Can Africa Green Bonds be the future of funding? Climate Bonds Initiative Expert tells us all

The Bond Market and especially the African Green Bond Market is a topic that is attracting a lot attention and also lots of questions. We’ve talked to a specialist , Olumide Lala and we have explored points below:

• How does green bond work?
• What are the benefits for Africa?
• What is the process for the green bond?
• What is the certification process and the cost?

RiA (Q1): How does a green bond work compared to a typical bond?

OL (A1): Green Bonds are regular bonds with one distinguishing feature: the proceeds are allocated exclusively for projects with environmental benefits (understood to be intrinsically coupled with social co-benefits). In other words, financially, green bonds are the same as regular bonds, offering comparable risk/reward profiles and following the same issuance procedures but the proceeds are used for a wide variety of climate and other environmental projects. 

RiA (Q2): Can you give us a concrete example of green bond issuance and its application?

OL (A2): In June, following the December 2017 issuance of a N10.69 Billion Sovereign Green Bond, used for financing off-Grid Solar and Afforestation projects, the Federal Government of Nigeria issued a N15 Billion Sovereign Green Bond offered at a coupon of 14.50% pa for a tenor 7 years.  This will be used to finance Off-Grid Solar and Wind Farms, Irrigation, Afforestation and Reforestation projects.

RiA (Q3): What is your role in the Climate Bonds Initiative?

OL (A3): As Programme Manager for African Markets, I am responsible for driving the Green Bonds Debt Capital Markets Development Programme, with a particular focus on climate finance, policy advisory, strategy development, market structure, investor & regulatory engagement, capacity building and training. His recent accomplishments include
• New Product Development
• Development of the CBI strategy for implementing Green Bonds Market in West, East & Southern Africa with special focus on Nigeria and Kenya
• Facilitation of Green Bonds training & capacity development sessions

The latter comprised roundtable discussions, training workshops, presentations, conferences in: Ghana, Benin, Nigeria, Kenya, Rwanda, Zimbabwe, and Mozambique. He engaged potential issuers, institutional investors and regulators to explore and reduce potential entry barriers to Africa Markets

RiA (Q4): How can Africa benefit from green bond issuance?

OL(A4): The increase frequency and costs of climatic change events are predicted to result in extreme losses to agriculture, livestock, water supply, hydropower generation and industrial productions, which if not abetted would in time become major social, economic and national security issues.
Green Bonds would enable business, government and investors tap into the opportunities associated with the green economy and make the urgent and strategic shift to climate adaptation and resilience.

RiA (Q5): How developed and large is the African green bond market and what’s the investors’ appetite? 

OL (A5): Of the USD 3.6Bn Green Bonds outstanding as at December 2018, 81% was issued by the African Development Bank (AfDB). Multilateral banks are the key players in the region’s Green Bonds market.

Like any nascent market, it is expected that investors would take time to warm up to the Green Bonds market. However, as more is understood about the structures of the market, appetite for green investment will grow and gather momentum over the next few years. An assessment of the adaptation needs and infrastructure challenges (power, transportation, water, food security, etc.) facing African countries speak to the scale of the investment opportunities open to the private sector.

RiA (Q6): If a company or a government wishes to issue a green bond, what’s the process?

OL (A6): In addition to the process for issuing a regular Bond, an issuer is required to carry out the activities below:
• Define Green Bond Framework or define how projects meet eligible criteria
• Put in place project selection process and select eligible projects
• Set up accounts and process to earmark or allocate proceeds
• Get an external review
• Allocate proceeds to the projects
• Monitor the projects
• Publish use of proceeds and impact reports of the projects
• Post issuance audits of the projects

RiA (Q7): Are African governments and central banks supportive of the initiative? Are they using your services?

OL (A7):  .Government support for Green Bonds is increasing as more is understood about the asset class and the opportunities Green Finance offer governments as a tool for financing low-carbon infrastructure projects.

 

RiA (Q8): Which are the top 3 technologies funded via green bonds? Can you give us a breakdown?

OL (A8): Top funded technologies include PV Solar solutions, energy waste management and low-carbon building.

RiA (Q9): What’s the difference between a green bond and a certified climate bond?

OL (A9): A certified climate bond will have the following steps

• Second Party Opinion:
  The issuer can seek advice from consultants and/or institutions with environmental expertise which are independent from the issuer. This is normally an assessment of the alignment with the Green Bond Principles and an assessment of the issuer’s overarching objectives, strategy, policy and/or processes relating to environmental sustainability, and an evaluation of the environmental features of the type of projects intended for the Use of Proceeds.
• Verification:
  
  The issuer can obtain independent verification against a designated set of criteria, typically pertaining to business processes and/or environmental criteria. Verification may focus on alignment with internal or external standards or claims made by the issuer. Evaluation of the environmentally sustainable features of underlying assets may be termed verification and may reference external criteria.
• Certification:
  The issuer can have its Green Bond or associated Green Bond framework or Use of Proceeds certified against a recognised external green standard or label. A standard or label defines specific criteria and alignment with such criteria is normally tested by qualified, accredited third parties, which may verify consistency with the certification criteria.

RiA (Q10): What’s the cost for an issuer to release a green bond versus a non-green bond?

OL (A10): The cost of getting a Second Party Opinion or Certification can range from £10K – £40K depending on the complexity of the project. However, this cost is usually added to the total issuance.

RiA (Q11): Since the start of the initiative, what has been the impact in general and in Africa?

OL (A11): Though Green Finance is relatively new to Africa, the impact is being felt most in the renewable energy sector.

RiA (Q12): Who to contact for interested investors? How to spread the word about the initiative?

OL (A12): Olumide Lala – +447957375086 / +2347081675736
olumidelala@gmail.com.

Olumide Lala Bio:

Olumide Lala is a Climate Finance & Capital Markets Development Specialist with diverse leadership experience in Climate Finance & Sustainability, Operational Efficiency, Strategy, Policy Advisory, Business Development, Technology Capacity Building & Training, and Change Management.

As Programme Manager for African Markets, Olumide is responsible for driving the Green Bonds Debt Capital Markets Development Programme, with a particular focus on climate finance, policy advisory, strategy development, market structure, investor & regulatory engagement, capacity building and training. His recent accomplishments include: (1) New Product Development, (2) Development of the CBI strategy for implementing Green Bonds Market in West, East & Southern Africa with special focus on Nigeria and Kenya; (3) Facilitation of Green Bonds training & capacity development sessions. The latter comprised roundtable discussions, training workshops, presentations, conferences in: Ghana, Benin, Nigeria, Kenya, Rwanda, Zimbabwe, and Mozambique. He engaged potential issuers, institutional investors and regulators to explore and reduce potential entry barriers to Africa Markets.