Strong leadership, smart incentives and an inclusive approach are among the requirements if African nations are to successfully put the environment at the heart of their economic growth.

This was the finding of international researchers involved in a project led by the University of Reading. The Governing Inclusive Green Growth in Africa (GIGGA) Network is setting out a framework for robust assessment and understanding of green growth governance in Africa.

Professor Chuks Okereke, Professor of Environment and Development at the University of Reading, and project lead, said: “Green economy has immense potential in Africa, but it is an area that is very poorly understood in the continent due to a lack of research. There is an opportunity for many African countries to leapfrog more developed economies by integrating green schemes at this early stage in their growth.

“We are seeking to help countries put green initiatives at the centre of their development, by laying the foundations for an inclusive, structured approach to transforming economies.”

The research team assessed more than 950 academic literature and 500 high-profile economy activities in Africa, particularly in Ethiopia, Kenya, Nigeria, Rwanda and South Africa, to develop a research agenda on governing inclusive green growth in Africa to inform future ESRC and Global Challenges Research Fund (GCRF) funding activity. Inequality and poverty are still issues across the continent, while economic growth is still largely reliant on natural, non-renewable resources.

They identified five areas where more research is needed to identify opportunities and limitations for green growth for Africa’s economy:

• Infrastructural investment Infrastructure, such as roads, airports, housing and power stations, in many African countries is not adequate for the population, while many have limited access to electricity and clean water. A positive aspect is that there is little environmentally-damaging infrastructure to be replaced, offering a blank canvas for green development. New funding, both from public and private sources, is needed.
• Institution Most progress in pushing green growth in Africa so far has come from strong political will and leadership. It is a key research challenge to understand what model of governance allows such arrangements to work. Some deep-rooted laws and behaviours also need to be modernised.
• Incentives Many countries have plans, but few have been translated into policies with clear incentives and penalties. Workshops run by the project team identified a lack of ownership of green policies by African governments.
• Innovation Limited funding, infrastructure and human/technical capacity is currently hindering innovation, which is crucial for agriculture and waste management plans. Increased green innovation research capacity at universities and research institutions is needed. Most funding currently comes from Europe, which means research agendas may not be focused on African concerns.
• Inclusiveness There is currently large gap between the rich and poor in Africa, but green growth emphasises equity and social inclusion. For example, cooking and farming initiatives directly benefit poorer communities. Environmental initiatives are often at odds with social ones, and corruption in government and private sectors is an issue, so more research is needed to ensure green growth does not harm poorest communities.

The GIGGA Network was formed to respond to the Global Challenges Research Fund (GCRF) Strategic Networks call in 2016. It is a multidisciplinary research group, also including African think tanks, civil society organisations and government departments.

The Network is backed by £145,000 by the Economic and Social Research Council (ESRC), and won a £15,000 grant from the Global Challenges Research Fund.

The GIGGA Network project will be profiled as part of Green Great Britain Week by the European and Social Research Council (ESRC). The week, starting 15 October, is a new initiative that seeks to highlight opportunities presented by clean growth and allow the UK government to support climate action.

A video produced by the network on the challenges of governing inclusive green growth in Africa is available here https://www.youtube.com/channel/UCQsxTSp7OinGfGX3uduVQPw?view_as=subscriber

By all accounts, engaging the private sector in climate-smart investments will be a cornerstone to growing climate business. In many sectors they already play a large role, supplying nearly a third of global investment in research and development of new renewable energy technologies, or $2.5 billion in 2016 alone. Scaling these technologies up to meet targets set in the Paris climate agreement, however, will require trillions more in innovative climate-smart investments particularly in emerging markets. And this presents us with opportunities. In fact, IFC estimates that 21 developing countries alone hold over $23 trillion in climate-smart investment opportunities through 2030.

The time to capitalize on these opportunities is now. In the words of Michael Bloomberg and Carl Pope, from their recent book, Climate of Hope: “… We believe that by changing the way we think and talk about climate change, we can lower the temperature of the debate – and accomplish a whole lot more.”

And this captures very well what IFC is all about — creating markets, creating and supporting businesses that are financially and environmentally sustainable, and through that, making a difference. Closing off a successful fiscal year in 2017, IFC committed close to $4.8 billion from its own account and mobilized funds from other investors in climate-smart industries, helping scale up climate investments in 41 emerging markets. While these industries are all showing promise, there are five sectors where, based on our experience, innovative approaches are poised to widen the tent, attracting billions in private sector capital.

