Green bonds issuance in Africa

12 NOVEMBER 2021

How Africa can unlock the potential of Green Bonds

Danielle Frank, Sustainable Finance and ESG Advisory Transactor for RMB, recently spoke at the Africa Green Bonds Intensive Forum on the panel, ‘Pre-issuance, post-issuance and beyond — the practitioners deep dive into green bonds issuance in Africa.’ The session brought together issuers and their advisers for a robust discussion into some of the roadblocks facing the green bond market in Africa.

Globally the market for green bonds has grown exponentially, and by at least 15% in 2021 (as at Oct 2021). The Africa market contributes only 0.4% to this global market base (as at Oct 2021). It is evident the green bond is currently underutilised in Africa, despite its ability to propel a just transition, while driving national sustainability commitments.  

Just last week, in the run up to COP26, South Africa submitted a revised Nationally Determined Contribution (NDC) to reduce domestic carbon emissions within a target range of between 398 to 440 Mt CO₂-eq by 2030. In Africa’s path to a green economy, it is clear we need to transition faster and unlock more green funding opportunities. Green bonds can unlock this potential, if we are able to negotiate  a few critical roadblocks.

The lack of strong private-public sector collaboration will lead to Africa being unable to steer to a more sustainable future. There is a need for government and private sector to work hand in hand to develop a clear, measurable and timebound roadmap for transition. This collaborative approach will foster the development of green assets, which will in turn overcome another barrier to entry being the limited availability of eligible green assets. Mauritius is a great example of how this kind of collaboration can yield success in stimulating a green bond market.

Furthermore, while pre and post issuance verification are both important steps to ensure a credible and impactful green bond issuance they can also pose a barrier to entry. Pre-issuance verification ensures that an experienced reputable independent entity has assessed the green bond and confirmed alignment to the structuring guidelines outlined in the international capital market association’s green bond principles. Whereas post-issuance verification promotes increased transparency while ensuring use of proceeds requirements are adhered to and impact is clearly articulated. However, in the fast-moving debt capital markets, verification can impede speed of execution. In addition, most verification providers are based offshore, which often results in taxonomies that do not consider local African market dynamics or transition constraints.  For example, as a fossil-fuel reliant country, the concept of a just economic transition has to be considered. Furthermore, verification costs can become prohibitive and reduces an issuer’s tangible net benefit. To ensure the mitigation of this roadblock we need to build more local verification capability; to ensure speed of execution, enhanced appreciation of the local market context and lower costs.

In conclusion, strong private and public sector partnership is needed alongside market leading local capabilities to ensure the removal and breaking down of barriers to entry in the African green bond market. We can drive strong issuance volumes, grow the green bond market and ensure sustained growth all while working to green our economy.