Sustainable Finance and Investment
Branch Foundation & Level 1 — Modules B4, 1.1, 1.2, 1.3

This unit covers the taxonomy of labelled sustainable debt instruments and the ICMA principles that govern each type. Green bonds finance assets and projects with clear environmental benefits; the ICMA Green Bond Principles specify four components: use of proceeds, process for project evaluation and selection, management of proceeds, and reporting. Social bonds apply the same four-component framework to social project categories. Sustainability bonds combine green and social use of proceeds. Sustainability-linked bonds differ structurally: they do not restrict use of proceeds but link the bond's financial terms (coupon step-up or step-down) to the issuer's achievement of pre-specified sustainability performance targets. The ICMA Sustainability-Linked Bond Principles cover KPI selection, sustainability performance target setting, bond characteristics, reporting, and verification.

The unit maps the growing market for each instrument type using the most recent data available, noting the geographic distribution of issuance, the sector concentration, and the trend toward SLB and SLL growth relative to use-of-proceeds instruments as issuers seek greater flexibility.

This unit covers the ESG-integrated equity product landscape, from passive ESG index strategies through active ESG equity funds to direct equity engagement by asset owners. The unit covers four major ESG index construction methodologies: negative screening, best-in-class screening, ESG tilting, and ESG optimisation, with the MSCI, FTSE Russell, and S&P Dow Jones index families that apply each. Active ESG equity fund strategies covered include thematic strategies, ESG-integrated fundamental strategies, and impact-oriented strategies. The active ownership dimension covers stewardship: how institutional investors use voting, engagement, and escalation to influence company behaviour on ESG issues.

This unit covers the blended finance instrument landscape and the public climate finance windows available to support private capital mobilisation. Blended finance uses concessional capital from public or philanthropic sources to improve the risk-return profile of an investment to the point where commercial investors will participate. The instrument types covered are: first-loss tranches, guarantees, technical assistance grants, and co-investment at below-market terms.

The public climate finance windows covered are: the Green Climate Fund, the Global Environment Facility, bilateral climate funds (UK International Climate Finance, Germany's IKI, and USAID climate programmes), and multilateral development bank climate facilities (AfDB's Climate Change and Green Growth Fund, IFC's Blended Finance facilities, and ADB's Climate Change Fund). For each, the unit covers the thematic priorities, eligible entities, typical instrument and terms, and the access pathway.

This unit covers the regulatory drivers shaping sustainable finance flows, with particular attention to the frameworks most relevant to the programme's emerging market focus. In the EU, the key regulatory drivers are SFDR, the EU Taxonomy, the EU Green Bond Standard, and CSRD. In the UK, the Sustainability Disclosure Requirements (SDR) and the UK Green Taxonomy are the primary frameworks.

Emerging market sustainable finance frameworks are covered for the regions most relevant to the programme: the African Development Bank's Sustainable Finance Framework, the Nairobi Declaration on Sustainable Finance, the ASEAN Taxonomy for Sustainable Finance, and the Monetary Authority of Singapore's Green and Sustainability-linked Loan Grant Scheme. The unit maps alignment and divergence between these frameworks and the EU and UK approaches, identifying interoperability provisions that enable cross-border sustainable finance transactions.

This unit applies the ecosystem knowledge from Units B4.1 through B4.4 to a structured capital flow mapping exercise for a specified asset class. Learners select one of three asset classes: renewable energy infrastructure in Sub-Saharan Africa, green affordable housing in Southeast Asia, or sustainable agriculture in Latin America. For their chosen asset class, they map: the sustainable finance instruments available on the debt and equity sides, the public finance windows accessible, the regulatory frameworks that apply to investors, and the key bottlenecks preventing greater private capital mobilisation. The landscape analysis is the capstone deliverable for this module and provides the context for the instrument structuring work in the Level 1 modules.

This unit covers the decision framework for selecting between a green bond and an SLB. The decision turns on four factors: asset base eligibility (whether the issuer's capital expenditure programme generates sufficient eligible green assets), sustainability ambition (whether performance-linked financing supports more ambitious target setting), investor base preferences, and accounting and regulatory treatment (including the EU Green Bond Standard certification path and implications for CSRD and EU Taxonomy reporting). The unit works through the decision for a utility company (green bond preferred given asset availability), a consumer goods company (SLB preferred given target-linkage flexibility), and a bank (hybrid approach using both instruments). The output is the instrument selection rationale document that precedes framework design.

