Un backed green bond network positions Sri Lanka to unlock green finance

The Cabinet of Sri Lanka’s Government has granted approval for the nation’s Green Bond Framework, a significant development led by the Ministry of Finance, with support from the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

This Framework’s creation involved extensive consultations and inputs from various Ministries and Regulators, including the Central Bank of Sri Lanka, the Ministry of Environment, the Sustainable Development Council, as well as key partners such as the United Nations Development Programme (UNDP) and the Global Green Growth Institute (GGGI).

Sri Lanka’s Government has set ambitious goals to nurture the country’s sustainable finance market, emphasizing the development of tools and policy guidance to effectively manage environmental, social, and governance (ESG) risks and align with the nation’s climate objectives. Despite these ambitions, Sri Lanka faces its most severe financial crisis in decades, exacerbated by the economic turmoil following the COVID-19 pandemic, which threatens the achievement of its Sustainable Development Goals (SDGs) and climate commitments.

In April 2022, the Government of Sri Lanka announced a suspension of payments on its foreign debt, marking the country’s first-ever default and downgrading its sovereign credit rating below investment grade. Throughout the challenging financial and political landscape of the past year, ESCAP has been actively assisting the Government of Sri Lanka in pursuing both short-term and long-term green finance objectives.

Thematic bonds, such as green bonds or blue bonds, play a pivotal role in mobilizing financing for climate and SDG-related endeavors. Bonds, while a form of debt instrument, can also serve as a means to restructure existing debt, offering relief to countries facing financial distress. Sri Lanka’s Green Bond Framework has been strategically designed to support the country in both the immediate and long-term contexts, providing a versatile framework that can be utilized for debt restructuring and, subsequently, for raising green finance when debt sustainability is achieved.

“ESCAP is pleased to have provided technical and financial support for the development of Sri Lanka’s Green Bond Framework. Despite the ongoing crisis, the Government remains steadfast in its environmental and SDG commitments. We believe this Framework brings Sri Lanka one step closer to mobilizing green finance, supporting the nation’s socio-economic growth and environmental resilience,” remarked Armida Salsiah Alisjahbana, United Nations Under-Secretary-General and Executive Secretary of ESCAP.

“It is indeed an opportune moment to establish a framework for Green/Blue financing instruments, enabling Sri Lanka to regain access to international capital markets. The Green Bond Framework can facilitate the restructuring and repackaging of a portion of the existing debt towards green and sustainable initiatives, aligning the debt with long-term sustainability objectives,” noted Ranil Wickremesinghe, President of Sri Lanka.

In the next phase, ESCAP and the Global Green Growth Institute (GGGI) have jointly committed to funding a Second Party Opinion to ensure the framework aligns with the highest standards and market best practices. Additionally, ESCAP, UNDP, and GGGI are collaboratively supporting the advancement of Sri Lanka’s sustainable finance agenda.