia Pacific) Sustainalytics and Martin Prisé, Sustainable Bonds Analyst, Debt Capital Market Asia-Pasific HSBC, noted that impact matrices are now used to support reporting of each project.

Scenaider Siahaan, Deputy Minister for Development Funding of the Ministry of National Development Planning, concluded in his closing remarks that transparency is key for the success of SDGs financing. “The emergence of thematic bonds highlighted the importance of strengthening credibility and standardization when disclosing the results or impact of the investment. This is where frameworks and principles play a role, in ensuring that the resources generated from the bonds will be used for the intended purpose—to accelerate the achievement of SDGs and post COVID-19 recovery,” he added.

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The UN Joint Programme ‘Accelerating SDGs Investment in Indonesia’ (ASSIST) is a collaboration between UNEP, UNICEF, UNIDO, and led by UNDP, under the oversight of the UN Resident Coordinator in Indonesia. The joint programme is funded by the Joint SDG Fund and aims to leverage the use of new and proven innovative financing instruments and mechanisms to help accelerate Indonesia’s SDGs targets. Under ASSIST, UNDP has supported the Government of Indonesia in developing and issuing its inaugural SDG Bond in the global capital market.