S4 t.kato oecd (tbilisi green finance mobilisation (22 23 june 2017)

1. Takayoshi KATO
Policy Analyst,
Green Growth and Global Relations Division
Environment Directorate, OECD
22 June 2017
Session 4:
Implication of Georgia’s financial
market reform for green finance

2. 2
Scaling up and greening finance
How to scale up
investment in
infrastructure and
other fixed asset?
How to make sure
that such
investment is
green?
A well-functioning local capital market can
be part of solution for both

3. 3
Background: Key challenges to mobilising
green finance in Georgia
Challenges to green
finance mobilisation
Low risk-return
profiles
Limited low-cost,
long-term finance
Non economic
barriers

4. 4
Background: Key challenges to mobilising
green finance in Georgia
Limited low-cost,
long-term finance
Limited capital market development
Credit rating issues and high interest rate
Risk mitigation instruments present but to be
further explored
Competition for capital with other infrastructure
asset and with retail banking
Limited options for financial sources/instruments

5. • Scaling up traditional sources of finance
remains important (e.g. Governments, Dev.
Finance Institutions, commercial banks).
• Diversifying financial instruments and
capital sources would complement the
traditional sources and help further scale up
green finance
5
Why can diversified financial channels
help mobilise green finance?

6. Sources/Instruments work differently at
various stages of infrastructure investment
Source: Adopted from OECD (2016) Support Note on
Diversification of Financial Instruments for Infrastructure

7. 7
What is needed for diversifying financial
instruments for green finance?
Further use of bond
and equity for green
finance
Well-functioning local
capital market
Credit rating services
Government yield-curve
Measures to promote ESG*
performance of assets
Good payment service
*Environment, Social and Governance

8. • Georgia’s capital market (e.g. for corporate
bonds and equity) is still at an early stage of
development
• Use of equity and corporate bonds is
increasing but not yet common as finance
instruments in general, let alone for green
finance.
8
Capital market development still at early
days, but progressing

9. Sector Currency
Size
(million) Maturity Coupon Exchange
Republic Of Georgia Gov. USD 500 2021 6.88 London
BGEO Group Financial USD 350 2023 6.00 Dublin
Georgian Oil & Gas
Corp Energy USD 250 2021 6.75 London
Georgian Leasing Co Financial USD 10 2017 8.75 Georgia
M2 Real Estate Real Estate USD 25 2019 7.50 Georgia
Nikora Trade Retail USD 5 2018 11.00 Georgia
Georgian Water &
Power Utilities GEL 30 2021 11.25
Not
listed
Georgian Water &
Power Utilities GEL 2.6 2017 14.00 Georgia
9
Increasing bond issuance (but in many
cases, outside the country)
Table 3. Examples of issued bonds and their performance
Source: OECD based on JSC Galt & Taggart (2017)

10. • Equity investment (in green projects) already
exists in Georgia mainly for hydro power, and
green bonds are gaining interest.
• Georgia’s ongoing reform of capital market
may have implications for future scaling-up of
green finance in Georgia:
– Reforming securities (bond and equity) market
– Reviewing regulatory frameworks on
investment funds
– Increasing local currency denominated asset
10
Possible linkages between capital market
reform and green finance in Georgia

11. • Should/Can the government link Environment,
Social and Governance (ESG) factors with its
capital market development?
– Facilitating information disclosure on: company
GHG/pollutants emissions, labor and human rights
policies, corporate governance structures, etc.,
while avoiding unnecessary burden for paper work.
– Institutional investors are getting increasingly concerned.
11
Should the linkages be more explicit?
Ex. EU Non Financial Reporting Directive
provides a legislative framework to require public
companies to disclose a range of information, including
ESG factors.
Source: European Commission (n.d.), Directive 2014/95/EU [Link]

12. Session 4: Discussion questions
• What are the drivers for and challenges to
diversifying financial instruments?
• Within your business, what could the financial
market development bring to scaling-up of
green finance in Georgia?
• Could Georgia’s effort for financial market
development be more explicitly linked with
climate and green growth agenda over time? If so,
how?