This unit covers the design of the use-of-proceeds section and project selection criteria for a green bond framework. The use-of-proceeds taxonomy defines the eligible green project categories across the thirteen ICMA Green Bond Principles project categories. The unit covers how to map the issuer's project pipeline against these categories and against the EU Taxonomy technical screening criteria to produce a taxonomy with clear eligibility and exclusion criteria. The project selection criteria section specifies the environmental assessment process, the Do No Significant Harm screening, the minimum social safeguard requirements, and the governance process for approving projects for inclusion in the eligible pool — including the documentation requirements that an SPO provider will assess.

This unit covers the proceeds management mechanism and the annual allocation and impact reporting requirements for a green bond. The proceeds management mechanism specifies the ring-fencing approach, the allocation timeline, the treatment of temporarily unallocated proceeds, and the process for managing the eligible asset pool as assets mature or become ineligible. The annual allocation report discloses total proceeds raised, total allocated by category, total unallocated, and the proportion of allocation from new investment versus refinancing. The impact report discloses environmental outcomes using ICMA Harmonised Framework quantitative metrics: renewable energy capacity installed, energy generated, GHG emissions avoided, and water treated. The unit covers the connection between impact reporting and the issuer's CSRD sustainability statement.

This unit covers the design of an SLB framework from KPI selection through SPT setting to bond characteristic structuring. KPI selection applies the ICMA criteria: material to the issuer's core sustainability strategy, measurable, externally verifiable, able to be benchmarked, and capable of being defined with sufficient precision for unambiguous SPT assessment. The unit works through KPI selection for three issuer types. SPT setting covers the calibration methodology: SPTs must represent a material improvement relative to baseline and must be benchmarked against a science-based pathway (such as SBTi) or against sector peers. The unit covers step-up and step-down bond characteristic designs, explaining how the coupon adjustment magnitude and the observation period affect the financial incentive strength.

This unit covers the preparation of the documentation package for a second-party opinion engagement. An SPO is an assessment by an independent sustainability research provider of the alignment of a green bond or SLB framework with the applicable ICMA principles and, for green bonds, with the EU Taxonomy. The unit covers the SPO process: provider selection (the major SPO providers include ISS ESG, Sustainalytics, Vigeo Eiris, and DNV), data room preparation, the review timeline, and the format of the SPO document. The framework documentation exercise produces the complete green bond or SLB framework document covering the executive summary, use-of-proceeds taxonomy or KPI and SPT section, project evaluation and selection criteria, proceeds management section, reporting commitments, and the external review section. The data room checklist specifies the evidence required for each framework section. The capstone deliverable is the complete framework document and data room checklist.

This unit covers the application of SASB industry standards to equity research ESG materiality mapping, building directly on the SASB framework introduced in F1. The equity research application of SASB differs from the corporate sustainability reporting application: the equity analyst uses SASB to identify which ESG factors are financially material for the company's sector, to prioritise research effort, and to structure the ESG section of the research note. The unit identifies the three to five highest-priority ESG factors with quantifiable financial impact, the three to five factors with qualitative but non-quantifiable impact, and the factors that are material for the sector but not relevant to the specific company's business model. Data sources covered include MSCI ESG Research, Sustainalytics, S&P Global ESG Scores, and the company's own CSRD and ISSB disclosures.

This unit covers the methodology for incorporating carbon pricing costs into a DCF model across four steps: identifying the emission sources subject to carbon pricing, quantifying the annual emission volume using the GHG Protocol methodology from F2, applying the carbon price scenario (using the IEA Net Zero Emissions scenario trajectory and a stated policies scenario as the base and stress cases), and calculating the annual carbon cost as the additional operating expense that reduces EBIT, EBITDA, and free cash flow. The unit covers the treatment of carbon cost pass-through and works through the pass-through analysis for the case company's sector. The sensitivity analysis covers the range of outcomes across carbon price scenarios and pass-through assumptions.

This unit covers the incorporation of energy transition capital expenditure into the DCF model. An energy transition capex adjustment recognises that companies with significant Scope 1 and Scope 2 emissions will need to invest in electrification, fuel switching, energy efficiency, and renewable energy to meet their science-based targets. The adjustment methodology covers three steps: calculating the total transition investment required using the SBTi sector guidance, distributing the total investment across the valuation horizon aligned to the SBTi near-term and long-term target trajectory, and incorporating the additional annual capex into the DCF model as a reduction in free cash flow. The unit covers the distinction between growth capex and transition capex and the appropriate DCF treatment of each, including the terminal value adjustment for normalised transition capex in steady state.

This unit covers the modelling of stranded asset risk in a DCF valuation. A stranded asset is a physical asset whose economic value falls below book value before the end of its expected useful life because of changes in energy policy, carbon pricing, technology disruption, or physical climate risk. The modelling approach covers three scenarios for each at-risk asset: the base case (asset operates to its expected useful life with declining utilisation), the accelerated transition scenario (asset is retired early under a 1.5 degree policy environment), and the physical risk scenario (asset suffers impairment from climate physical events). For each scenario, the unit covers the probability assignment, the cash flow impact, and the terminal value impact. The probability-weighted average of the three scenarios produces the stranded asset risk adjustment to the base case DCF valuation.

