- Africa’s green bonds market is growing rapidly as the continent increases issuances to power transition to green energy.
- The Green and Resilience Debt Platform (GRDP) has been established to address climate financing gaps in Africa.
- Countries will now have access to $2B in green debt capital markets via the Platform, thereby bolstering resilience against climate change shocks.
The green bonds market in Africa is showing strong signs of growth as countries move to tackle climate change. The sector is registering a renewed momentum attracting investments in response to the continent’s vulnerability to climate change crisis. For instance, the Nordic Development Fund (NDF) has granted EUR 500,000 to the Green and Resilience Debt Platform (GRDP).
The Fund was established by the UNDP in partnership with UNCDF, European Investment Bank (EIB), Green Climate Fund (GCF) and the European Union’s Global Green Bond Initiative (GGBI). The platform is working with various stakeholders to help tackle climate financing gaps in Africa.
The fresh initiative seeks to unlock the flow of climate finance through green bonds, thereby enabling countries to go green. Via the platform, countries now have access to $2 Billion in green debt capital markets thereby bolstering resilience against climate change shocks. The latest financing was announced during the recent ECOSOC Financing for Development Forum in New York.
Green bonds are innovative financial instruments that raise funds for climate resilient and environmentally aligned sustainable development projects. They are modelled to help accelerate climate change mitigation and adaptation as the continent grapples with adverse weather patterns.
Critical pillar in mobilizing funds globally
Policymakers hold that green bonds have the potential potential to address deficits in Africa’s climate financing. Globally, green bonds are becoming critical pillar in mobilizing funds for both new and existing climate friendly projects.
Their proceeds are earmarked exclusively for projects with positive climate, environmental and sustainability outcomes across a myriad sectors. Some of the target sectors are renewable energy infrastructure and low-carbon transportation. The funds will also go to biosphere conservation, sustainable buildings, sustainable water, wastewater management and other eco-friendly industries.
Green bond principles mandate that they are targeted for environmentally-viable and sustainable projects, which foster a net-zero emissions economy. This way, they aid in running environmental conservation projects thereby sustaining livelihoods.
According to UNECA, recovery based on green investments can generate up to 420 percent better returns in gross value, and up to 250 percent better returns in job creation. Africa needs an estimated $300 billion in climate financing annually to drive green, inclusive and resilient growth.
Review of Africa’s green bond market
In 2023, the African Development Bank (AfDB), issued two green bonds across multiple currencies. The latest offer has seen the bank enter the Norwegian Krone market where it issued $120 million bond. The offer, which has a three-year tenor, will be used to finance sustainable infrastructure projects in African countries.
The AfDB also tapped into the Australian bond market unveiling $33 million ‘Kangaroo’ Bond. The Australian bond under the theme “Lighting up and Powering Africa” is set to mature on 8 March 2033.
Talks with potential green-bond issuers
Further, in January, AfDB issued a SEK1.5 billion 5-year Green Bond in the Swedish krone market. This follows successful green bond issuances in USD, Swedish krona, Australian dollar, since the Bank established its Green Bond framework in 2013. AfDB issued three NOK social bonds in 2019 and 2021. By June 2019, AfDB had allocated $3.7 billion to 48 projects across 18 African countries targeting solar and hydropower, energy and wastewater management.
In February, FSD Africa embarked on a mission to raise at least $400 million for climate-related projects. Already, talks with potential green-bond issuers across the continent to achieve the target are underway.
Earlier, FSD Africa in partnership with the Climate Bonds Initiative, launched the Africa Green Bond Toolkit. The guide provides a roadmap on issuing green bonds for African countries and capital markets. It borrows heavily from international best practices and standards; with the goal of achieving the 2015 Paris Climate Agreement.
Gravity of the climate change crisis in Africa
From severe drought in the Horn of Africa to destructive floods in South Africa, the continent is in a crises. Extreme weather patterns are hurting Africa despite having the least greenhouse gas emissions worldwide at four percent. The Intergovernmental Panel on Climate Change says the past decade was the hottest since 1850. Indeed, Africa is said to be warming faster than other world regions underscoring the need to rollout interventions.
Natural disasters in myriad forms are wreaking havoc across the continent. When heavy rains are not causing disastrous floods in South Africa, Mozambique, Western DRC and Zambia; severe drought is sweeping across the Horn of Africa. Between 2020 and 2021, locust invasion gripped countries in East Africa, with analysits saying it was climate-related phenomenon. Storm Freddy, that pummeled Malawi and Mozambique, leaving a trail of losses, was the strongest ever to hit Southern hemisphere.
How Green and Resilience Debt Platform (GRDP) will benefit Africa
GRDP is set to provide a formidable combination of investment readiness, financial de-risking support and technical assistance to benefiting countries. The platform with there create a conducive investment for climate change related investments. The NDF booster grant will finance the GRDP preparatory work in three out of seven target countries. These include Cameroon, Angola and Uganda where UNDP and UNCDF will lead the financing. Other target countries of Rwanda, Senegal, Namibia and Cote d’Ivoire will be financed by EIB and GCF.
