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Nigeria Green Bonds: Completing the Task of Issuance

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Monday, July 17, 2017 11:30AM / Esther Agbarakwe, Federal Ministry of Environment*

The Paris Agreement signed and ratified by President Muhammadu Buhari in March of 2017 has an often-overlooked yet critical provision. In article 2 it outlines the aims of the agreement, one of which is “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. The Federal Ministry of Environment (FMEnv) under the leadership of the Hon Minister of State for Environment, Ibrahim Usman Jibril has significantly progressed a process that started in September of 2016 with a stakeholders forum that attracted key development partners, capital market operators and public sector institutions. The initiative has resulted in a plan to issue a program of N150 billion in green bonds over the next few months with a pilot issue of N12.384 billion in the 3rd quarter of 2017 and the balance over the course of the budget year. Collaboration between Ministry of Environment and Finance continues to pull together the institutional partners necessary to achieve what would be Nigeria and Africa’s first sovereign green bond and the worlds 3rd.

Growth of the Global Green Bond Market

The global market for green bonds took off in 2005 with an issuance by the European Investment Bank (EIB), since then the market has grown significantly to an annual issuance market last year of USD80 billion. Green bonds are like regular bonds, with a slight difference – they can only be used to fund projects that have been identified to have environmental benefits and their contribution to emissions reduction clearly articulated. The global market for green bonds is expected to exceed last year’s amount and China remains a dominant participant in the market. Issuances to date have been largely by corporates and parastatals with the first sovereign issuance in November of last year for Eur750m by Poland and a follow on by France in January of 2017 for Eur7 billion. Commitments by signatory nations in the Paris agreement are expected to boost this market as resources are redirected toward development objectives that are sustainable from a climate perspective and contribute to global reduction in emissions.

Figure 1: Green Bond Market growth



Federal Ministry of Environment Preparation

The Ministry of Environment as custodian of the nation’s commitments under the United Nations Framework Convention on Climate Change (UNFCCC) has provided considerable direction to the process of issuance to ensure that the key elements needed for identification of projects that will meet the green credentials are in place. In November of 2016 the Ministry issued its Green Bond Guidelines drawing from the International Capital Market Association (ICMA) Green Bond Principles (GBP). Working through the Inter-Ministerial Committee on Climate Change (ICCC), it engaged various Federal Government Ministries Departments and Agencies (MDAs) to identify projects with green credentials that will provide the foundation for issuance of the green bond. In agreement with the Minister of Finance (MOF), the projects are required to be included in the budget approved by the National Assembly and assented to by the President.

Inter Agency Participation

The Debt Management Office (DMO) as key issuer of FG debt is the key liaison with the Ministry of Environment. A Green Bond Account to hold the resources was recently created by the Central Bank of Nigeria (CBN) after approval from the Office of the Accountant General of the Federation (OAGF). Frequent engagement between FMEnv and the Budget Office of the Federation (BOF) within the Ministry of Budget and National Planning (MOBNP), with the June 13th signing of the 2017 budget by the Acting President, Professor Yemi Osibanjo has affirmed the allocations to the identified projects. The projects are Energizing Education Program (EEP) for N9.5 billion, the Renewable Energy Micro Utility (REMU) for N475m and the FMEnv’s Afforestation Program for N2.3 billion for a total of N12.38 billion.

Figure 2: Green bond process



The Green Bond Advisory Group
To enable the Federal government draw on a wide arrange of expertise in progressing and developing the issuance of the green bond, the Ministry of Environment and Finance established the Green Bond Advisory Group (GBAG). The GBAG is made up of development partners (World Bank, DfID, AfDB, & IFC), Capital Market Operators (Nigeria Stock Exchange, Capital Assets, Chapel Hill Denham & Stanbic IBTC) and Climate Bonds Initiative, London. The GBAG meets frequently with its first meeting in January of 2017 leading to a conference on green bonds in Lagos in February of 2017 at which the Acting President was a key note speaker. The GBAG remains the interface between the development partners and the capital market in ensuring the pilot issuance of the green bond happens in the 3rd quarter of 2017


Benefits to DMO Debt Strategy
The DMO has disclosed its strategy to be the restructuring of the Federal Government’s debt portfolio to replace short tenured bonds with long tenor and high rates with lower rates. This strategy includes the tapping of the international capital markets and a green bond issuance with the right framework will provide a credible platform to tap into the global market for green bonds. The London Stock Exchange (LSE) has indicated a willingness to participate in the green bond advisory group to provide necessary guidance to the FG to achieve this objective.

Benefits to the Economic Recovery & Growth Plan
The recent launch of the government’s Economic Recovery & Growth Plan (ERGP) has key objectives that are a catalyst for the issuance of the green. In addition to having as its objective the meeting of some of the goals in the United Nations Sustainable Development Goals (SDGs), it also has as an objective the issuance of a green bond to fund projects that have environmental benefits. Some of the objectives in the ERGP include; identification of revenue flows to government, job growth and creation. Population impact and improvement in livelihoods are articulated in the targets of the individual projects to be funded by the green bond.

Summary

To deliver on the Nigeria’s Nationally Determined Contribution (NDC) will require a fundamental re-orientation of financial flows within the economy. Capital will need to flow toward low-carbon, climate resilient opportunities and away from carbon intensive, polluting activities or those that exacerbate climate vulnerability leading to poverty, insecurity and reduced health quality. The issuance of the green bond will begin the process of green the federal budget and the capital market. It will also demonstrate to the global community Nigeria’s commitment to achieving its targets in the NDCs.

For the FGs debt portfolio it adds to the cocktail of capital products that are being explored in ensuring resources are available to fund the FG annual budget. On a strategy level it provides a platform for DMO to achieve the objective of extending tenor of the FG debt portfolio and also reduce interest cost. It would also establish a framework by which sub nationals and corporate can tap into the green bond market. 


*Esther Agbarakwe (@estherclimate) is the Special Adviser on Strategic Communication & Stakeholders' Participation to the Honorable Minister of Environment at the Federal Ministry of Environment.

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