Page 18 - Connecting cities and communities with the Sustainable Development Goals

United for Smart Sustainable Cities
Connecting cities and communities with the Sustainable Development Goals

continuous efforts to promote the cities’ sustainability agendas. One of the main drivers for issuing city green
bonds has been the gradual transition in public policy and legislation towards sustainability over the last few
years. In many cases the development has been led by international commitments, national government
policies and strategies, and later adopted by local city governments. For example, Mexico becoming the first
developing country to adopt a General Climate Change Law (LGCC) in 2012, highlighted the country’s strong
commitment to reducing its emissions. The National Climate Change Strategy was adopted in 2013 and from
there on the country has been on the path to transition towards more sustainable city policies.
Although Mexico City was the first city in Latin America to issue green bonds, it was able to look into previous
experiences on green bond issuances, e.g. in Europe, for reference. A local Mexican development bank,
Nacional Financiera (NAFIN), issued its first green bond in November 2015, which in turn paved the way for
the issuance of the city’s first green bond. Also, the city’s urgent need for sustainable infrastructure (e.g. low-
carbon infrastructure, energy efficiency, water infrastructure) influenced the decision to seek financing
through the issuance of a green bond.

For a city to be able to issue green bonds, it must be creditworthy to raise capital in the financial markets.
However, approximately 80% of cities in general do not have an investment grade credit rating, which means
that if they are interested in issuing green bonds, they must first consider options to increase their
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creditworthiness (e.g. credit enhancement, third-party guarantees) . Both Gothenburg and Mexico City had
a sufficient credit rating for issuing green bonds, which made the process more straightforward.
The complexity of the implementation of a city green bond framework depends on the city’s initial
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circumstances i.e., mainly the legal setup and city’s creditworthiness. For assistance on how to proceed in
the initial phases of green bond issuance, cities can closely monitor successful green bond schemes in other
countries. Following this, the city has to set eligibility criteria and identify the projects it would like to include
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under the framework. The Green Bond Principles are used as reference for determining the general process
under which the framework should operate. These principles also contain the details on reporting and
transparency requirements.

Green bond issuance can sometimes be accompanied by specific marketing initiatives to promote the climate
awareness of the issuer. Also, prior to issuing a green bond, the issuer usually looks for a second opinion to
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increase investors’ confidence on the quality of the issuance. For Gothenburg’s green bond framework, the
second opinion was provided by Cicero (Centre for International Climate and Environmental Research –
University of Oslo), whereas Sustainalytics evaluated the Mexico City green bond framework.

The management of the green bond framework requires engagement and collective efforts from various
levels of public administration. Setting up a monitoring, reporting and verification structure requires high
levels of cooperation between different government entities. For example, Gothenburg’s Environment
Administration oversees the monitoring and reporting regarding the implementation of the environmental

5 South Pole Group, Climate Policy Initiative, ICLEI – Local governments for Sustainability and Climate Bonds Initiative;
Green Bonds for Cities.
http://local.climate-kic.org/wp-content/uploads/2016/09/160825_Flyer_Green-Bonds-for-Cities_LR.pdf.
6 For more information and guidance on cities’ options for accessing financial flows from the green bonds, see the
report “Green Bonds for Cities: A Strategic Guide for City-level Policymakers in Developing Countries”
https://climatepolicyinitiative.org/wp-content/uploads/2016/12/Green-Bonds-for-Cities-A-Strategic-Guide-for-
City-level-Policymakers-in-Developing-Countries.pdf.
7 International Capital Market Association (ICMA), “Green Bond Principles, 2016 – Voluntary Process Guidelines for
Issuing Green Bonds”, http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-bonds/green-
bond-principles/.
8 Providing a second opinion refers to the process of an independent evaluator assessing the mechanisms
or framework the issuer has in place for evaluating and selecting eligible projects. The evaluation can also
assess the use of proceeds, management of proceeds and reporting, as well as their alignment with
ICMA’s Green Bond Principles. (http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-
bonds/green-bond-principles/).

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