Africa remains a small player in the green bond market, and the debt instrument is underused -- but it is becoming a fast-growing source of funding for the world’s poorest continent, which is at the forefront of climate change.
But the continent’s investment risk profile means that countries pay a high interest rate to borrow money.
Nigeria’s recent fundraising round is slated to put money into a slew of renewable energy, eco-friendly housing, conservation and infrastructure projects.
“However, to unlock the full potential of green bonds, especially in Africa, we need stronger regulatory frameworks, better project pipelines, capacity-building for issuers and enhanced investor confidence.”
The continent accounted for only about $5 billion of the 2.2 trillion global green bond market in 2023, according to data from the Africa Policy Research Institute.
Nigeria was the first African state to issue sovereign green bonds, selling $30 million in 2017 and then another $41 million in 2019.
Since then, Kenyan developer Acorn Holdings issued east Africa’s first green bonds in 2019, raising more than $40 million to finance what it called environmentally friendly student housing.
The biggest coup came last year in Ivory Coast, where $1.5 billion was raised.
Currency depreciation and high inflation also create risks for investors. In response, governments have to offer “a risk premium to attract investors.”
Their leadership is not surprising “given that they are carbon-intensive economies who have contributed more in the global climate crisis,“ said Alex Oche, an environmental law expert at Nigeria’s Institute for Oil, Gas, Environment, Energy and Sustainable Development.
Africa is responsible for just roughly four percent of global emissions that contribute to climate change.
“The future of green bonds in Africa and globally is promising, but it will depend heavily on credibility, innovation and inclusive growth,“ said law firm Udo Udoma & Belo-Osagie.
Razaq Fatai, a researcher for Nigerian consulting firm Vestance, studied previous projects financed by green bonds and warned that several appeared to resemble “greenwashing” -- including a reforestation project in Oyo state where “the community was not involved” in the planning.
“If you continue to do that, continue to spend money like that, you just end up just wasting public resources, and then you have to pay interest on those debts that we encourage.”
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