This unit covers the adjustment of the discount rate for ESG risk and the assembly of the ESG-integrated equity research note. The ESG risk premium adjustment draws on published evidence examining the relationship between MSCI ESG ratings and the implied cost of equity and the relationship between Sustainalytics ESG risk scores and credit spreads, presenting evidence for a systematic ESG risk premium typically in the range of 20 to 100 basis points for companies with materially different ESG profiles within the same sector. The ESG equity research note assembles all adjustments into a coherent investment document covering: the company overview and sector ESG context, the material ESG factors, the DCF adjustments, the resulting target price range, the key ESG risks and upside factors, and the investment conclusion for an institutional investor audience applying SFDR Article 8 or Article 9 fund criteria. The capstone deliverable is the complete research note for the assigned listed company.

This unit covers the co-financing windows of the four target DFIs in a structured comparison that enables analysts to rapidly assess which institution is most likely to be interested in a given transaction. The AfDB private sector window focuses on infrastructure, financial sector development, and agribusiness in African countries, with a minimum transaction size of typically USD 10 million for direct lending. IFC covers all emerging market regions with a minimum investment size of typically USD 5 million. The ADB Private Sector Operations Department and the World Bank Private Sector Window (through IDA) are covered for their relevance to Asian and lower-income country transactions.

The comparison matrix produced in this unit covers each institution across ten dimensions: geographic focus, sector priorities, eligible instruments, minimum transaction size, co-financing ratio, environmental and social standard reference, additionality documentation requirements, appraisal timeline, disclosure requirements, and the preferred transaction structure. This matrix is the navigational tool for the co-financing strategy design in Unit 1.3.4.

This unit covers the additionality documentation requirements that are central to every DFI co-financing application. The three dimensions of DFI additionality are: financial additionality (the DFI fills a financing gap that commercial lenders would not fill), demonstration effect (the transaction establishes viability of a project type or geography that will attract follow-on commercial investment), and higher standards (the DFI's participation raises environmental, social, or governance standards beyond what local regulation requires). The additionality documentation exercise walks through the financial additionality demonstration for the off-grid solar C&I transaction: the commercial bank term sheet offers a maximum tenor of five years at 450 basis points; the project's debt service coverage ratio requires a minimum seven-year tenor to be financially viable; the IFC can provide seven-year senior debt at 300 basis points, enabling the project to proceed.

This unit covers the IFC Performance Standards, which are the environmental and social requirements that IFC applies to all its investments and that have been adopted by the Equator Principles Association as the benchmark for project finance transactions above USD 10 million in emerging markets. The eight Performance Standards cover: assessment and management of environmental and social risks (PS1), labour and working conditions (PS2), resource efficiency and pollution prevention (PS3), community health, safety, and security (PS4), land acquisition and involuntary resettlement (PS5), biodiversity conservation (PS6), indigenous peoples (PS7), and cultural heritage (PS8). The unit covers the applicability of each standard to the off-grid solar C&I transaction and the Environmental and Social Management System (ESMS) requirement as the governance mechanism IFC requires all investee companies to have in place.

This unit covers the design of a co-financing strategy for the off-grid solar C&I transaction. The strategy covers: the primary DFI selection (IFC for senior debt given East Africa geographic focus), the secondary DFI or guarantor selection (AfDB Partial Risk Guarantee to cover off-taker credit risk), the sequencing of engagement, and the documentation pathway (concept note, project information memorandum, environmental and social assessment, and financial model as the primary documents required at each DFI appraisal stage). The transaction positioning section covers how to present the transaction to each DFI connecting to the institution's current strategic priorities: for IFC, the positioning emphasises climate impact, financial sector development, and economic inclusion; for AfDB, the positioning emphasises African development impact, crowding in commercial bank financing, and alignment with the AfDB's Desert to Power initiative.

This unit covers the procurement requirements that DFI co-financing imposes and the preparation of the financial additionality documentation package. DFI procurement requirements specify how equipment and services must be procured for co-financed transactions, with practical implications for vendor selection, single-source procurement justification, and related-party transaction disclosure. The financial additionality documentation package covers: the financing need analysis (total project capital requirement, commercial market terms available, and the financing gap), the market test evidence (evidence that the developer approached commercial banks and received inferior terms or a refusal), the DFI terms comparison, and the counterfactual analysis. The package is presented in the format required for inclusion in the DFI concept note and forms the capstone deliverable for this module along with the co-financing strategy document.