AFD Group Takes a Look Back on Ten Years of Sustainable Bond Issuances

What are bond issues, and why are they so important for the financing of development projects supported by AFD?

Lenaïg Mallegol: A bond is a debt security issued by a third party (such as a company, bank, government or public agency) to investors in order to raise financing, with specific characteristics including the maturity date, amount, currency and interest rate. AFD Group’s finances its lending activity with its counterparties mainly financed through bond issues, with an annual borrowing program on the market amounting to between €8 and 10 billion. This enables the Group to maintain its lending activity while optimizing the cost of borrowing, which is then passed on to our counterparties.

AFD recently published an update of its SDG (Sustainable Development Goal) bond issuance framework: what is the purpose of this type of framework? How does it ensure that the funds raised are used in a responsible way that is aligned with the SDGs?

Over 50% of AFD Group’s annual borrowing program is carried out through “Sustainable Development Goals"  (SDGs) bond issues which are commonly known on the market as sustainable bonds. To give an example, in 2024, the volume of  bonds issued with the SDG label represented €4.43 billion.

See also: An updated SDG bond issuance framework for AFD

L. M.: As part of this process, an SDG bond issuance framework was established in advance, that clearly lays out the Group’s strategy and our methods for selecting and financing projects eligible for refinancing via our SDG bond issues. The aim is to meet the needs of the sustainable bond market by aligning our operations with the standards defined by the ICMA (International Capital Market Association) via the Green Bond Principles, Social Bond Principles, and the Sustainability Bond Guidelines.

Eligible loans are selected based on the financed projects' contribution to the SDGs, ensuring that only projects with a positive or neutral impact on the SDGs are chosen, in accordance with the “Do No Significant Harm” and “Substantial Contribution” principles. To achieve this, we apply the Group’s Sustainable Development Analysis and Opinion Mechanism (details of which are provided here for AFD and here for Proparco).

See also: Three Measures to Step Up Biodiversity Mainstreaming in Finance

The SDG bond issuance framework has been assessed by a Second Party Opinion (SPO Moody’s ratings) which assigns a “Sustainability Quality Score” after a thorough review of the document and the sustainability of the Group’s operations. The Group’s new SDG bond issuance framework has been rated SQS2 “Very Good”, which provides a guarantee of quality for investors.

In addition to the SPO’s assessment of the bond issuance framework, the Group will continue to publish detailed annual reports for investors, containing a breakdown of their investments by project type and geographical area, and showing the expected benefits and impacts of the projects financed, for example, tons of CO2 avoided. These reports are audited every year by an external third party, and provide investors with a guarantee that the funds raised are being used responsibly and in compliance with the SDGs.

What changes have been made to this new bond issuance framework compared with the previous version published in 2020?

L. M.: The Group has been issuing thematic bonds for the last ten years. The Group first issued a “climate” bond in 2014, in line with its strategy at that time, which required that 50% of loans include a co-benefit for the climate.

In 2020, we changed AFD Group’s climate bond issuance framework to an SDG framework, reflecting the Group’s new strategic direction: “100% Paris Agreement” and “100% Social Link”.

See also: 100% Social Link - 2021-2025 Strategy

We are now publishing an updated version of the thematic bond issuance framework, which is still based on the SDGs. This new edition meets five main aims: align the framework with the Group’s new strategic objectives; simplify the eligibility criteria and incorporate new market developments; increase the pool of eligible loans while maintaining strict criteria (in particular, by including French Overseas Territories loans); reflect changes in internal processes (namely the Proparco Sustainable Development Rating System, a fundamental element of the framework) and, last but not least, reiterate AFD Group’s commitment to a fair transition.

See also: AFD - Our Priorities