We connect sustainable capital allocation to real world economies by breaking down market barriers.
We connect sustainable capital allocation to real world economies by breaking down market barriers.
Green finance is any type of financial instrument (such as loans, bonds, grants or equity) where the issuer provides investors with a positive environmental result in addition to the financial result.
There are potential green projects in almost all sectors, which makes green finance a great opportunity for most Governments, Municipalities, Corporates and Banks.
As the international investor appetite for green finance is exploding, issuing green finance products means a chance for African actors to access international capital. The potential in the continent is tremendous, as significant investments in infrastructure and development are needed.
The demand for green finance products is exploding. Globally, bonds are so far the largest market and has grown 25 times since 2013. Even though it is projected to quadruple in size in 2020 it will only represent a small fraction of the total global bond market, illustrating the long-term growth potential.
Case highlight: Municipal green finance
In June 2017 Cape Town (SA) raised ZAR 1billion / USD 76 million for green municipal projects, with a special focus on transport and water issues.
Projects covered by the bond include the procurement of electric buses, energy efficiency in buildings, water management initiatives, sewerage treatment and the rehabilitation and protection of coastal structures.
Projects that could potentially be labelled green are found in most sectors, and often already exist in many project portfolios. It is assumed that any given bank already has about 20 % green projects within its debt portfolio.
There is a misconception that the classification as green is very limited, only accessible to renewable energy such as wind or solar. If a project contributes to an improvement in environment or climate resilience, there is a good chance it can be classified as green.
Through the Green Assets Wallet, project owners and issuers of green finance products can define ‘the green’ in their projects.
Definitions can be made with the help of green categories, impact indicators, units and SDGs, all of which are important parameters in the green finance market and in the communication between issuers and investors.
The Green Assets Wallet works regardless of taxonomies and classifications.
Case highlight: green opportunities
The opportunity to finance a broad set of projects is well illustrated by Bank Windhoek’s green bonds from late 2018.
The amount raised (NAD 66.6m / USD 4.8m) can be used for projects in six main sectors, which allows the bank to finance projects such as:
Energy Efficiency & Resource efficiency,
Green Buildings
Sustainable Waste Management
Sustainable Land Use
Clean Transportation
Sustainable Water Management
Climate Change Adaptation,
Green trade
Climate Smart Agriculture!
How would I report on the green impact of my projects?
Green finance builds on providing investors with a clear and measurable green impact besides the return on investment. There are a vast number of potential green projects, and the types of impact is wide ranging.
The market for green finance values transparent reporting, measurable green impact and clear communication to involved investors. As with risk and return, investors will compare and benchmark the green impact – searching for maximal validated green impact!
What are certifiers and validators, and would I really need them?
Capital markets are built on trust, and the same is true for green finance.. External validators can boost trust, by validating all parts of a green finance offer – from the design, the financials to the impact provided.
Green impact can, for example, be validated by certifications, measurements, audits or even by opening access to data produced by green projects.
The Green Assets Wallet provides all the tools you need for effective reporting on our green impact. Using the platform makes the reporting simple, but also ensures it’s in the familiar standard format and metrics requested by investors in green finance…
The platform offers a system for both self-validation and third-party validation of green commitments and impact.
Case highlight: flexible validation of impact
With digital solutions, impact reporting becomes more and more effective. One example is the Beyond the Grid Fund for Zambia (BGFZ), which finances green off-grid energy solutions in Zambia.
The impact of installations is reported using real-time data from relevant systems (Pay-as-You-Go platforms, CRM systems, Power management systems). That way data on energy produced, no. of connections, CO2 mitigated and more is instantly available to project owners, local and international investors alike.
This sounds really expensive!
A green finance product, such as a green loan or a green bond, is financially not different from normal loans or bonds. The basic process to set up green finance is thus not significantly different – in cost or workload.
The additional steps to make loans or bonds green depend on your project and to what extent external validation will need to be contracted.
Will we find investors interested in our green projects?
Even though the green finance market has exploded, investor demand for green finance products is still greater than the supply of green investments. There has instead been a significant over-subscription on green products, also in Africa (see case highlight for an example)
The strong investor interest has allowed issuers lower capital costs or opened for larger issues.
The Green Assets Wallet supports your issuance of green assets by connecting you to investors globally. When assets are added to the Wallet, they are instantly searchable by the entire investor community. This allows green project issuers in Africa to access a diversified set of international investors-
Inviting trusted third-party validation of your green projects and the impact produced enables you to make your green issue even more attractive to investors.
Case highlight: Strong market
Nedbank, South Africa issued a Renewable Energy Bond in April 2019. The proceeds finance one wind farm and three solar projects.
The investor response was overwhelmingly positive, despite the South Africa’s recent credit downgrade. The bond attracted bids of ZAR 5.4 billion for the ZAR 1 billion bond. The strong interest led to an upsize of the bond with 66 %, to ZAR 1.66 billion.
Nedbank noted that the results emphasized the global appetite for green investments that can provide real impact.
Green finance for our project sounds great, but we still need…
…someone supporting us in issuing green debt, helping us with guarantees or supporting us in managing currency risks.
In many African markets issuers can be faced with challenges when trying to bring their products to the market. And especially when trying to attract international investors. There are however a wide number of market makers, specializing in supporting issuers in their efforts to reach the capital markets with their green projects.
There are a number of local market programs that supports green finance actors. One example is the Kenyan Green Bonds Programme, that support issuers as well as regulators and validators in building a green capital market in Kenya. The programme advises potential issuers, and has produced a national guide as well as a number of market studies showing potential green project pipelines in the different sectors.
Case highlight: transaction support that brings green projects to the market
In October 2019 Acorn issued Kenya’s first green bond, to finance the construction of 6 green-certified student properties in Nairobi, creating clean, safe and affordable accommodation for 5,000 students. The transaction was supported by GuarantoCo, who provided investors with a partial credit guarantee to cover 50 percent of the KES 5 billion bond (approx USD 50M). The issue was denominated in KES as a majority of investors were domestic, thus avoiding currency risks.
Green finance is providing several key benefits for potential issuers such as Governments, Municipalities, Corporates and Financial Institutions. It supports the financing of key environmental and climate related projects – using a process that builds upon transparency and trust. But it has one major benefit in African markets:
Green finance attracts a global set of investors
Issuing green finance products allows African issuers to attract investors globally. The international demand for green finance products multiplying every year and offers a unique opportunity to attract capital to African markets.
Sustainable green projects provide investors with real-world impact – making green finance in Africa highly competitive.
A special thank you to the Nairobi International Financial Centre Authority for their feedback on the Guides, as well as all participants at the Green Fintech Opportunities Workshop which was hosted by the Nairobi Securities Exchange. The Guides would not have been possible without their input and collaborative effort. Thanks also to the Emerging Markets Sustainability Dialogues (EMSD) programme of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, commissioned and financed by the German Federal Ministry for Economic Cooperation and Development.
