Editorial | CARICOM bond breaks new ground

The Gleaner looks forward to the launch of the prospectus, and with it the fine print, of the US$250 million climate-resilience bond for Caribbean Community (CARICOM) countries, which was formally unveiled in Barbados last week.

However, this much is already clear: by pooling their resources and effort in offering a new asset class to domestic and international investors, Caribbean countries are demonstrating their ability and willingness to raise some of the capital they need to adapt to and mitigate the existential threats posed by the climate crisis. In that sense, the proposed bond is an expression of the logic of CARICOM and the value of conglomeration.

It is also good for the region’s capital market.

The Caribbean has always been a heavily impacted, disaster-prone region. It is in the path of hurricanes. It sits on dangerous geological fault lines whose tilts and shifts cause earthquakes. The region is home to volcanoes, on land and below the sea, that are given to periodic dangerous eruptions.

These events, or the potential thereof, are now exacerbated by global warming and climate change, the result of hydrocarbons that humans spew into the atmosphere, leading to less predictability in the occurrence of climate events. What is known, though, is that, when bad storms occur, they are likely to be more violent and destructive than those of the past. Droughts tend to be longer and more severe, and floods more unrelenting and dangerous.

EXISTENTIAL RISKS

Additionally, a hotter Earth and melting ice caps cause sea levels to rise, with existential risks to the coastal and economically sensitive regions of the small island developing states of the Caribbean.

Yet, the region contributed little to the emissions that drive these disasters, which are given reality in events like Hurricane Melissa, the Category 5 storm that devastated the western third of the island a year ago. Damage to private property and public infrastructure from Melissa was estimated at 41 per cent of Jamaica’s GDP, or US$9.3 billion. When the overall impact of the storm is taken into account, including disruption to economic activity, the cost was closer to 57 per cent of GDP.

In 2024, infrastructure damage in St Vincent and the Grenadines from Hurricane Beryl was 16.5 per cent of GDP. But the overall damage to the economy was 25 per cent of GDP. Loss and damage from the same hurricane in Grenada were around 37 per cent.

Before these recent catastrophes, Dominica suffered a series of storm-related ravages in the 2010s. In 2011, loss and damage left by Tropical Storm Ophelia amounted to 40 per cent of Dominica’s GDP. In 2015, it was the turn of Hurricane Erika. The overall cost of that storm was 90 per cent of the island’s GDP. In 2017 came Hurricane Maria. It cost 220 per cent of GDP.

“There is no tolerable level of insurance premium that would insure Dominica against losing 350 per cent of GDP every eight or so years,” a commission of regional and international experts whom CARICOM asked to identify ways to jump-start the region’s economy said in a 2020 report.

The commission, which was chaired by Barbadian economist Avinash Persaud, added: “And, if climate change risks are known, large, and rising, then pooling with those who do not share your risk would only be helpful for you but not for them. These are increasingly uninsurable risks.”

PUBLIC-PRIVATE PARTNERSHIP

It was in that context that the commission proposed CARICOM-launched growth and resilience bonds, using a public-private partnership model similar to the one being used by the CARICOM Development Fund (CDF) and Jamaica’s JMMB Group for the Caribbean Sustainability Bond, to raise money to finance the hardening of private and public infrastructure, making them less susceptible to climate events. At the time, the Persaud Commission suggested that there was upwards of US$50 billion in regional bank and credit union accounts that could be tapped for these bonds.

Importantly, this approach not only means opportunities for investors, but also means governments do not add to their fiscal stress by assuming new debt. Hopefully, the bond is being structured in a way that small investors are not locked out.

The Caribbean’s move to raise climate-related financing on its own steam, including from domestic markets, does not remove the unmet obligation that developed nations have to developing countries to provide capital to help them adapt to the challenges of climate change. Indeed, Caribbean countries must continue their advocacy for these financial flows, using all available platforms, including the COP conferences and programmes like Barbados’ Bridgetown Initiative that insist on a reconfiguration of the global financial architecture.

However, the region cannot wait only on the developed countries to fulfil a moral obligation for a crisis of their, rather than the developing world’s, making.

As Karl Townsend, the head of JMMB’s capital markets unit, said in Barbados, this is better done as a group than as individual countries. The process is far more efficient this way.

“Rather than approaching the market with multiple smaller financing requests, we can bring together eligible projects under a single regional financing framework and present investors with a compelling Caribbean investment opportunity,” he said. “So, instead of fragmentation, we create scale.”

The logic is apt and applicable to other areas of the regional integration project.