Unquestionably, meeting future demand for food will be one of the world’s greatest climate-related challenges. The human population is projected to grow from 7.3 billion as of 2015 to 9.7 billion by 2050. Without robust steps to increase productivity and climate resilience of agricultural practices, business-as-usual is expected to reduce global agriculture yields by up to 50 percent by 2030. Fortunately, businesses are beginning to employ climate-smart agriculture measures that can dramatically increase productivity and resilience while reducing greenhouse gas emissions. IFC is focused on helping scale these practices by providing investment and support for specific agribusiness needs, including increasing productivity of animal protein producers, optimizing inputs through precision agriculture, and reducing food waste through investments in logistics and infrastructure.

Another significant impact of global population growth will be the rapid growth of urban environments which will exert pressure on existing building stocks. Buildings are estimated to be responsible for about one third of global greenhouse gas emissions.

This challenge also creates an opportunity for climate-smart investment in green buildings. To help private lenders understand and engage in this opportunity, IFC is helping promote a universal and accessible green performance standard to identify areas for cost savings in buildings. The IFC EDGE program offers developers and investors a free tool to choose options to reduce consumption of energy, water, and extracted materials in new and existing building stock.

As global population and incomes rise, 70 percent of developing country populations are expected to live in cities by 2050. This opens doors for opportunities to build “smart” cities, capable of sustainably meeting demand for infrastructure in urban environments, and private sector interventions are now dramatically changing urban landscapes. In the United States, ride sharing services such as Uber and Lyft are reducing car ownership in cities, which can subsequently reduce congestion and greenhouse gas emissions. IFC is investing in public-private partnerships in Turkey to expand metro rail services and in India to upgrade street lighting networks.

In some of the emerging economies, solar and wind energy technologies are often underutilized because they suffer from variable supply, known as “intermittency.” Energy storage solutions can help reduce these impacts by providing a back-up generation option. New research from IFC suggests that over the coming decade, energy storage technologies will grow 40 percent annually in emerging markets. This growth is likely to unlock significant environmental, social, and economic benefits. IFC is growing this market through early-stage venture capital investments in energy storage markets, ranging from lithium-ion battery technologies to photovoltaic (PV) storage systems.

A critical challenge remains the ability to scale up climate-smart investments bringing new financiers into the climate-smart investment space. For example, institutional investors, comprised of pension funds, insurance companies, and sovereign wealth funds, manage $71.4 trillion in assets but currently play a limited role in global climate finance. To attract these investors, climate-smart projects must offer scale, safety, and simplicity. IFC’s Green Bonds Program has been very successful in engaging these investors, issuing over $5.7 billion in 13 currencies through 74 green bonds on its own balance sheet over the last decade.

Looking Forward

Together, these sectors represent the frontier of climate-smart investment. Innovation in climate-smart agribusiness, green buildings, smart cities, and finance can transform the way global economies function to align with a sustainable future where green growth is a norm, not an exception. By investing its resources in these emerging opportunities, IFC is helping to build the foundations for companies in emerging markets to invest and rapidly grow climate business.

By  ALZBETA KLEIN

According to the US National Weather Service’s Climate Prediction Center, Sierra Leone received an unprecedented amount of rainfall this year – three times the normal seasonal rainfall. Such torrential rains are a clear sign of the changing climate. In August 2017, at the height of the rainy season, Freetown received an unprecedented average of 539,9mm of rainfall. With its land size of 356,9km2, Freetown had an average of 190 million cubic meters of rain water to drain. This extreme volume of water, combined with human factors like encroachment on natural environment such as creeks and wetlands, which are the natural drainage and storage systems for flood waters, as well as construction on flood-prone areas and inefficient drainage systems, among other factors, cumulatively precipitated this disaster.

In early 2017, new data from the UK Met Office, the United Kingdom’s national weather service, and the US National Aeronautics and Space Administration (NASA) show that the earth’s temperature has increased to about 1,1°C above pre-industrial levels. This is dangerously close – just 0,4°C away – from the 1,5°C threshold set by the Paris Climate Change Agreement to prevent the worsening effects of climate change. At this rate, the vulnerability of Africa’s coastal cities is unprecedented. Sea level rise is projected to hit coastal cities – 14% higher than the global average by 2100 for the fast approaching over 4°C warming scenario. The impact will stretch far and wide beyond Freetown to expose millions to risk of flooding. By 2050, high numbers are projected in coastal cities of Mozambique (5million), Tanzania (2million), Cameroon (2million), Egypt (1million), Senegal (0.5million), and Morocco (0.5million). Such flooding will reverse economic and development gains with the ensuing health impacts and damage to infrastructure, loss of tourist sites and disruption in food supply. It will also expose the populations to elevated food prices, loss of livelihoods and strife.

