Making green bond issuance a reality

Renewable Energy
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Green bonds issuance rules will help to bridge Nigeria’s infrastructure gap through investments in sustainable finance initiatives, Chris Ugwu writes

According to the calculations drawn up by the International Energy Agency, a formidable sum of around $53 trillion must be invested in the global energy sector by 2035. This showed that the ambitious climate protection goals would be impossible to achieve without the involvement of institutional and private investors.

Green bonds collect international private capital to finance sustainable environmental and climate protection projects. The issuers undertake to invest the revenues for example, in renewable energy, energy efficiency projects, environmentally friendly transport concepts and sustainable waste management. The earmarking of the funds creates a direct link between the investment and a financing project.

However, it against the backdrop of the comatose state of the economy in Nigeria following the country’s huge infrastructural deficit in power, housing, roads, healthcare, port services among others, that the Federal Government last year commenced the issuance of first tranche of sovereign green bond, which was oversubscribed to fund projects to reduce carbon emissions and develop renewable energy in the country, which became the first in Africa.

However, going by the laudable objectives of green bond world over to help rescue the environment from degradation, it is believed that floating more the bonds from the governments and private sectors are needed to create an enabling environment in the country, hence need for formulating acceptable rules by market regulators that will boost investors confidence and also encourage seamless collaboration among the issuers.

This was why SEC recently launched the Green Bonds Issuance Rules to aid bridging the country’s infrastructure gap through investments in sustainable finance initiatives. Also, FMDQ OTC Securities Exchange, Financial Sector Deepening Africa (FSD Africa) and Climate Bonds Initiative (CBI) recently held maiden investors capacity building session to help build a pool of green bond issues.

Objectives of green bond issue

The Vice President, Professor Yemi Osibanjo who was the special guest of honour at the Green Bonds Capital Market & Investors Conference tagged ‘Green Bonds: Investing in Nigeria’s Sustainable Development, last year at the Nigerian Stock Exchange (NSE) under the Paris Agreement, said the bond will be used to fund a range of climate-related initiatives including mass transit, energy and aforestration programme.

According to him, the launch of the first African green bonds was the one that will tap into local and international investors.

Osibanjo noted that it was a crucial achievement for Nigerians’ determined battle against the consequences of climate change, adding that the challenges of climate change has the potential of increasing natural disasters affecting foods and water energy supplies.

“As confronted with these realities in reviewing securities concerns in lake Chad region and parts of northern Nigeria, with the group of experts and government officials, the drying up of lake Chad has made the destruction of hundreds and thousands of agricultural livelihoods and worsening of poverty in this region and more importantly fueling civil conflicts in the region as fight over available arable land flay up regularly,” he said.

“Green bonds means that the proceed will be applied to environment and climate-friendly on green projects. We are witnessing an alliance between finance and environment. It is an opportunity to deepen our capital market and make a dent in combating poverty and inequality.

“We are doing 20,000 more homes on solar energy, which will benefit from the green bonds. Another project, which will benefit from the green bond includes renewable energy. An important feature of the 2017 budget is energizing education, it will also benefit from the green bond. Power has posed a major challenge to effective learning in our universities. So this programme will give access to power to 37 Federal Universities and seven University Teaching Hospitals among others,” he said.

Collaboration on capacity building

Following the launch of the Nigerian Green Bond Market Development Programme into the Nigerian debt capital markets, FMDQ OTC Securities Exchange, Financial Sector Deepening Africa (FSD Africa) and Climate Bonds Initiative (CBI) executed the maiden Investors Capacity Building and Training Session in line with the provisions and objectives of the Programme.

The Session, which was held at the FMDQ Office in Lagos, provided a platform to build the required technical capabilities within the investor community to drive green bond investment decisions.

The Minister of State for Environment, Mallam Ibrahim Usman Jibril, represented by Dr. Peter Tarfa, Director of Climate Change at the Ministry, while speaking at the Session, noted that the tenets of sustainable finance and indeed, green bonds issuances have come to stay, and that Nigeria should leverage the opportunities provided by the formidable partnership, which is geared to build a pool of green bond issues that will be used to finance key infrastructure and environmental-friendly projects.

Mr. Victor Nkiiri, Capital Markets Specialist at FSD Africa, and Mr. Olumide Lala, Programme Manager, Africa Markets at CBI who spoke on the state of the global green bonds market and the investment opportunities open to investors, also listed challenges to green bonds investment to include requisite documentation and the technical capability required to grow and nurture green investments.

Ms. Tumi Sekoni, Associate Executive Director at FMDQ, expressed her delight in the formidable partnership between FMDQ, FSD Africa and CBI; noting that investors are a critical part of the markets and in no small measure, play a defining role in green investments.

According to Sekoni, the importance of stakeholder engagement across the sustainable and green finance value chain cannot be overemphasised, even as the Nigerian financial market sets to tap the development opportunities availed in this space.

Evans Osano, Director Financial markets at FSD Africa, said: “We are delighted to be part of this partnership, which will enable investors – the driving force of green growth – to be better equipped to evaluate green investments and thus building the green economy of Nigeria. We hope that other African markets will soon learn from Nigeria’s example and follow suit to enable attractive green investments that will drive sustainable green growth.”

Justine Leigh-Bell, Director, Market Development at CBI said: “This roundtable was another step towards a robust Nigerian green finance market. The early involvement of investors is a vital component of the broad stakeholder support required to develop initial green issuances.”

Inauguration of green bond rules

The Securities and Exchange Commission of Nigeria (SEC), last week officially launched the Green Bonds Issuance Rules.

Following a series of engagements with stakeholders and Capital Market Operators, the SEC rolled out its rules on Green Bonds on October 12, 2018.

The programme provided training for regulators, investors and intermediaries on Green Bonds as part of its efforts to create an enabling environment for issuers and other stakeholders, to take advantage of the tremendous opportunities that Green Bonds offer.

Speaking at the launch of the rules, Ms. Mary Uduk, Ag. Director-General, SEC stated: “As Nigeria strives to harness the resources of non-oil sectors to anchor the transition to a more resilient economy, there is the urgent need to close the country’s infrastructure gap with investments in sustainable finance initiatives. The SEC’s release of the green bond rules is a significant step in furthering the complementary efforts of the government, regulators and the financial services industry to direct financial capital to more sustainable economic activity”.

Also commenting on the rules, Osano said: “We laud SEC Nigeria for the professional and quick turnaround in the preparation of the guidelines. The new guidelines are prepared in line with leading international guidelines and standards providing confidence to domestic and international investors. It also provides certainty to issuers of green bonds in Nigeria. FSD Africa is pleased to have supported this process, which is a milestone for the Nigeria green bonds market”.

Mr. Olumide Lala, Africa Markets Programme Manager, Climate Bonds Initiative who was also present at the launch ceremony, stated : “The launch of the rules brings much-needed clarity and guidance on the issuance of green bonds. Adopting the tenets of the Green Bond Principles and Climate Bonds Standard makes it easier to attract foreign investment where needed.”

Last line

While Nigeria’s journey towards vision 2020 is noble, the government needs to focus strongly on institutional policy changes and sector reforms. This is essential towards improving the investment climate capable of attracting private investors at the level that can meaningfully aim at financing the nation’s infrastructure deficit and meeting its strategic program over a more attainable time line.

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