Business

Deepening green bond investment via partnership

There is need for collaboration to foster sustainable investments in green bonds. CHRIS UGWU writes

 

According to World Bank report, the world is facing an enormous bill to address the potentially apocalyptic issue of climate change. Climate change could push an additional 100 million people into poverty by 2030, if no action is taken to end extreme poverty, improve access to basic services and build resilience.

 

Millions of people around the world are being forced to live with extreme weather events such as droughts, and floods putting food and water security at risk. All over the world, infrastructure contributes to economic development by increasing productivity and providing amenities, which enhance the quality of life.

 

The services generated as a result of an adequate infrastructure base will translate to an increase in aggregate output. However, investment in infrastructure services, such as transportation (roads), electricity and water are intermediate inputs to production.

 

This is because infrastructure services tend to raise productivity of other factors as it is often described as the unpaid factor of production. Although Nigerian capital market had suffered monumental losses due to sustained decline in stock prices resulting in huge decline in investment value occasioned by the financial crisis, the country’s huge infrastructure deficit in power, housing, roads, healthcare, port services among others has contributed to a large extent in retarding the overall growth and development of the sector, which is central to capital formation.

 

Meanwhile, against the backdrop of the comatose state of the economy, government and capital market operators have agreed that tapping into the green bond market, which has gained global acceptance, will be crucial to climate finance and deepen the finance eco-system and foster more sustainable investments.

 

It would also intensify efforts on infrastructural development to enhance citizens’ standard of living. However, experts also believe that since the banking sources are unable to meet the growing financing needs in Nigeria’s infrastructure, there is need to bridge the gap through the green bond market in order to achieve the desired growth.

 

They added that in order to foster sustainable green bond market in the local bourse, there is need for collaboration with other markets and stakeholders across the globe. What is a green bond

A green bond, according to Investopedia, is a tax-exempt bond issued by federally qualified organisations or by municipalities for the development of brownfield sites.

 

Green bonds are created to encourage sustainability and the development of brownfield sites.

 

More specifically, green bonds finance projects aimed at energy efficiency, pollution prevention, agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, water management, and the cultivation of environmentally friendly technologies.

The tax-exempt status makes purchasing a green bond a more attractive investment compared to a comparable  taxable bond, providing a monetary incentive to tackle prominent social issues such as climate change and a movement to renewable sources of energy.

FMDQ inked partnership agreement with LGX

FMDQ Securities Exchange last year in a bid to deepen finance in Nigeria launched the pioneer Green Exchange in Africa – FMDQ Green Exchange, introducing a platform specifically for green and securities.

 

FMDQ Green Exchange, a virtual information repository platform, was dedicated to driving the growth of green and sustainable securities and providing reliable green data in the Nigerian financial markets – through promoting transparency, good governance, and compliance – by showcasing securities issuances that align with global Environmental, Social and Governance (ESG) principles.

 

 

Mr. Bola Onadele Koko, Chief Executive Officer, FMDQ Group, during his opening address, said: “With climate change increasingly becoming one of the biggest risks facing the world today and in recognition of an even greater need to promote economic development in Nigeria through green and sustainable finance, FMDQ Group considered it pertinent to launch the FMDQ Green Exchange initiative.

 

“We are indeed proud to note that the launch of Nigeria’s premier Green Exchange places Nigeria, and by extension, Africa, amongst other global jurisdictions with securities exchanges with such exclusive platforms, such as the Luxembourg Stock Exchange, which launched the world’s first and leading dedicated platform for sustainable finance (the Luxembourg Green Exchange), amongst others.”

 

Delivering his keynote address, the Executive Governor of Lagos State, represented by his Special Adviser on the SDGs and Investments, Mrs. Solape Hammond, said: “The value that a green exchange such as this brings, providing investors a transparent, effective platform for accessing the African sustainability finance market and thereby opening the doors of deep sustainable funds for infrastructure and social development, is almost immeasurable. There is therefore no doubt that the FMDQ Green Exchange will assist in unlocking sustainable resiliency.”