As far as ecosystems degradation is concerned, Africa loses up to USD68 billion annually. This means that the continent’s natural buffer against such impending climate change effects is being lost at a rate of about USD180 million daily.

The science is clear. The escalating climate change knows no boundaries, and this is coupled with an increasingly degraded environment. Countries across Africa need to urgently address these dual challenges if we want to forestall similar disasters in future.

This is the logic behind the universal, global response to climate change that has been called for under the Paris Agreement. Sierra Leone, classified as the third most vulnerable country to climate change, stands to benefit from being part of this global collective action – and it is among the countries that have ratified the Paris Agreement, demonstrating its resolve to combat climate change. In fact, Africa as a whole has shown global leadership in responding to climate change.

The good news is that practical solutions have been successfully applied across Africa. In Rwanda’s Geshwati area, a land suitability and use map is informing policy decisions to relocate vulnerable communities from previously encroached natural environments and high-risk areas to safer habitation areas. Considering that agriculture is the backbone of these communities, this plan is also informing on ecosystems-based adaptation (EBA) agriculture techniques that the communities can safely engage in for their livelihoods without degrading the area. Simultaneously, the plan is guiding the restoration of previously degraded catchment areas using EBA techniques like agro-forestry and the planting of indigenous trees, among others, to stabilize soils and slopes and to regulate flood waters. This has eradicated landslides that were once a common phenomenon in the area.

A similar two-pronged strategy has been successfully applied to build resilience in Mozambique’s coastal communities that were highly vulnerable to coastal flooding. For example, an investment of USD120 per person to rehabilitate depleted mangroves and establish crab farming restored mangroves. These have become natural buffers against coastal flooding while simultaneously preventing future encroachment by providing alternative livelihood activities away from the mangroves.

Sierra Leone and other at-risk countries can benefit from similar strategies that restore degraded ecosystems, allowing them to act as a buffer to the compounding effects of climate change. Creating sustainable alternative livelihood activities away from risk-prone areas can also help prevent possible future encroachment, thus preventing the degradation of natural ecosystems. After all, natural ecosystems are our best bet against mounting climate change-driven disasters.
Maps of projected changes in Northern Hemisphere seasonal mean surface air temperature from the late 20th century to the mid-21st century, based on SRES emissions scenario A1B photo credit WikiCommons
We must fight the trend of urbanisation

Africa’s cities face the fastest pace of urban population growth globally. This growth, however, does not reflect positively on economic growth, which is a key enabler to building climate resilience. For example, the World Bank notes that African cities are almost 30% more expensive than other countries at similar income levels. Housing is 55% more costly and food prices are 35% higher than in other low and middle-income countries. Considering the high unemployment and underemployment, the majority – more than 50% – of urban dwellers end up living in slums. Sierra Leone, which faces an urbanisation rate of 2,9%, has 75,6% of its urban population in informal settlements. These urban poor stand out as the most vulnerable, something that needs to be addressed urgently.

To address this, a key area is diversifying and decentralising socioeconomic growth opportunities away from cities. This is critical to eradicate the allure of cities as being the only areas where one can access income opportunities. It is vital to decongest cities and curtail the growth of informal settlements that are vulnerability hot spots.

Focusing on the catalytic area of Ecosystem-based adaptation (EBA) Driven Agriculture and industrialisation powered by clean energy offers an opportunity to diversify income opportunities to sustainable sectors of EBA-driven Agriculture & Clean Energy at a minimum. Cumulatively, this amalgamation is projected to create an agro-industrial sector worth up to USD1 trillion by 2030, while ensuring ecosystems are taken care of and carbon is offset to ensure climate resilience. It is such diversification that will open up rural Africa, where 70% of agriculture takes place, to industrialisation and the creation of economic opportunities to relieve the pressure on urban areas.

