In 2015, the United Nations General Assembly adopted 17 Sustainable Development Goals (SDGs) to be achieved by 2030. The two overarching objectives of the SDGs are tackling climate change and delivering equality.
Private capital, including the US$100 trillion bond market, is the only pool of capital deep enough to finance the timely delivery of the SDGs. To that end, various types of a new debt product, the SDG CLO, are emerging as the optimum financing tool to fund the delivery of the SDGs. The three main types of SDG CLOs that we expect to come to market in 2020 are:
- SDG corporate CLOs, which aggregate corporate loans in developed markets and will include financial incentives once minimum levels of sustainable obligations have been purchased by the CLO; the definition of sustainable obligation will include any loan to a company that has made measurable commitments in relation to carbon dioxide (CO2) emissions, gender and other measurable SDGs
- SDG infrastructure CLOs, which aggregate infrastructure loans in both developed markets and emerging markets; the infrastructure must advance one of the infrastructure-related SDGs (clean energy CLOs would be a subset of the SDG infrastructure CLO asset class)
- SDG microfinance CLOs, which aggregate loans to microfinance institutions in emerging markets; microfinance loans touch multiple SDGs including most obviously gender equality and ending poverty
- Forthcoming regulatory initiatives will further boost the market for SDG CLOs including adding SDG CLOs as a type of eligible collateral for central bank funding.
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