“NDF is committed to supporting Sub-Saharan Africa in addressing climate change, and our aim is to allocate 60 percent of our financing to the region. We welcome the Green and Resilient Debt Platform as a new tool to unlock climate financing at scale,” said Karin Isaksson, Managing Director at NDF.
“This collaboration has the potential to engage the private sector in providing climate-resilient solutions, critical for the development of local and regional green debt ecosystems. We will continue to work with our partners to find the best synergies in this shared challenge.” she added.
Promote a climate sensitive investment
The platform will promote a climate sensitive investment environment, unlocking a pipeline of bankable green investments. It will also strengthen domestic and regional green debt ecosystems and financial institutions. Moreover, it promises to provide access to anchor investments in green bond issuances.
“International development finance institutions and organizations play a crucial role in filling the green financing gaps, supporting the issuance and investment in green bonds in least developed countries. This includes acting as cornerstone or junior investors in sovereign as well as corporate green bonds.” Isaksson noted.
“At a time when countries in Africa are facing mounting challenges to finance their development, this partnership will support their efforts in leveraging the potential of green bonds and unlocking climate finance, as a contribution to transitioning to clean energy and creating climate resilience,” she added.
“The Green and Resilience Debt Platform addresses a fundamental gap in access to green debt capital markets for building climate resilience. Investments in clean energy, water, food security, and climate resilient infrastructure will have a multiplier effect, in creating green jobs and promoting economic growth,” said Haoliang Xu, UN Assistant Secretary-General and Director UNDP Bureau for Policy and Programme Support.
Private funding for green projects
“Africa’s rising economies, bold development ambitions, and growing population mean that its energy use will drastically increase in the coming decades,” explained Ahunna Eziakonwa, UN Assistant Secretary-General and Director of UNDP’s Regional Bureau for Africa.
The green bond market in emerging and developing countries tend to register minimal growth, as compared to developed nations but the tide is changing. Private funding for green projects in Africa has been especially very low. In light of this, statistics from the World Bank indicates that of all green bonds globally issued bonds in 2021, only 5.8 percent were green bonds and Africa accounted for only 0.077 percent of issuances. Into the bargain, only 3 percent of the total climate finance provided worldwide went to sub-Saharan Africa in 2019 and 2020.
Green bonds have especially been concentrated in South Africa, leading the continent with nearly three-quarter of the total market share, followed by Morocco, Nigeria, and Kenya. Together, the three countries make up more than 97 percent of the total issuance of green bonds in Africa. These are mostly channeled towards resource conservation, low-carbon transportation and waste management.
How AfDB is driving Africa’s green bond market
AfDB has been a pioneer in driving Africa’s green bond market, consistently making investments and thereby promoting sustainable development. The Abidjan-based lener has been issuing a series of green bonds on the capital market in the world. In March 2023 AfDB, issued a 1 billion Norwegian krone (NOK) five-year Green Bond that will be due in March 2028. The deal was the bank’s first green bond issuance in the Norwegian Krone market. It was issued under AfDB’s Green Bond Framework, which has been independently verified by the Climate Bonds Initiative.
The funds raised through bonds will be used to finance eligible green projects in accordance with the AfDB’s Green Bond Program. By the same token, the bond proceeds will contribute to building resilience against the negative impacts of climate change. Further, through the funds, countries will move closer to achieving sustainable infrastructure, and developing new green ecosystems. To adapt to climate change, the financing will be used to promote efficient use of natural resources such as water.
Since 2013, the Bank has issued a total of $6.9 Billion in green bonds, financing over 190 green projects in Africa. These projects are aligned to the UN Sustainable Development Goals 7 and 13; where the former stipulates affordable and clean energy and the latter advocates for climate action. The bond was oversubscribed, with demand reaching $220 million, demonstrating strong appetite for sustainable investments in Africa. The bond’s oversubscription also highlighted AfDB’s leadership in spearheading the green bond market.
AfDB’s in the Australian ‘Kangaroo’ Bond market
AfDB’s $33 million ‘Kangaroo’ bond was arranged by RBC Capital Markets and sold to a single Japanese investor, Taiju Life Insurance Company. Japan’s announcement of the “Africa Green Growth Initiative” to promote and attract investments into sustainable green growth in Africa, is ample evidence of its recognition of the need for this transition.
The announcement was made at the 8th Tokyo International Conference on African Development in August last year. This is was AfDB’s sophomore green bond in the Australian dollar market since the inaugural 15-year Kangaroo green bond issued in 2016, and marks an extension of the lender’s Kangaroo ties.
Renewable energy systems
The funds raised will support the Bank’s continued focus on delivering on its 10-year strategy on driving inclusive transition to green growth. The proceeds will also finance renewable energy systems in Africa aimed at supporting AfDB Green Bond Framework. AfDB’s “Light and Power Africa” aims at financing 160GWh of new capacity, enabling 130 million new power grid connections.
AfDB is issuing the green bond at a time when only 48 percent of Africans have access to electricity. Data from the bank show that 90 percent of African elementary schools lack access to electricity. A further 900 million people use harmful sources of energy such as firewood for cooking. As a result, unsafe energy alternatives lead to an estimated 600,000 deaths annually due to air pollution.