How to make it happen

Making this paradigm shift happen requires a collective undertaking. It will take the intervention of both state and non-state actors, as is called for in section 5 of the Paris Agreement. Mutual partnerships to bridge policy and operational gaps will have to be formed. Through the Ecosystem-based Adaptation for Food Security in Assembly (EBAFOSA), countries and stakeholders are engaging to bridge critical gaps. Among the intervention areas that are being prioritized is the harmonization of policy across complementary ministries, such as the ministries of agriculture, industrialization, land, energy, trade and roads, among others, to ensure that their policies complement the establishment of clean energy-powered agro-industrial zones in rural Africa as special enterprise zones and centres of sustainable jobs creation. For example, through EBAFOSA, Sierra Leone is harmonizing finance, industry, energy and agriculture sectoral policies to establish tax concession incentives for agro-based industries that are powered by clean energy in rural areas. These are set to attract investment to these areas to fuel job creation and take the pressure off urban centres like Freetown.

Another area is affordable financing. To fuel the growth of sustainable businesses outside cities, EBAFOSA is also bridging financing gaps to spur entrepreneurship in these catalytic sectors in rural areas. Kenya provides an example on this. In Makueni County, which is the first county to legislate a climate change fund to domestically finance climate actions, EBAFOSA Kenya is facilitating mutual partnerships between the county government and the private sector actors to ensure that this fund is partly used to de-risk private-sector lending along the sustainable agriculture led, clean energy-powered agro-value addition chain. Working with select micro-financiers, the government of Makueni County is developing a risk-sharing facility by providing a monetary deposit as security to cover default risk and unlock up to 10 times the securitized amounts for lending to entrepreneurs along the sustainable agriculture-led clean energy-powered agro-value addition chain. This risk-sharing facility is reducing the cost of capital and incentivising private sector actors engaged along this chain – from farmers, distributors, marketers and advisory service providers – to capitalize their businesses and create sustainable jobs at the sub-national level to lure people away from crowded cities.

Also an important area where harmonization can happen is in the building of multi-stakeholder, complementary partnerships to bridge policy and operational gaps towards sustainable rural industries. In Cameroon, EBAFOSA is catalyzing partnerships at policy and ground level towards linking off-grid small-hydro directly to power cassava and Irish potato processing in rural areas into varied product lines. These are then linked to markets and supply chains across the country, using ICT mobile apps. A total of 10 youth groups engaging in ICT, clean energy and marketing have been engaged, creating green jobs for approximately 100 young people. More than 500 women now have access to value-addition services As a result they have cut their post-harvest losses to enhance their income stability and the community’s food security. Such gainfully engaged people will not be lured to cities in search of a livelihood.

Working together towards a common goal

“Traveling is learning,” says an African proverb. Sierra Leone and other at-risk countries stand a real chance of forestalling similar disasters by domesticating the above solutions that have been successfully applied by their counterparts across Africa. EBAFOSA, through its modus operandi of ‘innovative volunteerism’, offers an opportunity for country stakeholders to convene their respective capacities for mutual partnerships towards a common end. The solutions are known and we have the means to implement them. Let’s rise and act in the best interests of Africa’s present and future generations.

The Main Objectives

Among other goals, such projects aim to achieve biodiversity conservation, sustainable water management, and clean transportation. The market reached a turning point in 2013 as the first corporate green bonds were issued, increasing the market size to $11bn. In 2016, over $81bn in green bonds were issued, driven in part by an increase in issuers, issue types, structures and investment vehicles.

Moody’s suggested that the global green bond issuance may rise to approximately $208bn in 2017.

This is indeed a very likely outcome as the expansion of green bond types and structures continues to attract multiple potential issuers, including China. The country is expected to contribute around $60bn in green bonds issued in 2017.

Other Players

In recent months, France and Poland became the first countries to issue sovereign green bonds. Countries likely to follow suit in 2017 include Bangladesh, China, Luxembourg, Morocco, Sweden, and Nigeria. Africa’s powerhouse, Nigeria, plans to be one of the first African states to float sovereign green bonds to fund sustainable projects in the economy.

At the Green Bonds Capital Market & Investors Conference, the acting President of Nigeria, Professor Yemi Asinbajo, stated that arrangements were being made for the inauguration of the first African Sovereign Green Bond, worth some 20 billion nairas, to address climate change and environmental projects.

Some of the projects to be financed include a solar unit distribution program for 20 states of the federation and a reforestation program for 26 states. With solar power becoming the world’s cheapest source of energy for electricity, this presents opportunities for investments and diversification, which could cut significant costs for organisations as the nation works towards bouncing back from recession. Whether or not the green bonds will be oversubscribed may depend largely on incentives and regulation of the bonds.

Putting the Money to Good Use

In November, Masen (Morocco’s Agency for Sustainable Energy) issued Morocco’s first ever green bond of €106m. The proceeds from the bond issue will be used to finance the development of 170 MW in the NOOR PV1 project, providing solar power through three plants.

