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Paving the way for green bond sales: The government is looking to tap green bond sales for the first time, unveiling a green financing framework (pdf) that identifies eight types of green projects to be funded through the sale of the bonds. The Kingdom’s first push into green bonds comes as part of efforts to boost its clean energy transition away from fossil fuels, which remains the cornerstone of the economy.
What we know: Project categories range from energy efficiency to terrestrial and aquatic biodiversity, the framework showed. They also include projects focused on renewable energy, clean transportation, pollution prevention and control, sustainable water and wastewater management and climate change adaptation.
What the pundits are saying: The green financing framework will attract investors interested in Shariah-compliant investments, Bashar Al Natoor, Fitch’s Global Head of Islamic Finance said in a note. “The use of sukuk to fund eligible green projects adds an important dimension to sustainable finance, catering to investors seeking Sharia-compliant instruments that also support environmental objectives,” Al Natoor said.
REMEMBER- The potential issuances are separate from the Public Investment Fund (PIF) venture into green financing. The sovereign fund closed two green bond offerings totaling USD 8.5 bn between 2022 and 2023. The push for sustainable bonds comes under Saudi’s plan to slash emissions by 278 mn tons per year by 2030 and reach net zero by 2060.
How it works: Issuances will be made through the Finance Ministry, with net proceeds allocated for eligible budgetary programs in the general budget within two budget years following the green bond or sukuk issuance. Total spending for budgetary programs will be of an equal amount or exceed that of the bond proceeds.
Two committees to oversee the framework: The Finance Ministry will chair the the Sustainable Financing Committee, which will oversee the framework and list of eligible projects. The National Debt Management Center (NDMC) will lead on the marketing of projects to fixed-income investors.
An annual report to make sure everything is on track: An annual allocation report will be published within one year of any green bond or sukuk issuance, reporting on the deployment of funds and environmental impact indicators.
