The United Nations has predicted 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, thereby exacerbating food insecurity, malnutrition, and poverty. 

In Africa, the distribution of the funds raised by green bond issuance has been highly concentrated in South Africa. Statistics reveal that 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. 

According to statistics issued by George Marbuah of Stockholm Sustainable Finance Centre, Africa constituted 0.4 percent of the market share by value, out of the total green bonds issued by each continent in the period 2007-2018.

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.

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.

A recent report from the Stockholm School of Economics’ Sustainable Finance Center highlights the role of green bonds as 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.