Sovereigns and central banks

Philippines: supercharging the transition

Written by Rose Choy

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The Philippines is set to submit an updated Nationally Determined Contribution (NDC) this year, complete with new emissions targets for 2035. Meeting these targets will require rapid decarbonisation of the energy sector. A Sustainability-Linked Bond (SLB) structure could incentivise the government to accelerate this process while lowering its cost of capital.

Current policy under the Philippine Energy Plan seeks to increase the share of renewable energy in the generation mix from 22% today to 35% by 2030 and over 50% by 2040.

We propose two SLB structures. One would be tied to achieving and potentially exceeding the 2030 renewable energy target. The second would be linked to a hypothetical 2030 emissions ceiling of 295 MtCO₂e, positioned between the Philippines’ current NDC commitments.

Using the AFII option pricing models, we estimate the likelihood of target achievement for both structures, demonstrating how SLBs could lower the sovereign’s cost of capital while providing investors with a risk-adjusted performance hedge.  As the Philippines finalises its updated NDC, incorporating ambitious but achievable interim targets would signal a clear commitment to a credible low-carbon pathway.

About the author

Rose Choy

Rose Choy

Research Director, APAC

Based in Singapore, Rose has over 20 years’ experience in capital markets, most recently as a Senior PM at Conning Asia, and her research focuses on credit research and analysis on the energy transition in the Asia-Pacific region.

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