 

He also reiterated Lagos State’s commitment to championing and supporting initiatives geared towards the sustainable socio-economic development of Lagos State, and the nation at large. In an equally exciting development poised to further deepen the Nigerian debt capital market and as a highlight of the launch ceremony, FMDQ Exchange and the Luxembourg Stock Exchange (LuxSE) executed a Listing Agent and Cooperation Agreement to facilitate the dual listing of securities issued by financial institutions and corporates domiciled in Nigeria on both FMDQ Exchange and LuxSE markets.

 

Speaking on this development, Ms. Julie Becker, Chief Executive Officer, LuxSE, stated: “We are pleased to enter into this cooperation agreement with FMDQ Exchange and will work together to create synergies and connections across our markets. I would like to congratulate FMDQ Exchange on the launch of the FMDQ Green Exchange and I look forward to further exploring new fields of cooperation in the area of green finance.”

Lauding the initiative, Ms. Tumi Sekoni, Managing Director, FMDQ Exchange, said: “Indeed, we are excited to be executing a Listing Agent & Cooperation Agreement with LuxSE, and hopeful that this partnership will birth an avenue for FMDQ Exchange and LuxSE to achieve formidable market cooperation and promote even greater information symmetry for the benefit of the Nigerian and global financial markets.”

NGX, IFC partner on capacity The NGX in collaboration with International Finance Corporation (IFC), a member of the World Bank Group, recently hosted a training for issuers and market operators on the issuance of sustainable financial instruments.

 

The training themed ‘Deep Dive in Green, Social and Sustainability Bonds Issuance,’ sponsored by the Kingdom of Netherlands and HSBC, delivered by Climate Bonds Initiative (CBI), is the second in a series of engagements aimed at further socialising sustainable financial products, particularly green bonds in Nigeria.

 

The training is a continuation of the collaboration between NGX and IFC on the promotion of sustainable finance across the Nigerian capital market under IFC’s REGIO Technical Assistance Program for Africa, and builds on a similar training hosted in December 2021.

 

Speaking at the training, Mr. Temi Popoola, Chief Executive Officer, NGX, said: “The Exchange is committed to fostering the growth of sustainable financial products that integrate the financial risks and opportunities associated with climate change and other environmental challenges.

 

“In recognition of the climate finance needs particularly in Nigeria and the urgent action required to combat climate change as enshrined in the Paris Agreement on Climate Change the Nigerian Exchange Limited, in 2016, championed efforts along with government and industry stakeholders that culminated in the issuance of the maiden N10.69 billion ($25.8 million) 13.48 per cent 5-year green bond in 2017.

 

“We are pleased to continue our collaboration with Nigerian Exchange globally recognised institutions such as IFC and CBI to share valuable experiences and best practices on green finance, and promote the development of sustainable finance market across our ecosystem.”

 

Also speaking at the training event, Ms. Denise Odaro, Global Head, Investor Relations, IFC, said: “Green bonds are an integral part of advancing sustainability as they facilitate sustainable investments and innovative financing.

IFC, as a partner in developing the issuing of green bonds, played a critical role when it launched a Green Bond Program in 2010 to help catalyse the market and unlock investment for private sector projects that support renewable energy and energy efficiency. Since then, IFC has issued globally 178 green bonds in over 20 currencies for over $10.5 billion.

 

“We continue to support our partners, such as the Nigerian Exchange, to provide the right knowledge, tools, and contribute to create enabling conditions for green, social and sustainability issuances.”

 

Through the training, NGX and IFC shared best practices in sustainable finance issuance, and educated potential issuers on the unique characteristics of green social and sustainable bonds, the specific advantages of each instrument, as well as the detailed step-by-step process for issuing these instruments.

 

With specific focus on green bonds, participants at the training were presented an overview of the actors involved in the green bond issuance process, their roles, and responsibilities.

The training attendees equally had the opportunity to better understand different green bond labelling schemes, including CBI standard, as well as other important instruments and tools contributing to CBI certification process such as CBI’s taxonomy and other classification systems.

Last line

Government needs to focus strongly on institutional policy changes and sector reforms.

This is essential towards improving the investment climate capable of attracting private investors at the level that can meaningfully aim at financing the nation’s infrastructure deficit and meeting its strategic programme of sustainability over a more attainable timeline.

 

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