Corporate borrowers urged to consider green bonds
SADC stock exchanges have lobbied the continent to consider green bonds as a tool to help fill the financing gap, though the instruments are relatively new on the continent.
The Committee of SADC Stock Exchanges ( CoSSE) has highlighted that the need for climate finance in the SADC region far exceeds the available financing. Statistics indicate that the cumulative climate change adaptation and mitigation financing over the period 2020 - 2030 in the SADC countries is estimated at approximately USD 200 billion, above what government budgets can support.
“Private capital needs to be mobilized, and policy makers and market participants globally see green bonds as a useful financial instrument in this regard,” reads part of the SADC green finance demand study report, compiled by FSD Africa, in collaboration with the CoSSE.
FSD Africa is funded by UK aid from the UK government, with a mandate to transform financial markets across Africa.
Though the study highlights that it is difficult to estimate the extent to which green bonds may help fill the financing gap from the basis of the transactions volume to date, the growth trajectory of green bonds in more advanced economies during the past decade has significantly grown.
“Climate finance will become increasingly an important agenda also in the SADC region and use of green bonds, which is one of already tested tools in that context in the global markets.”
CoSSE believes that to accelerate the growth of green bonds in the SADC region calls for a deeper pool of issuers, especially corporate borrowers.
“Green bond issuers in the SADC countries so far are largely sovereigns, subnationals and banks, and corporate issuers remain rather inactive. This is different from issuer profiles in advanced economies where corporate issuers are the largest issuer group.”
The study highlights that the inactivity by corporate borrowers may reflect the fact that the number of listed firms, which publish financial statements and other disclosure statements on a regular basis, are limited in many SADC countries.
“The relatively short tenors of financing available in the local bond markets may also make bond issuance unattractive to issuers vis- à- vis bank loans, especially when financial disclosure requirements for bond issuance are considered. It should, however, be noted that, in the advanced economies where Green Bonds have become a key financial instrument, the market growth has been driven primarily by the issuers’ desire to establish their institutional ESG credentials.” The study further notes that to accelerate the green bond market growth in the SADC region, it calls for a broader pool of like- minded issuers.
“Deepening of the investor base is also important in all SADC counties except South Africa, but this can be tackled only as part of the broader efforts to increase domestic savings and capital market development initiatives, which are beyond the scope of this study. In the near- term future, interventions with focus on the issuer side will be more impactful.”
Last month, CoSSE indicated that there are investment opportunities in green bonds for the regional pension funds, especially in Botswana, Namibia, eSwatini and Tanzania.
He however warned that inadequate enabling environment ( regulatory and capital market barriers) limit uptake.
Meanwhile, from the issuers’ perspective, positive outcomes of the study reveal that banks are a prime candidate group for green bond issuance in the SADC.