Georgia’s nascent capital market sector is on a strong upward trajectory, in large part supported by a commitment to the issuance of sustainable bonds.
Speaking at the Asian Development Bank annual meeting in Tbilisi, Georgia, Ekaterine Mikabadze, vice-governor and member of the board at the National Bank of Georgia, explained that last year corporate bond issuance in the country doubled to La2.1bn ($787mn), equivalent to 2.5 per cent of the country’s gross domestic product.
She cited the introduction of legislation to improve regulatory frameworks, bringing Georgia closer to EU standards, as having a positive impact on investor trust in the market.
“For example, we have started to accept certain types of corporate bonds as collateral for monetary operations. Also, we have published for public consultation changes in the regulation of the state pension funds to invest in corporate bonds,” she said.
The NBG also worked with the European Bank for Reconstruction and Development on a programme to subsidise transaction costs on the market or in the issuance of bonds, which Mikabadze said helped to incentivise the market.
Almost half of the corporate bond issuances in the country last year were classed under the green, social and sustainable umbrella; 38 per cent of total issuances were sustainable bonds, 4 per cent green, and 2 per cent social. 2023 also saw the country’s state pension fund invest in GSS bonds for the first time.
The groundwork for these investments was laid with the development of the country’s sustainable finance framework in 2017. The NBG worked with the private sector and international partners to develop guidelines and tools to support the private sector towards suitable finance, introducing taxonomies and classification systems.
Salome Tvalodze, head of the sustainable financing division at NBG, said involving the private sector in the process from the start has been important in the success of the implementation, making communication and co-operation easier than simply imposing new regulations.
The dedicated social aspect is a key part of the sustainable finance framework, which Tvalodze claims makes Georgia the first country in the world to implement a social focus into their framework.
On the investor side, Levan Shavkatsishvili, CEO of Georgian investment bank Galt & Taggart, said the market is now recognising the advantages of ESG investment, and puts the success down to the growth of the investor base.
“Initially, only banks were investing in bonds, but in the last few years the private investor base has grown. We see international finance institutions working to invest in local issuances. And when there is an ESG label, it increases interest,” he said.
The outlook for sustainable bond investing will increase as awareness grows, said Mary Chachanidze, managing director of TBC Capital, the investment banking arm of Georgia’s TBC Bank.
She said investment banks have a role to play in nudging companies into issuances, and providing advice on how to comply with standards. As part of this process, she has seen companies that were initially asking if ESG bonds would provide a better coupon pricing learn to see the value in them, and use their commitment as a marketing tool to investors.
“There are more and more institutional investors that are committing to having ESG bonds in their portfolio,” she said.
“It is our role to explain to new issuers that to stay relevant going forward they need to start thinking about it. If liquidity will move from ordinary financing to ESG financing, companies that are not issuing ESG will have to pay a premium.”
Chachanidze added that she believes current growth in the market is set to continue for the next three to four years, and capital market support programmes and the commitment of the investment banks will further raise awareness and help issuers in the process.
Georgia’s success in introducing ESG investments has underlined the importance of all economies supporting climate goals, regardless of the size of their GDP.
“Addressing issues like climate change and social issues are important for every country, regardless of the level of development. It can be an even bigger issue for emerging countries. Just because we are not rich does not mean we cannot do something in this regard,” said NBG’s Tvalodze.
“We don’t have an option to wait until we get rich to start to care. We can do this while trying to achieve high-income growth.”
