A summit to climb, By Natalie Beinisch

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How do we bridge the huge gaps between Nigeria’s green investment needs and the resources available to finance them? There are no easy answers. The path to a green economy has many branches – different investment programs involving different types of priorities, institutions and risks.

COP26 revealed the utter failure of developed countries to meet their commitment to channel $100 billion a year towards greening the economies of the developing world. During the COVID-19 pandemic, when wealthy countries have invested over $10 trillion to address challenges that have primarily benefited their citizens, this failure is made all the more apparent and disappointing.

How do we bridge the huge gaps between Nigeria’s green investment needs and the resources available to finance them? There are no easy answers. The path to a green economy has many branches – different investment programs involving different types of priorities, institutions and risks.

A top-down approach can help us appreciate the magnitude of the task, but it is both polarizing and paralyzing. Why do anything locally if the needs are so great and the international support so weak?

Far less sexy and eye-catching, flipping our look at reverse green investments from top-down to bottom-up reveals the incredible progress being made in developing green investment opportunities in Nigeria. In doing so, we can also identify the limits of these opportunities and the strategies to overcome them.

Green bonds: an extraordinary step forward for green finance in Nigeria

The Financial Market Dealers Quotation Group (most often referred to as FMDQ) The green bond exchange is an example of such incredible progress. Created in 2012, the FMDQ provides a financial market infrastructure that facilitates financial transactions by establishing standards and improving information flows. Its foray into the green bond market began in 2017, when it facilitated the listing of Africa’s first green sovereign bond, a N10.69 billion issue by the Federal Government of Nigeria, the proceeds of which are used to fund community clean energy supply and reforestation. . Just over a year later, FMDQ facilitated Africa’s first non-sovereign green bond listing, a 10.69 billion naira issue with Access Bank, for projects focused on solar energy, l agriculture and flood protection. North-South Power followed suit, using the green bond framework to issue two separate bonds for solar and hydropower projects.

It takes a village to raise a child and it also takes a village to raise a green bond. The FMDQ worked with several organizations to raise these first green bonds, including the UK-based nonprofit Climate Bond Initiative, FSD Africa, a UK-sponsored financial sector development program, and local issuers and intermediaries, including Chapel Hill Denham.

Thanks to a partnership established between the FMDQ and the Luxembourg Green Exchange, green bonds listed in Nigeria are now listed on the Luxembourg Stock Exchange, offering access to international investors. It is an opportunity that has been seized by pioneer issuers like Access Bank and in the words of Solape Hammond, Special Advisor to the Office of SDGs and Investment in Lagos State, it goes a long way in addressing the risks that prevent international investors from participating. in the Nigerian financial markets.

It takes a village to raise a child and it also takes a village to raise a green bond. The FMDQ worked with several organizations to raise these first green bonds, including the UK-based nonprofit Climate Bond Initiative, FSD Africa, a UK-sponsored financial sector development program, and local issuers and intermediaries, including Chapel Hill Denham. Such collaboration demonstrates that local and international institutions are redoubling their efforts to invest, with a focus on sustainability, in Nigeria. The depth of these efforts and the inter-agency coordination is simply herculean.

The appetite for the GB roster has been very robust; it is oversubscribed. The strong institutional architecture and high demand make it a solid path to scale up investments focused on the green transition.

Peaks and valleys: challenges and opportunities

The first and most obvious challenge is that green bonds are not free money. As they must be repaid and must not be too risky investments, this type of financing is more attractive for projects that have reached maturity or/or require refinancing. The green bond is not a panacea and is just one of many types of financing instruments that need to work well to truly support the green transition in Nigeria.

Second, and more importantly for the first issuer, the green bond is more than a traditional bond and it is much more difficult to issue a green bond and comply with a green bond framework, and it is not There aren’t many tangible rewards for issuers to go further, as coupon rates are comparable to those in the traditional bond market.

The $100 billion headline undoubtedly commands attention and engenders a degree of nihilism, frustration and disappointment, but we can only get to the top of the mountain by starting from the bottom. When we do this we realize that we are not climbing alone.

While the FMDQ’s assistance in issuing bonds is substantial, with end-to-end support, it is not enough to shift green issuance from a signal of virtue to more traditional activity in financial markets. Improving other competitive dimensions of green bonds for issuers could incentivize companies to invest in green products and services within a framework that creates access, transparency and certainty for investors.

Implementing it is a challenge, but it is not insurmountable. The Climate Bonds Initiative recommends national governments to extend the same reporting and compliance requirements to all bond issuers. However, in a country like Nigeria where making all types of financial instruments more accessible is a higher priority, such an approach can be tricky.

Another strategy, used successfully in the United States, is public support for green asset-backed securitization of smaller-scale loans and projects. This requires a healthy volume of small green loans in the market. In this regard, it is imperative that investors work more closely across the value chain to create, identify and support potential green projects, so that relevant financing is available to them at every stage of a project’s maturity. . Fortunately, organizations like the Impact Investors Forum have been created to provide this support.

The $100 billion headline undoubtedly commands attention and engenders a degree of nihilism, frustration and disappointment, but we can only get to the top of the mountain by starting from the bottom. When we do this we realize that we are not climbing alone.

Natalie Beinisch is the Executive Director of the Circular Economy Innovation Partnership.

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