Sustainable debt issuance has reached a record high in Africa. The volume of green, social, sustainability, and sustainability-linked (SLBs) bonds in Africa collectively grew 1,692 per cent year-on-year to reach $4.9 billion in the first quarter of 2024.
Green, social, sustainability, and sustainability-linked (SLBs), or GSSS are fixed-income instruments for which their proceeds are used to finance specific projects considered to have positive environmental and social impact.
According to a report published by Climate Bonds Initiative on June 19, the $4.9 billion worth of sustainable debt issuances were issued through nine deals from seven issuers led by the African Development Bank (AfDB) with three deals with combined volume of $3.1 billion and Ivory Coast at $1.1 billion.
Ivory Coast priced its first sustainability bond in January 2024. The West African nation, and the world’s largest cocoa producer, priced a $1.1 billion sinker maturing in 2033.
The deal is the country’s first dollar-denominated liability for seven years and follows a EUR533 million AfDB backed sustainability loan announced in January 2024 to support the development of resilient infrastructure in the country.
According to the report, Ivory Coast is the sixth African nation to deploy sustainable debt.
Côte d’Ivoire, Benin, and Kenya alone issued $4.85 billion worth of Eurobonds in the first quarter of 2024.
"Dedicated green and socially responsible investors are seeking credible investment opportunities from a diverse range of issuers across the credit spectrum, hence are supportive of these deals,” the authors of the report said.
Issuing foreign currency denominated debts, they argued, can introduce new sources of support to nations where local currency capital is limited.
However, African issuers have increasingly said they would rather favour locally-denominated issuances to hedge against currency fluctuations especially in periods of higher inflationary pressures where African currencies have significantly lost value over major currencies.
One such issuer is Prime Energy, a Rwandan private energy provider, which announced in March this year that it will issue Rwanda’s inaugural green bond featuring two subscription tranches.
The first tranche will be denominated into Rwandan franc and the second tranche will be linked to the US dollar.
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Global picture
Globally, green, social, sustainable and sustainability-linked bonds raised $273 billion in the first quarter of this year, according to the Climate Bonds Initiative.
Issuance of green bonds — used by countries or companies to pay for environmental projects — jumped 43 per cent in the previous quarter to $195.9 billion, attracting higher inflows than newer forms of sustainable debt.
Green bonds are on track to hit a total of $1 trillion of issuance this year, Climate Bonds Initiative predicted.
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Like more conventional fixed income, demand for sustainable debt has been boosted by high interest rates. But it has also been helped by what some fund managers argue is the erosion of the so-called "greenium” — a discount in the cost of borrowing that issuers of green bonds can enjoy.
This means that, in many cases, investors can put money into sustainable debt without sacrificing much, if anything, in terms of yield.
The U.S. was the largest single-country source of green bonds in the first quarter of this year, according to Climate Bonds Initiative, with a combined $27.6 billion in issuance.
The rush into sustainable debt is driven by investors who are focused on environmental, social and governance (ESG) metrics.