Much has been made of ways in which Africa may contribute or even lead the clean energy revolution, and green bonds just may be the answer.
As a sustainable and clean energy advocate, I’m very interested in the methods different countries adopt towards universal access to affordable and clean energy, especially the seemingly unconventional means.
UNDPs SDG Financing Solutions defines green bonds as “innovative financial instruments where the proceeds are invested exclusively in green projects that generate climate or other environmental benefits, for example in renewable energy, energy efficiency, sustainable waste management, sustainable land use (forestry and agriculture), biodiversity, clean transportation and clean water.” Their structure, risk and returns are otherwise identical to those of traditional bonds, with the eligibility criteria being determined by the International Capital Market Association’s Green Bond Principles and the Climate Bonds Initiative’s (CBI) Climate Bond Standards.
The journey to the first green bond began in 2007 when the U.N. Intergovernmental Panel for Climate Change published a report linking human action to global warming. This galvanized the World Bank, the Centre for International Climate and Environmental Research (CICERO), Swedish pension funds and their bank, SEB, to establish a process for bond markets to solve this crisis. Following the determination of a set of eligibility criteria, between 2007 and 2008, the European Investment Bank and the World Bank successfully issued the first green bonds.
Africa has been on a collision course to be hit hardest by climate change, with a significant number of the population still entirely dependent on fossil fuels. An African Development Bank report, “The Cost of Adaptation to Climate Change in Africa”, states that “the cost of climate change adaptation in Africa has been estimated in the range of US$20–30 billion per annum over the next 10 to 20 years”. The issuance of green bonds is therefore being looked upon as a means by which this fallout may be mitigated.
A growing number of countries and institutions have therefore already issued or are planning to issue green bonds. This presents a significant change to the sustainable finance landscape on the continent.
Starting with the AFDB, one of its objectives in the Bank’s Strategy for 2013–2022 is to ensure that inclusive growth is sustainable, by helping Africa gradually transition to “green growth” that will protect livelihoods, improve water, energy and food security, promote the sustainable use of natural resources and spur innovation, job creation and economic development. The Bank has therefore created The AfDB Green Bond Program which facilitates the achievement of the Bank’s corporate priority of green growth, through the financing of eligible climate change projects. It encourages investors to make a difference with their investment, by financing climate change solutions through AfDB’s Green Bonds.
The West African Development Bank (BOAD) also launched its first bond issue with sustainable development objectives (Sustainability Bonds) in January 2021. This issue amounting to €750 million with a 12-year maturity, attracted more than 260 investors across the world. The proceeds will reinforce BOAD’s capacity to invest in priority sectors with a high social and environmental impact, such as renewable energy.
African countries are fully participating in the green bond wave, with South Africa launching a 5 Billion Rand bond in 2012 to fund the growth of green and energy efficient industries. The bond was issued in response to the South African governments New Growth Path (NGP) and Industrial Policy Action Plan 2 (IPAP2).
Morocco’s Agency for Sustainable Energy (MASEN) issued Morocco’s first ever green bond of €106m in 2017, with proceeds being used to finance the development of 170 MW in a solar power project.
So far, Nigeria, has launched three green bonds, with the most recent launched in 2020. A $68.7 million bond, it was issued to finance projects contributing to the ecological transition, such as projects for the exploitation of renewable energy, reforestation, access to water, water treatment and intelligent agriculture to minimise its impact on the environment. The Nigerian government’s green bond programme is part of its commitments contained in the Paris Climate Agreements.
Together South Africa, Morocco and Nigeria, make up more than 97 percent of the total issuance of green bonds in Africa.
African countries and institutions are far behind their contemporaries in other emerging markets in terms of issuing green bonds, but given the rising awareness of public and private stakeholders, the potential for the green bond market in Africa to increase is high. Substantial capital is necessary to mitigate the risks of climate change risks, and green bonds can be one way of raising said capital.
Adaku Ufere is an award-winning Thought Leader in the Energy & Gender space. She is committed to working towards finding solutions that address and lead to the eradication of energy poverty, experienced by women in developing countries.