Are green bonds taking the place of carbon credits in Africa?

African nations are increasingly favouring green bonds over emissions trading to power their transition to green energy.

Conrad Onyango

African countries are now favouring raising funds for projects that have positive climate and sustainability outcomes over emissions trading as green bond issuances soar across the continent.

While legislative plans to regulate the sale of carbon credits are proliferating the continent, this race has been beset by controversies, with critics claiming it allows companies to continue polluting without reducing their emissions.

Green bonds are becoming a popular financial vehicle for promoting sustainability, and the market is showing strong signs of growth across Africa.

An exclusive panel, themed ‘Climate and transition finance: Can Africa become a leader in sustainable bonds?” set in Lome, Togo this November, during the Africa Financial Industry Summit (AFIS 2023) is among the latest indicators of the continent’s attempt to become a leader in sustainable bonds.

“How can Africa go from the slowest growing green bond issuer globally (0.2% of the market) to a GSS bond leader?” AFIS 2023 organisers questioned in its program as they sought to demystify sustainable bonds.

AFIS 2023, backed by the World Bank’s private sector financing arm, International Finance Corporation (IFC), has attracted over 1,000 financial industry leaders, bankers, insurers, fintech, capital markets, mobile money operators, policymakers and regulators from Africa and beyond.

Multi-lateral development lender, the African Development Bank (AfDB), has been leading the African market over the last decade through issuance of green bonds in the international market. Since 2013, the AfDB has issued US$6.9 billion in green bonds, financing over 190 projects in Africa.

In 2023, the bank has issued three green bonds including backing Egypt, the first African country to tap Chinese capital markets in October when the North African country issued a 3-year Sustainability Panda Bond worth US$478.7 million (RMB 3.5 billion).

The African Development Bank and the Asian Infrastructure Development Bank provided partial credit guarantees, paving the way for other African countries to access fast-growing Chinese debt capital markets.

“Egypt’s Panda Bond transaction shows our unwavering commitment to deepen the continent’s access to sustainable financing at scale, which to date is very small,” said Ahmed Attout, African Development Bank Acting Director for Financial Sector Development. 

In March 2023, AfDB issued a US$31.8 million 10-year Kangaroo Bond in Australia maturing on 8 March 2033, a US$120 million bond in Norway, and a US$138 million (SEK1.5 billion) 5-year Green Bond in Sweden- to finance sustainable infrastructure projects in African countries.

In November, Tanzania’s largest commercial bank, CRDB Bank, launched its first-ever green bond worth US$300 million to support Tanzania’s economic progress and climate-smart agriculture. The first tranche of the green bond, worth US$68.3 million was denominated in Tanzanian shillings and backed by the International Finance Corporation, which supported the transaction with a US$20 million subscription.

In the same month, Burn, a clean cooking solutions provider, received a green bond worth US$10 million to expand its operations in sub-Saharan Africa.

The company said in a statement that the proceeds from the bond will be utilized to enhance its production capacity at its Ruiru plant in Kenya and establish a new plant in Lagos, Nigeria. Burn aims to reach 2 million households by 2024 with its biomass-powered stoves.

EnVolt, the renewable energy subsidiary of Mauritius’ Conglomerate, ENL Group, successfully issued its first green bonds valued at 2 billion Mauritian rupees (US$45 million) in October.

EnVolt plans to use proceeds from the bond offering to fund construction of 13 solar photovoltaic parks expected to be operational until 2028. The issue was backed by UK-based finance company FSD Africa.

“These green bonds will be the first of their kind issued in Mauritius under the 2021 Green Bond Principles (as devised by the International Capital Market Association [ICMA]), which are aligned with global standards and combat greenwashing by requiring rigorous assessment of projects and their respective environmental or emissions claims,”  said FSD Africa in a statement.

To support the growth of the nascent green bond market, roadmaps for issuing the bonds and robust platforms have also been introduced in the market.

FSD Africa collaborated with the Climate Bonds Initiative in 2020 to create the Africa Green Bond Toolkit, a practical guide for issuing green bonds in Africa, aiming to achieve the 2015 Paris Climate Agreement.

There is also the Green and Resilience Debt Platform (GRDP) that seeks to unlock up to US$2 billion of public and private climate finance by issuing green bonds for adaptation in Africa and Least Developed Countries.

The United Nations Development Programme (UNDP) established the Fund earlier in 2023 in collaboration with the United Nations Capital Development Fund (UNCDF), European Investment Bank (EIB), Green Climate Fund (GCF) and the European Union’s Global Green Bond Initiative (GGBI).

The GRDP has set its focus on financing seven African countries, including Cameroon, Angola, Uganda, Rwanda, Senegal, Namibia, and Cote d’Ivoire.

According to World Bank data, the issuance of global sustainable bonds has exceeded US$1.1 trillion in 2021 and was predicted to increase to more than US$1.5 trillion in 2022.

While sovereign sustainable bond issuance is still limited, accounting for only 11% of the total in 2021, the number of sovereign issuers of GSS bonds in Africa is seen rising beyond only four recorded by the end of 2022.