In our recent article, we brought to you Nigeria’s good performance with the Asset Management Corporation of Nigeria (AMCON). This week, Nigeria has emerged as the leader in Africa and fourth in the world, with the float of green bonds initiated by the Ministry of Environment in collaboration with the Ministry of Finance to climax the year in style.
Usually, bonds are fixed income investment in which an investor loans money to the governments or a corporate which borrows the funds for a defined period of time. Green bonds, therefore, describe loan certificates exclusively issued to finance projects that address climate change issues such as renewable and clean energy projects, biodiversity conservation, and more.
The green bonds are also geared towards supporting the Nigerian economic recovery and growth plan as well as diversification to non-oil sector needed to revamp the economy after the recent exit from recession. Interestingly, this aligns with the concept of Sustainable, Responsible and Impact Investing (SRI) which integrates environmental and social concerns into development or investment decisions for positive societal impacts.
At the “One Planet” summit in Paris – led by France’s President Emmanuel Macron, as well as World Bank and United Nations on 12 December, 2017, Nigeria’s President Muhammadu Buhari indicated that the country “has embraced the issuance of the green bond as an innovative and alternative source of projects funding that would help reduce emissions and provide robust climate infrastructure, such as renewable energy, low carbon transport, water infrastructure and sustainable agriculture in line with the Paris Agreement.” This means that the bonds are innovative tools to meet up with the year 2030 target of Nigeria’s Nationally Determined Contributions (NDC) in reducing CO2 emissions by 40 percent by 2030.
The positive impacts of green bond funded projects to the society and environment are not baseless, rather, they are real and have been demonstrated in different areas. For instance, ‘the water investment project’ executed in Tunisia and funded by World Bank Green Bonds is said to have the capacity to supply 10,000 households with drinking water. According to the Director General of the Department of Debt Management (DMO), Mrs. Patience Oniha, “The Federal Government is ready to raise N10.75 billion ($30 million) Series 1 issuance under the N150 billion green bond programme”to provide environment-friendly infrastructure to not less than 44 Nigerian universities and more than 1.1 million people in other different communities.
A Tool for Economic Recovery and Diversification?
The Debt Management Office revealed that Nigeria also plans to use the bond to finance projects in its 2017 budget, advance economic growth and diversification, and to “…continuously restructure the Federal Government’s debt portfolio to replace short tenured bonds with long tenor and high rates with lower rates”. Such approach is in the right direction as green bonds are proven, excellent tools to generate huge capital required to fund environmental projects and bridge the gap that skyrocketing bank interest rates have created in financing capital intensive projects like hydro, solar, wind, and geothermal power installations.
Rachel Kyte, the World Bank Group Vice President and Special Envoy for Climate Change, confirmed that “Green bonds have opened a new finance flow that will be essential to confronting climate change. They are providing green investment opportunity for an ever wider investor group, including those who wish to divest and diversify from fossil fuel-intensive portfolios, and they have proven that a stream of investor capital exists for green assets.” Her words reveal that integration of this strategic economic tool in our fiscal policy is in consonant with sustainable development, especially, as it has the capacity to advance the diversification of Nigeria’s fossil fuel-intensive portfolios.
With the introduction of green bonds, Nigeria is in the true path of sustainable, responsible, and impact investment approach that is panacea to attract new category or responsible investors in Nigeria to mobilise more revenue needed to revamp the economy. What is good with this debt approach is that it is mixed with foreign currency denominated bonds, without having to stress the internal liquidity and cause inflation in the country.
Another attribute of this initiative is that projects funded with green bonds will have the capacity to revitalise the economy with innovative new technologies and projects that provide new jobs or promote economic resilience.
The emergence of green bonds is another way to challenge the private sectors with large asset base such as pension fund managers, asset managers and sovereign wealth funds to participate in sustainable development by investing specifically on socially and environmentally driven businesses.
- Mainstreaming Street Hawking in a Formal Economy: An Inclusive Approach to Development, Bekeme Masade (August 26, 2017)
- Sand Dredging in Nigeria’s Waterways: Between the Economic Boom and Environmental Doom(Sep 2nd, 2017)
- Towards the Bleak Future of Crude Oil: What Nigeria Should Do Now, Bekeme Masade(Aug 12th, 2017)
- FG’s N10.96bn Green Bond for Renewable Energy, Forestation Financing. ThisDay, December 16, 2017
- Nigeria to Regulate Issuance of Green Bonds. The Nation, Taofik Salako, November 13, 2017
- Nigeria’s Green Bond Tops Climate Change Financing Talks. Guardian, Victor Gbonegun, 18 December 2017
- Oil Giant Nigeria to Sell First African Sovereign Green Bond. Bloomberg, Yinka Ibukun, Emele Onu, and David Malingha Doya, December 14, 2017
- ‘One Planet’ Summit Draws Green Investment Pledges for Climate Action. Abdullateef Salau, Dec 17, 2017
- Revamping the Economy: The Reality of Green Bonds. SustianableConvos, May 2, 2017