Other African states, including Kenya, are gearing up to take be active in the green bond markets as they work towards supporting the 2015 pledge by world leaders to limit global warming to below 2 degrees Celsius this century.

A Positive Outcome

Apart from potential tax incentives, African states may be able to achieve more sustainable growth in relatively early stages of development in contrast to more developed states. The introduction of the issuance of green bonds increases the priority for sustainable development on the continent, thus encouraging African countries to avoid the mistakes (in sustainable development) that developed economies made in their infancy.

A potential challenge for African states hoping to attain finance for funds through green bonds is the size of the projects and their financing needs. The size of the projects may need to be increased in order to ensure that they are more attractive.

Although the issuance of green bonds is growing fast, it is still less than $1trn, a tiny fraction of the $90trn global bond market. OECD studies suggest that the global annual green bond issuance will need to rise by between $620bn and $720bn for the G20 to meet its climate change targets.

Other Considerations

The standards set for issuers of green bonds should also be considered. Higher standards may direct the efforts made by countries and organisations that hope to become issuers in the green bond market. They will encourage accountability and transparency that will promote more suitable allocation of capital to funding projects.

Critics cite the relatively weak reporting in the green bond market. Coupled with uncertainty on what constitutes a green bond, this may be a deterrent to investors.

Nevertheless, progress is being made in this regard. China and India have already led the way with unique guidelines to support the issuance of green bonds. Similarly, African states will benefit greatly from policy frameworks based on their distinct markets.

Conclusion

Sentiments regarding the sustainable development of economies continue to set the pace for organisations and policy makers in various countries across the globe who hope to remain competitive for investors and other stakeholders.

The numbers do not lie and a shift of winds has already taken place. Individuals and groups must adjust with urgency. Recently, the S&P Dow Jones Indices, the world’s leading provider of index-based concepts, data and research, announced the launch of the S&P Green Bond Select Index. It will measure the performance of green-labelled bonds issued globally.

The wave of change is here, but the real question to consider in the midst of this change is: who will ride it with grace?

By Calvin Ebun-Amu, Sector Specialist

“I am pleased to inform this distinguished assembly that the federal government will be launching the first African sovereign green bond in December 2017.

“The bond will be used to finance renewable energy projects. We are very excited about this development as it will go a long way in solving many of our energy challenges, especially in the hinterland,’’ Buhari said.

According to the Premium Times, the President said this in Abuja on Tuesday while presenting the 2018 budget proposal to the National Assembly.

This development follows  Vice President, Prof. Yemi Osinbajo, announcement in February stating that the government was making arrangements to inaugurate the first African sovereign green bonds.

Osinbajo had also indicated that the federal government was planning to allocate $63 million under the green bonds initiative.

Green bond evolution in Africa

Green bonds are gaining traction across the continent, last month the South African stock exchange (JSE), also celebrated the launch of its Green Bond Segment, which provides a platform for companies and other institutions to raise funds ring-fenced for low carbon initiatives.

Donna Nemer, Director of Capital Markets at the JSE said the introduction of the green bond provides companies with an effective tool to raise capital for investments into sustainable projects that would have been funded internally.

“Issuing a green bond can help companies to strengthen their credentials as sustainable and responsible organisations. At the same time green bonds allow investors to mitigate the effects of climate risk as a part of their investment portfolio, while these bonds also satisfy environment, social and governance requirements and green investment mandates,” Nemer said.

Similarly, there are significant potentials in this pursuit within the infrastructure sector with estimates showing that investment opportunities in Africa’s infrastructure sector are up to US$93 billion per year.4 Available estimates show that in 2013, the annual global climate finance flows reached about US$331 billion out of which subSaharan Africa got only about 4%.5

In this context, Africa has been looking up to a plethora of concessionary, but sometimes uncertain, “climate funds” that are sourced from multilateral and bilateral donations which are seemingly hinged on international politics. Based on calculation using data extracted from the Climate Funds Update database; part of these “climate funds” that have been approved and as such earmarked for projects from 2002 till 2014 in Africa is close to US$3.4 billion. Ninety Seven percent (97%) of this is managed from multilateral sources and the ratio of grants to concessional loans is about 2:1.6

There are other emerging innovations for financing green and inclusive development initiatives. One of these is Green Bonds. Green bonds are used exclusively to fund projects that have environmental and/or climate benefits.

