Global Public-Private Investment-Partnerships: A Financing Innovation with Positive Social Impact

How can rich-world savings be channelled into green bonds in emerging markets?

Patrick Bolton, Xavier Musca, and Frédéric Samama set out a four-partner model for moving developed-market savings into emerging-market green bonds in their paper "Global Public-Private Investment-Partnerships: A Financing Innovation with Positive Social Impact".

They rework the public-private partnership as a deal with four partners rather than the usual two, adding a development bank and institutional investors alongside the public agency and the private operator.

They then trace the Amundi Planet Emerging Green One fund, launched with the IFC in February 2018, as a live case applying securitization and first-loss protection to a pool of green bonds originated in emerging markets.

Their main conclusions include:

• Adding a development bank as gatekeeper and credit enhancer, plus institutional investors as funders, prevents hold-up once the infrastructure is built and the public side is tempted to renegotiate.
• The Amundi fund raised $1.4B from 16 institutional investors at closing, with a stated ambition to deploy up to $2B, the largest green bond fund in the world at the time.
• An IFC equity stake near $125M anchored the $2B fund, a 16-fold multiplier. Because the fund takes only 5% of any issue, that base can underpin up to $40B of investment.
• The fund starts with a mixed pool of emerging-market bonds and replaces them at roughly 15% a year, targeting a fully green portfolio by the end of a seven-year investment period.
• Supply-side capacity is treated as essential to growing the asset class: a parallel technical assistance programme trains emerging-market bankers to originate and certify green bonds.
• The model has since been replicated, with the European Investment Bank launching a green credit continuum programme targeting €1B, and the Asian Infrastructure Investment Bank $500M.

This article shows how to let a public balance sheet crowd in institutional money that prudential rules would otherwise keep away from emerging-market credit.

Using a first-loss tranche and credit enhancement to lift a diversified pool to investment-grade equivalent points to a route for the emerging-market green bond issuance the market still lacks.

It should be noted this is an account of a single fund, written soon after launch rather than as an independent evaluation, so the performance and awards it reports may come from the fund's own sponsors.

Independent data on realised returns, defaults, and the private capital genuinely mobilised across the replications would show whether the model scales beyond its first case.