African leads the way with green bonds

CONRAD ONYANGO, BIRD

THE need to offer financing to accelerate climate change mitigation and adaptation is forcing Africa’s financial markets to broaden their scope and become more sophisticated, a markets index shows.

Absa Africa Financial Markets Index 2021 shows nine countries are actively moving towards sustainable capital markets, with seven of those already offering green bonds, providing impetus for other African countries to join in and grow the continent’s share of global green financing.

The Index – developed in partnership with an independent think tank for central banking and policy, the Official Monetary and Financial Institutions Forum – attributes Africa’s increasing appetite for green financial products to a global focus on sustainable finance.

“Nine countries in the index have introduced products that can be classified as green or sustainable. Green bonds are the most popular instrument, being at investors’ disposal in seven countries,” said the report provided with the Index.

Kenya and Morocco have been ranked among African countries making significant strides in offering investors more sustainable investment products. The two countries are highly ranked for having green or sustainable bonds, equities and mutual funds in their markets.

“Additionally Kenya has issued ethical securities to fund socially responsible investment opportunities,” said the report.

Earlier in March, Morocco’s Banque Centrale Populaire group launched a gender bond programme, the country’s first project to finance female entrepreneurs and self-employed women.

Mauritius, South Africa, Egypt, Namibia and Nigeria’s capital markets also offer green bonds to raise funds for environmentally aligned sustainable development projects, while Ghana and Seychelles are also joining in too and have begun offering sustainable financial instruments, other than green bonds, to investors.

A comparative report by the Stockholm Sustainable Finance Center, published July 2020, titled “Scoping the Sustainable Finance Landscape in Africa: The case of green bonds”, valued Africa’s issued bonds at just over 2 billion dollars in October 2019- accounting for a minuscule 0.4 percent of the global market share – but affirmed the growing appetite for green bonds in the continent.

“There is a growing consensus among relevant stakeholders that green finance should be a priority in Africa, as it is in other regions of the developing world,” said the Stockholm report.

African countries are currently channelling their largest share of green bond proceeds towards energy-related projects, accounting for 47 percent (or, 988 million dollars) of total issued shares.

Green buildings take up 39 percent of the proceeds, with six percent going on water-related projects and the remaining nine percent being spent on other projects that entail investments in green transport, waste management, land-use change and protecting marine resources.

“It is likely that many more states will consider or are already considering issuing green bonds to fund climate-related initiatives, given the urgency to take action on mitigation and adaptation, as well as to finance other sustainability-related projects in the future,” the report projects.

Other African countries are also forming strategic partnerships with international financial markets to attract new investors and build up their funding vault.

The Botswana Stock Exchange has partnered with Bloomberg to attract new issuers and investors, while Ghana Stock Exchange partnered with the London Stock Exchange to support the West African nation’s capital market flourish.

“This partnership will focus on upgrading Ghana’s classification from a frontier to an emerging market and supporting cross-listings between both exchanges,” According to Absa Africa Financial Markets Index 2021.

The reports can be found here:
https://www.omfif.org/wp-content/uploads/2021/10/AFMI_INDEX_2021-1.pdf
https://www.stockholmsustainablefinance.com/wp-content/uploads/2018/06/SSFC_greenbonds_africa_report.pdf

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