However, from investors’ perspective the debt recourse or financial backing, of the bond may or may not be strictly tied to specific green projects. In fact, the majority of green bonds are green “use of proceeds” bonds meaning they are backed by the issuer’s entire balance sheet. “Use of proceeds” structured green bonds therefore allow investors to benefit from investing in green initiatives without taking on additional risk of investing exclusively in specific green projects. For investors willing to have exposure to green project risk, there are green project bonds and green securitized bonds issued.7

By Uche Duru, Anthony Nyong

Lead managers were first appointed in October 2015, but the issue was scrapped due to market volatility before a 750m euro bond redemption on 4 April prompted a re-think   

The last time the South African National Treasury issued a global bond was in July 2014, even though the February 2015 Budget made provision for issuance of at least $1 billion in the international capital market in the 2015/16 fiscal year.

The most favourable time generally for sovereign bond issuance is in January, as that is when bond investors are cash flush and seeking a home for their money. When the South African National Treasury issued a $1.5 billion 12-year global bond in January 2012 it was priced at a coupon rate of 4.665 percent, which represented a spread of 270 basis points above the 10-year US Treasury’s benchmark bonds.

In April 2016, the South African National Treasury issued a $1.25 billion 10-year global bond at a coupon rate of 4.875 percent, which represented a spread of 335 basis points above the 10-year US Treasury’s benchmark bonds.This is considerably better than earlier this year when the premium foreign investors demanded to hold South African dollar debt rather than US Treasuries reached a seven-year high of 525 basis points on January 20 2016. The yield on South Africa dollar bonds due in September 2025 was 5.99 percent then, but eased to 4.72 percent earlier this week.

South Africa thereby beat Kenya to the international capital market to become the first African country to issue an international bond this year. Kenya said earlier in April that it would test the waters and become the first African country to tap global debt markets in 2016.The World Bank has praised Kenya for its strong growth, a solid agriculture sector, and infrastructure investment so there was expected to be good demand for the Kenyan bond.

African governments issued $15.5 billion in 2015, 22 percent lower than 2014 and the lowest level since 2012 as depreciating currencies, the oil price collapse and the slowdown in Chinese economic growth cut foreign investors’ appetite for African bonds.

Nigeria plans to borrow up to $5 billion this year as it struggles to close the gap between declining revenue sparked by the recent fall in oil prices and continuing high expenditure needs.

The South African National Treasury had appointed Standard Bank, Rand Merchant Bank and Citi as joint-lead managers and Investec as the co-lead manager to arrange the issuance of a foreign currency denominated bond on 9 October 2015. The bond was going to form part of the government’s financing of its foreign currency commitments as stipulated in the Budget 2015.

The Treasury said at the time that the government’s foreign currency commitment for 2015/16 amounted to $1.455 billion of which $756 million had already been paid for the fiscal year to date from the government’s foreign exchange deposits held at the South African Reserve Bank for foreign exchange reserve purposes.

Market volatility ahead of the US Federal Reserve’s first interest rate hike in December 2015 however saw the issuance scrapped, even though with hindsight this was the wrong call.

Nobody at Treasury could have foreseen the turmoil caused by the firing of Finance Minister Nhlanhla Nene on 9 December 2015, which roiled South Africa’s capital markets and severely dented foreign investor confidence. The next Finance Minister, David van Rooyen, lasted only four days before he was replaced by the former Finance Minister Pravin Gordhan.

Finance Minister Pravin Gordhan travelled to the UK and US in early March 2016 after he had presented the February 2016 Budget to meet foreign investors and reassure them that fiscal policy was in capable hands.

Investor confidence in South Africa as reflected in rising capital market yields has been undermined by slowing growth and the consequent pressure on the fiscus that failed to meet its deficit reduction targets due to slowing revenue growth. This has prompted downgrades of South Africa’s sovereign credit rating.

Moody’s, which currently rates the sovereign two notches above junk, has placed South Africa on review for a cut, citing concerns about the government’s ability to meet fiscal deficit reduction targets which rely on stronger growth in future years. Standard & Poor’s and Fitch, whose grades are just a notch higher than sub-investment grade, have also hinted at downgrades if acceleration in growth is not forthcoming.

South Africa might, however, be forced to borrow at a higher spread above US Treasuries if it loses its investment-grade credit rating because of persistently weak growth and large deficits, so issuing now made sense. In addition, foreign reserves had to be replenished following the redemption of a 750 million euro bond on 4 April.

The Treasury said: “The South African government sees the success of the transaction as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management.”

