The Bank for International Settlements (BIS) launched on Friday a new fund investing in Asian green bonds to help finance projects to combat climate risks in one of the world’s most natural disaster-prone regions.

Open to central banks across the world, the Asian Green Bond Fund invests in U.S. dollar-denominated green bonds issued in Asia by governments, international financial institutions and companies that comply with international green standards.

Green bonds are financial instruments that finance environmentally sound projects and provide investors with regular or fixed income payments.

Created with input from entities like the Asian Development Bank, the fund will help finance environmently friendly projects in areas such as renewable energy production and energy efficiency in the Asia and Pacific region, the BIS said.

“In Asia, there is a strong desire from the central banks to promote the greening of their economies,” said Siddharth Tiwari, chief representative of the BIS for Asia and the Pacific region.

“One of the innovations here is the partnership that has started between the central bank and development financing communities,” he told Reuters.

Together with two other funds already put in place, the BIS said it will manage a combined $3.5 billion in green bonds.

The fund will conduct annual reviews to ensure it reflects changes in the global green finance landscape.

While the fund will initially target dollar-denominated green bonds, it will consider in the first and second annual reviews whether to expand its investment into transition bonds and local-currency denominated green bonds, Tiwari said.

“The challenge is for investors and everyone to be able to assess climate risk in the region in an accurate manner, so that they can invest rationally and that they don’t pose financial stability risk,” he said.

Source: Reuters