London Stock Exchange welcomes first East African sustainability bond listing
Africa faces a significant funding gap of $2.5 trillion by 2030 to combat climate change, despite contributing the least to greenhouse gas emissions, according to a UN economist. This stark reality has prompted calls for increased private sector investment in the continent's climate sector.
Several key recommendations have emerged to increase private investment:
- Innovative financial instruments such as debt-for-nature swaps and blue bonds can help reduce sovereign debt burdens while mobilising funds for conservation and green projects.
- Public-private partnerships and blended finance mechanisms can de-risk investments, making projects more attractive to private investors.
- Insurance innovations, including concessional insurance premia and parametric insurance, can help reduce risks and financing costs, thereby unlocking private capital for resilient infrastructure.
- Stronger collaboration between private sector entities, multilateral development banks, national development banks, and climate-focused funds can leverage institutional strengths to catalyse and scale financing efforts efficiently.
- Improved data and accounting on private finance flows for climate adaptation are essential to correct misconceptions about the commercial viability of adaptation projects and encourage private sector engagement.
- Fostering scalability and collaboration by addressing the fragmented and localized nature of many climate projects is vital to attract larger private investments.
One example of successful private sector investment is the NMB Jamii Bond, a sustainability bond issued by NMB Bank in Tanzania. The dual-tranche bond, which raised a total of TZS 400bn (€142m) from both local and international investors, was cross-listed on the London Stock Exchange. The US dollar tranche of the bond listed on the London Stock Exchange.
To further encourage private sector investment, initiatives like the Second Party Opinion (SPO) for NMB Bank's sustainable finance framework have been implemented. FSD Africa provided technical assistance for this process, ensuring the bond's alignment with various international organisations and their requirements and taxonomies.
Ruth Zaipuna, chief executive of NMB Bank, stated that the listing cements the bank's position as a trailblazer in sustainability within African capital markets.
However, Africa's annual climate finance needs are estimated to be $277bn (€255bn) to meet its Nationally Determined Contributions, the climate action plans which detail countries' commitments to achieving the global targets of the Paris Agreement. To bridge this gap, international networks like GFANZ could support pipeline development and back transaction accelerators, as well as engage actively with domestic institutions to source and bundle viable, well-diligenced transactions.
Information exchange platforms could also make existing transactions more visible to investors, according to Napier. Capacity building within domestic finance institutions and developing a pipeline of investable opportunities are other key strategies to address the dissuading factors of actual risk, perceived risk, and ticket sizes for private capital players.
In conclusion, a combination of innovative financial instruments, public-private collaboration, risk mitigation tools like insurance, and better data transparency is crucial to significantly increase private sector investment and meet Africa's estimated climate finance needs by 2030.
- The energy transition in Africa requires substantial private sector investment, especially considering the continent's significant funding gap of $2.5 trillion by 2030 for combating climate change.
- To attract more private capital, social impact initiatives such as sustainable finance, renewables, and development finance could be promoted through innovative financial instruments like debt-for-nature swaps and blue bonds.
- Partnerships between the private sector, multilateral development banks, national development banks, and climate-focused funds can collectively catalyze and scale financing efforts for sustainable business practices.
- The success of projects like the NMB Jamii Bond, a sustainability bond issued by NMB Bank in Tanzania, demonstrates the potential of sustainable finance in attracting both local and international investors, thereby contributing to the global energy transition.
