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OPEC Fund debuts $1bn SDG bond

© OPEC Fund for International DeveOPEC Fund for International Development, Vienna (Buidling)
OPEC Fund for International Development, Vienna (Buidling)

The OPEC Fund for International Development has issued a $1 billion bond priced using its Sustainable Development Goal (SDG) bond framework, attracting 40 investors. A separation between OPEC and the OPEC Fund may allay concerns over potential greenwash claims.

  • The OPEC Fund for Sustainable Development has issued its inaugural SDG bond in the amount of $1 billion.
  • The proceeds will be used for development finance in food security, healthcare, infrastructure, education, employment and renewable energy.
  • A separation between OPEC and the OPEC Fund may allay concerns over potential greenwash claims.

As a multilateral development finance organisation, the OPEC Fund was formed by the Organisation of Petroleum Exporting Countries (OPEC) in 1976, with a different mandate than its parent organisation. 

Launching private sector and trade finance organisations in 1998 and 2006, respectively, the fund now focuses on financing or refinancing sustainable development projects that meet essential needs, and contribute to achieving the United Nations’ SDGs.

What types of projects will the OPEC Fund’s bond be used to finance?

The OPEC Fund intends to use the proceeds of its inaugural SDG bond for social and green projects. This includes financing or refinancing what the fund calls “eligible SDG loans”, related to projects contributing to the SDGs. 

The SDG bond’s framework is aligned with the Sustainability Bond Guidelines, Green Bond Principles and Social Bond Principles published by the International Capital Market Association (ICMA). 

Project selection criteria include the economic and geographical accessibility of basic services and infrastructure in developing countries, including financial services, healthcare, food security, energy accessibility, transport infrastructure, and education. 

The bond framework also mentions the types of projects that will be excluded from the use of proceeds of an SDG bond, such as fossil fuels – including upstream, midstream and downstream operations – mining, nuclear energy, alcohol, tobacco, gambling, and industrial scale meat, dairy farms and processing units.

A further exclusion will be made for projects that have potentially negative environmental or social impact and do not target specific populations for benefit, such as underserved or unemployed populations.

The aim of issuing SDG bonds, according to the OPEC Fund, is to provide stakeholders with information on how it contributes to achieving the SDGs, and also to leverage its development finance strategy, aimed at low- and middle-income countries, in sustainable finance markets. 

In doing so, it claims to be the only globally mandated development institution that exclusively channels financing from member countries to non-member countries.

MDBs band together to help achieve the UN SDGs

Established as intergovernmental organisations to provide financial assistance to low- and middle-income countries, Multilateral Development Banks (MDBs) help finance large infrastructure projects, and health and education initiatives.

They can be instrumental in addressing several UN SDGs, including providing decent work and economic growth (SDG 8), sustainable cities and communities (SDG 11), addressing climate action (SDG 13), life below water and on land (SDG 14 and 15), and being a partner to help achieve the goals (SDG 17). 

The issuance of green and sustainable bonds can provide important opportunities to attract private capital to finance developing countries’ sustainable development and fill the SDG financing gaps, according to the OECDMany developing countries are already suffering debt issues, however, with fragile economies that are still recovering post-pandemic, with economic uncertainty exacerbating the availability of liquidity, and creating solvency issues.  

OPEC Fund creditworthiness, separation from OPEC may ensure investors 

The association of the OPEC Fund with OPEC, and therefore its member countries with economies heavily dependent on fossil fuels, could raise concerns over greenwash claim.

A separation between the fund and its parent organisation, however, and the profile of investors that subscribed to the SDG bond suggests otherwise. Over half the 40 investors in the bond were central banks and official institutions, and over 60% were from EMEA: most of these are likely governed by strict regulatory investment and compliance criteria. The SDG bond framework is also in line with ICMA’s principles for a use-of-proceeds green bond, which would also make it eligible for investment by ‘dark green’ or Article 9 funds.

Tanguy Claquin, global head of sustainability of Crédit Agricole CIB (EURONEXT:ACA), said: “The success of this landmark issuance reflects both the credit strength of the OPEC Fund and its commitment to sustainable development. It also marks an outstanding first public benchmark transaction.”

Lars Humble, managing director and head of SSA, Goldman Sachs (NYSE:GS), added: “The issuer had done a lot of work with potential investors over the course of many months, and it was great to see such a well-diversified, high quality order book on the back of the thorough preparation. The deal size of $1 billion at a final pricing level 5 basis points inside of the tight end of initial price thoughts further highlights the strong confidence from investors in the name and the overall success of the transaction.”

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