Unlike July 2014, the Treasury did not mention the “stable political environment” given the calls for President Jacob Zuma to resign after the Constitutional Court ruled that he had “had failed to uphold, defend and respect the Constitution” as the supreme law of the land in contravention of section 83(b) of the Constitution.

A statement similar to then-Finance Minister’s Nene:“While we are pleased with the confidence that the investors have shown in the sovereign, we are cognisant of our immediate challenges and can therefore not afford to be complacent as a country”, was also missing this time.

By Helmo Preuss 

Climate-friendly investment is starting to flow from a relatively new and increasingly popular source – the green bond.

Green bonds were created to increase funding by accessing the $80 trillion bond market and expanding the investor base for climate-friendly projects worldwide. They are fixed income, liquid financial instruments that are easy to understand, and the funds green bonds raise are dedicated exclusively to climate-mitigation and adaption projects, and other environmentally beneficial activities. This provides investors an attractive investment proposition as well as an opportunity to support environmentally sound projects.

“Green bonds have opened a new finance flow that will be essential to confronting climate change,” said Rachel Kyte, World Bank Group vice president and special envoy for climate change. “They are providing green investment opportunity for an ever wider investor group, including those who wish to divest and diversify from fossil fuel-intensive portfolios, and they have proven that a stream of investor capital exists for green assets.”

World Bank and IFC pioneer the green bond market

The World Bank Treasury issued its first green bond in 2008, at a time when investors didn’t have liquid, fixed income investment options that specifically supported climate-focused and environmentally-friendly projects. The World Bank has since issued about US$8.5 billion in green bonds in 18 currencies, including a 10-year US$600 million benchmark green bond and green growth bonds linked to an equity index and designed for retail investors. Separately, the IFC has issued US$3.7 billion, including two US$1 billion green bond sales in 2013. Proceeds from World Bank and IFC green bonds are used to support renewable energy, energy efficiency, sustainable transportation and other low-carbon projects, as well as financing for forest and watershed management, and infrastructure to prevent climate-related flood damage and build climate resilience.

The two institutions – whose AAA/Aaa ratings provide security for investors and development mandate and safeguards provide assurance for the use of proceeds and impact – have helped pioneer the green bond market, expand the investor base, and raise awareness about the needs and opportunities for climate-friendly investment.

ssuers ranging from other development banks to states, cities and corporates have looked to the World Bank and IFC for leadership and guidance in how to issue bonds to raise financing for climate-friendly activities. Both issuers are sharing their knowledge and experience to help grow the market – in addition to building the fundamentals for the market through their own green bond programs. For example, in April 2014, the World Bank signed the first advisory services agreement with the Dubai Supreme Council of Energy (DSCE) to design a funding strategy for Dubai’s green investment program.

At the World Economic Forum in Davos in early 2014, World Bank Group President Jim Yong Kim urged more investors to get involved and called for doubling 2013′s annual green bond market issuances by the UN Secretary-General’s Climate Summit in September.

The market, with about US$11 billion in new green bonds issued in 2013, passed that goal in July, and ended the year with over US$36 billion in new issuances in 2014.

Utilities and corporates lead charge for further market expansion

The involvement of the multilateral development banks has expanded interest in green bonds, with government agencies, municipalities, and more recently utilities and corporations finding ways to use the financial instruments.

State of Massachusetts, Ile de France, and Export Development Canada have all issued green bonds. In May 2014, the French utility GDF Suez issued the largest green bond, a 2.5 billion euro (US$3.4 billion) bond to fund renewal energy projects that was more than three times oversubscribed. It was nearly twice the size of the previous 1.4 billion euro record set by EDF in November 2013.

Another key driver of the market is the growing number of asset managers with mandates to increase investment in instruments that support low-carbon growth. For example, BlackRock was selected by Zurich Insurance in November 2013, to manage a green bond portfolio of US$1 billion.

Standard & Poor’s said corporate issuers were increasingly interested in green bonds as a finance avenue offering access to a diversified investor base.

Green Bond Principles specify use of proceeds

The financial industry is also playing a key role in raising awareness for the green bond market and the need for it to have a solid base on which to grow. In January 2014, a group of banks launched the Green Bond Principles aimed at standardizing practices for issuers and investors and improving transparency. The principles specify sectors in which green bond proceeds can be invested, including in renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, and clean water.

The principles, developed with the support of the investor group Ceres and in consultation with investors and issuers such as the World Bank and IFC, already  have the support of 55 of the largest investors, bond issuers and intermediaries including Bank of America Merrill Lynch, Citibank, Credit Agricole, JP Morgan Chase, Goldman Sachs, HSBC and SEB. The International Capital Markets Association (ICMA) is serving as the secretariat for the Green Bond Principles.

