Interview: About Nigeria's Green Bonds With Joseph Owolabi
The Federal Government of Nigeria has arranged to issue Nigeria’s first sovereign green bonds in April 2017. I chat with Joseph Owolobi, the West Africa Climate Change and Sustainability Lead of EY and a leading member of the Global Council of ACCA about these green bonds – what they are and what people should expect from them. Given Joseph’s experience, as well as his involvement in the bond issuance process, he is well positioned to provide insight into the Green Bonds and relevant processes surrounding it. Below details the chat, as well as issued raised by the tweetchat participants.
How do green bonds differ from normal bonds?
A Bond is a debt instrument where borrower (issuer) uses funds (proceeds) from the creditor as a means of finance. The proceeds from green bonds help address climate change issues (adaptation or mitigation). Green Bonds attract a new class of investors who have environmental and social issues at the heart of their decision making.
How interested are investors in these green bonds in Nigeria?
Investors in Nigeria appear to follow the affinity/interest levels that Green Bonds elicit globally. We have seen massive support and buy-in for the Green Bonds agenda amongst power-brokers: public and private sectors alike. Institutional investors are asking for a bigger pipeline of projects to support future issuances. International investors are also watching closely and looking forward to the international issuance planned for later this year knowing fully well that the USD 20-30 billion required to fund climate change adaptation will not come from broke African governments.
Who are the parties championing the green bonds?
The Federal Ministry of Environment (FGN) working with Nigerian Securities Exchange have provided the building blocks to enable Green Bonds issuance. The Nigeria Advisory Council on Green Bonds (NACGB) also consist of Climate Bonds, EY and other stakeholders. NACGB draws experts and key decision makers from across the private sector and representatives of Ministries, Departments and Agencies (MDAs).
How will good return on investment be assured for investors in these green bonds?
Most Green Bonds offer similar returns as other bonds. These 'use of proceeds' Green Bonds ensure that investors do not suffer risk associated with some environment-focused investments. The sovereign Green Bonds to be issued by the FGN (will have FGN backing) as other FGN Bonds so it can be termed 'risk-free'.
How does the government aim to spend funds gotten from the green bonds? And who can access these funds?
The funds are 'ring-fenced' to ensure that it is only devoted to the portfolio of projects that meet the criteria. There is also a second-party review or certificate process that includes a verification exercise by an external reviewer. This provides the needed assurance (and instills confidence that controls are in place to prevent 'green-washing'). The projects to be financed by the sovereign Green Bonds have been approved by the FGN and are included in the Budget. Corporate (Green Bonds) issuance will follow, where Green Bonds will be used to access funding for projects that meet the green criteria.
What needs to happen to ensure that Nigeria's green bonds work?
Investors' appetite is high; I think Nigeria has a unique opportunity to show the rest of the world by demonstrating that we support independent systems and promoting transparency through reporting
The tweetchat participants had the opportunity to ask their questions. These are detailed below:
Who determines the projects the fund generated is used for?
The Issuer (borrower) selects projects that meet the sustainability criteria based on their Green Bonds framework. For Sovereign Green Bonds (the first issuance from Nigeria) the FGN determines the projects.
For banks interested in setting up a green bond what's the process like?
Banks are used to corporate bonds; Green Bonds issuance is similar, but with the addition of the green certification. Banks will ensure their customers identify the green projects and can demonstrate the business case.
What's the selection criteria for projects/beneficiaries of this green bonds?
Broadly, projects that have the 'green element'; Projects that address climate change challenges i.e. for mitigation actions or adaptation; Projects that have positive environmental and/or social impact. The projects are usually required to meet guidelines for the sector: solar, wind, transport etc., set by Climate Bonds.
Which developing countries have issued Green Bonds and what kinds of projects have benefited?
The Green Bonds to be issued by FGN (this quarter or so) is the first Sovereign Green Bond from an emerging economy. The African Development Bank issued Green Bonds for projects in African counties, namely Morocco, Zambia, South Africa, and Cape Verde. The World Bank has also issued Green Bonds in the past to support projects in developing countries. A number of developing countries are exploring how Green Bonds can help fund required sustainable development. In Africa, South Africa and Kenya are other 'hotspots' where you expect to see Green Bonds take-off soon.
See the whole chat on this twitter thread here.
You can also learn more about green bonds from the Nigerian Federal Ministry of Environment's website.