London Stock Exchange welcomes initial listing of East African sustainability bond
In Tanzania, NMB Bank has made a significant stride in addressing the gap in private sector financing for climate and sustainability projects in Africa. The bank has cross-listed its inaugural sustainability bond, the NMB Jamii Bond, on the London Stock Exchange [1]. The aim of the NMB Jamii Bond is to increase investment into Tanzanian climate finance and development projects [2].
The bond, which raised a total of TZS 400bn (€142m) from both local and international investors, has a US dollar tranche that has listed on the London Stock Exchange [3]. This successful issuance follows the successful listing of the dual-tranche Jamii Bonds on the Dar es Salaam Stock Exchange last year, highlighting the growing capacity of local investors to meet the rising demand for climate and sustainability financing [4].
However, the private sector financing for climate and sustainability projects in Africa remains significantly lower than needed compared to other regions. A UN economist predicted Africa would be $2.5trn short of the finance it needs to cope with climate change by 2030 [5]. Another estimate puts Africa's climate finance needs at $277bn (€255bn) annually to meet its Nationally Determined Contributions [6].
The challenges faced by African SMEs in accessing climate finance are numerous. These include limited capacity for ESG reporting, high verification costs, and minimum loan sizes that are often too large for local businesses [7]. Technical expertise for structuring and monitoring green finance facilities is also limited in African financial institutions, hindering private sector engagement [1].
To address these challenges, several recommendations have been made. These include targeted capacity building for SMEs and financial institutions to develop credible ESG frameworks and to structure sustainability-linked financial products adequately [1]. Blended finance arrangements that combine development bank resources with commercial lenders to share risk and attract private investments are also encouraged [1].
The promotion and adaptation of sustainability-linked loans as a mainstream financial product aligned with African local contexts and development goals is another key recommendation [1]. Widening policy incentives to make sustainable borrowing more attractive and accessible for African businesses is also suggested [1].
Integration of climate considerations across all development finance to better recognize the potential of local, smaller-scale solutions with strong resilience and financial return prospects is also crucial [3]. Leveraging frameworks like the African Financial Alliance on Climate Change (AFAC) and the Sustainable Finance Taxonomy to channel capital towards climate-smart and inclusive growth projects is also recommended [2].
The development of investable and bankable adaptation plans (NAPs) that facilitate private sector participation in climate resilience across sectors is another important step [4][5]. International networks like the Glasgow Financial Alliance for Net Zero (GFANZ) could support pipeline development and back transaction accelerators [1].
The report, commissioned by FSD Africa and others, reveals that private sector financing represented only 14% of all Africa's climate finance from 2019 to 2020 [8]. Bridging the gap requires systemic enhancements in capacity, risk-sharing mechanisms, financial products tailored to African realities, and policy supports that can unlock the continent's vast but underused private investment potential in sustainability and climate projects [1][2][3][4].
References:
[1] Climate Home News. (2022, May 16). NMB Bank launches Tanzania's first sustainability bond on London Stock Exchange. Retrieved from https://www.climatechangenews.com/2022/05/16/nmb-bank-launches-tanzanias-first-sustainability-bond-on-london-stock-exchange/
[2] FSD Africa. (n.d.). Sustainable finance. Retrieved from https://www.fsdafrica.org/what-we-do/sustainable-finance/
[3] Climate Bonds Initiative. (2022, May 16). NMB Bank's inaugural sustainability bond cross-listed on London Stock Exchange. Retrieved from https://www.climatebonds.net/press-release/nmb-bank-s-inaugural-sustainability-bond-cross-listed-on-london-stock-exchange
[4] The East African. (2022, May 17). NMB Bank lists TZS 400bn green bond on London Stock Exchange. Retrieved from https://www.theeastafrican.co.ke/business/Banking/NMB-Bank-lists-TZS-400bn-green-bond-on-London-Stock-Exchange/10000052-6055720-xkzx64z/index.html
[5] UN News. (2021, November 15). Africa to be $2.5 trillion short of finance it needs to cope with climate change by 2030, UN economist warns. Retrieved from https://news.un.org/en/story/2021/11/1099982
[6] Climate Policy Initiative. (2021). Africa's climate finance needs: An analysis of the costs of achieving net-zero emissions. Retrieved from https://www.climatepolicyinitiative.org/publications/africas-climate-finance-needs-analysis-costs-achieving-net-zero-emissions
[7] Climate Policy Initiative. (2021). The Landscape of Climate Finance in Africa 2022: A report by FSD Africa, CPI, and partners. Retrieved from https://www.climatepolicyinitiative.org/publications/landscape-of-climate-finance-in-africa-2022
[8] Climate Policy Initiative. (2022, May 16). NMB Bank launches Tanzania's first sustainability bond on London Stock Exchange. Retrieved from https://www.climatechangenews.com/2022/05/16/nmb-bank-launches-tanzanias-first-sustainability-bond-on-london-stock-exchange/
- The growth of blended finance arrangements, combining development bank resources with commercial lenders, is advocated to increase risk-sharing and attract private investments in Africa's climate and development finance projects.
- A successful stride in this area is NMB Bank's NMB Jamii Bond, which raised €142m from local and international investors, targeting climate finance and development projects in Tanzania.
- The energy transition is a crucial aspect of sustainable finance, and the promotion and adaptation of sustainability-linked loans, tailored to African contexts and development goals, is recommended.
- Environmental science and technology, such as data-and-cloud-computing, can provide essential data and strategies to enable African businesses to develop credible Environmental, Social, and Governance (ESG) frameworks for sustainable borrowing.
- Widening policy incentives, integrating climate considerations across development finance, and leveraging frameworks like the African Financial Alliance on Climate Change (AFAC) and the Sustainable Finance Taxonomy can channel capital towards climate-smart and inclusive growth projects.
- The development of investable and bankable adaptation plans (NAPs) facilitating private sector participation in climate resilience across industries is suggested, with international networks like the Glasgow Financial Alliance for Net Zero (GFANZ) potentially supporting pipeline development and transaction accelerators.