Green bond-supported projects yield multiple benefits

World Bank and IFC green bonds have supported solar and wind power installations, the reduction of methane emissions, more efficient transportation in cities, reforestation, flood protection, and building climate-resilience in developing countries.

The benefits of these projects can be measured both in the benefits to society and in the reduction of carbon dioxide and other greenhouse gases.

In Indonesia, for example, a geothermal project supported by World Bank green bonds is designed to increase access to affordable, clean energy and also reduce 1.1 million tons of greenhouse gases every year. Another World Bank green bond-funded project in China is reducing costs through improved energy efficiency in factories and is expected to cut greenhouse gases by 4 million tons a year.

IFC green bonds are supporting a new large-scale solar power facility in Mexico that doesn’t require subsidies and will meet the energy needs of 164,000 people while creating jobs and reducing dependency on polluting diesel generators. In India, IFC green bonds are also helping a company recycle e-waste from computers, discarded mobile phones and other electronics that can be harmful to the environment and to peoples’ health.

STORY HIGHLIGHTS

The 12 year bond is double that of the bonds the bank issued last year. The EIB said that the longer time frame “reflects the duration of renewable energy and energy efficiency projects” financed by the EIB.

The bank added that the bond generated strong demand from investors interested in the socially responsible features of the products, highlighting how environmental, social and governance (ESG) issues are now being considered by mainstream investors.

Elia Kreivi, directors and head of the capital markets department at the EIB, commented, “EIB is highly engaged in climate action, a key priority on the EU agenda, and is fully committed to the meaningful development of the green bond market, the importance of which is growing day by day.”

Asset managers made up the biggest portion of investors, accounting for 56%, followed by banks, which snapped up 27%. The Netherlands made up the biggest portion of investment allocation when looking at geographical region, followed by Germany and Scandinavia.

The sums invested in bonds related to climate change have grown rapidly in recent years and their popularity is continuing to grow. A report published in July noted that climate bonds have grown from a niche market and moved into the mainstream, with the market now standing at an estimated $501.6 billion (£293.6bn).

Hendrik Tuch, senior portfolio manager at Aegon Asset Management, which invested in the EIB bond, said, “The Climate Awareness Bond issued by the European Investment Bank fits within our existing mandate guideline and our impact investing approach in which we select investments that meet our existing risk and return requirements, but also have the intent to create a measurable social and environmental impact.

“We think the market for green bonds will grow considerably in coming years as the appetite from investors is more than sufficient to cover increasing issuance level.”

By Blue & Green Tomorrow

The report – Bonds and Climate Change: The state of the market in 2014 – was prepared by the Climate Bonds Initiative and commissioned by HSBC. It noted that compared to when the first edition of the annual report was published in 2012, the green and climate bonds landscape is “unrecognisable”.

It states, “Three years ago, labelled green bonds were a niche market pioneered by a handful of development banks. In the past year, however, labelled green bonds have entered the spotlight with $11 billion (£6.4) issued in 2013 (over three times the issuance of any previous years) and $18.5 billion (£10.8bn) issued up to 10 June in 2014.

The issuer has also expanded beyond development banks to include corporates and municipalities. The green bonds era has begun.”

The labelled green bond market stood at just $7 billion (£4bn) in the last edition of the report, but it now stands at $35 billion (£20.4bn), with strong growth continuing throughout the beginning of 2014.

The broader  “climate-themed universe” is an indicator of where future bonds might be labelled, the report explains. The amount of bonds linked to climate change solutions stands as $502.6 billion (£293.6bn), compared to last year’s estimate of $346 billion (£202bn), with transport being particularly dominant.

Sean Kidney, CEO of the Climate Bonds Initiative, said, “Investors are concerned about climate change. This report shows how they can invest in climate bonds without risk. The investment opportunities we find are safe and secure investment grade bonds. This is a dull green market – just how pension funds and insurance funds like it.”

Despite the progress made, the report adds there is still a long way to go if the International Energy Agency’s projections of the capital flow needed to address dangerous climate change is to be met.

The report identifies electricity utilities, auto manufacturers, bank lending and asset finance, and water utilities as emerging trends.

Co-author of the report, Bridget Boulle added, “In the coming year we will see growth in labelled green bonds from municipalities, cities and corporate issuers. We expect increasing demand from investors signed up to the Principles for Responsible Investment and the Global Investor Coalition on Climate Change.”