New Bond Opportunities Focus on Climate Resiliency

RE.bound program develops new resilience bond

A team of private sector partners has released the framework for a new insurance-based product intended to generate capital for risk-reduction projects. The RE.bound Program, released Dec. 9, 2015, offers a new financial product called a “resilience bond.” These bonds are designed to help manage the financial risk from catastrophes, while simultaneously promoting investment in infrastructure that mitigates physical risk. The new framework is set out in the RE.bound report, Leveraging Catastrophe Bonds as a Mechanism for Resilient Infrastructure Project Finance.

Resilience bonds could provide financial protection through catastrophe insurance for a city or public utility. As cities or utilities invest in protective infrastructure, such as seawalls or flood barriers, they could capture the insurance savings or reduction in cost from one year to the next. The savings would result from projects that reduce economic losses from disasters during the term of the resilience bond. An analogy is a life insurance policy offering rebates for actions that lessen health risks, such as quitting smoking or exercising regularly.

RE:focus partners launched RE.bound together with The Rockefeller Foundation, Swiss Re, Goldman Sachs, and RMS.

The RE.bound report provides information about how resilience bonds can work and demonstrates why they are important for communities facing increasingly frequent and severe storms and floods. The next phase of RE.bound will bring together policy, project design, and finance experts to explore options for applying the modeling approach and resilience bond mechanism to help governments and international organizations reduce dependence on disaster aid, improve protection for the most vulnerable countries and communities, and support global climate finance commitments.

Water Climate Bond Standard Takes Shape

On Nov. 23, 2015, the Climate Bonds Initiative and consortium partners released for public comment the world’s first standard for low carbon and climate resilient water bonds. The proposed Water Climate Bond Standard brings a focus on vulnerability assessment and climate mitigation and adaptation planning to the fixed income space. It is intended to enable investors to prioritize projects that consider climate impacts and climate resilience.

The Water Climate Bond Standard was developed by a technical and industry working groups overseen by the consortium partners, including Alliance for Global Water Adaptation, Ceres, World Resources Institute, and CDP.

The proposed standard will certify water investments that have conducted climate vulnerability assessments considering past, present, and future climate risks and environmental losses and created resulting adaptation or mitigation plans.

Following the conclusion of the consultation period in February 2016 the proposed criteria will be reconsidered in light of the comments received. A revised draft will then be submitted to the Climate Bonds Standard Board for consideration.

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