Africa’s green bond market trails behind other regions

The United Nations predicts that the African continent will be one of the most severely impacted regions in the world by climate change, which will manifest in widespread water stress and declining agricultural yields throughout the continent, exacerbating food insecurity, malnutrition, and poverty. A recent report from the Stockholm School of Economics’ Sustainable Finance Center highlights the role of green bonds—a relatively new, innovative financial product that raises funds for environmentally aligned sustainable development projects in accelerating climate change mitigation and adoption.

Although characterized by all the same features of a traditional bond in terms of structure, risk, and expected returns, green bonds are distinguishable by their environmental purpose. First issued in 2007 by the European Investment Bank, green bonds—also known as climate bonds—direct financing exclusively to projects with positive climate, environmental, and sustainability outcomes across a myriad of sectors, including energy, transportation, construction, agriculture, and water. These projects span from renewable energy infrastructure and upgrading energy efficiency to low-carbon transportation and buildings. According to the Harvard Law School Forum on Corporate Governance, the demand for green bonds gained significant momentum following the drafting and signing of the Paris Climate Agreement in 2015.

While the explosive growth of green bond issuance signals positive inroads for facilitating sustainable development, Africa has been the slowest adopter, limiting the potential for these innovative financial products to raise ancillary capital for sustainable development throughout the continent. Figure 1. shows the composition of the total green bonds issued by region from 2007 to 2018, where Africa constitutes 0.4 percent of the market share by value.

Composition of Green Bond Issuance by Region (2007-2018)

Source: George Marbuah, Stockholm Sustainable Finance Centre, Scoping the Sustainable Finance Landscape in Africa: The Case of Green Bonds,” 2020.

In Africa, the distribution of the funds raised by green bond issuance has been highly concentrated in South Africa. The figure below reveals the share of green bonds issued by countries in Africa. South Africa leads the continent by an extremely wide margin of 74 percent. Morocco and Nigeria make up 17 percent and 7 percent of the total issuance of green bonds in Africa respectively.

By sector, green bond issuance financing was largely dominated by climate-conscious energy and building with 47 percent and 39 percent, respectively, of the market share. The “Others” category constitutes projects like low-carbon transportation, resource conservation, and waste management.

Source: George Marbuah, Stockholm Sustainable Finance Centre, “Scoping the Sustainable Finance Landscape in Africa: The Case of Green Bonds,” 2020

Given the increasing consciousness of stakeholders, which are; governments, agencies, municipalities, multinational development banks, and corporations—to the funding capacity of green financial products and with a multitude of new issuances in the pipeline, a positive outlook on the nascent green bond market in Africa and its potential to accelerate achievement of the Sustainable Development Goals across the continent is maintained (The Brooking’s Institution).


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