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IEA highlights red flag in Nigeria’s green bonds issuance

Article Summary

  • The International Energy Agency (IEA) has highlighted something that green bond issuers need to improve on in Nigeria.
  • Past green bond issuances in Nigeria have enabled the realization of some clean energy projects.
  • The IEA says that sustainability-linked bonds can be a tool for governments with a high debt burden.

The International Energy Agency (IEA) has highlighted the fact that questions around reporting have been asked about Nigeria’s green bond issuances.

In its May 2023 World Energy Investment report, the agency highlighted the fact that questions have been raised regarding reporting on the impact of the green bonds issued. According to the report, governments in some emerging and developing economies like Nigeria, India, and Colombia, have used green bonds to raise local currency financing for infrastructure projects.

These countries have benefited from green bond issuances even without an investment grade rating. According to the IEA report, sovereign bonds can have knock-on effects for green corporate bonds and domestic currency financing from both local and international sources.

A part of the report stated:

  • “Green bonds are likely to be most applicable to countries that have reasonable debt sustainability and have a growing domestic capital market. The Nigerian government launched the Green Bond Market Development Programme in 2017.
  • “So far, under the programme there have been two sovereign issuances with a combined value of N25.7 billion ($70 million) and four corporate issuances totaling N32.7 billion ($72 million). The 2017 sovereign green bond was the first of its kind in Africa and was followed by a second in 2019.
  • “Both bonds achieved a greenium and were used to support projects in renewable energy, primarily rooftop solar and rural electrification, and afforestation. 
  • “However, questions have been raised about the implementation of projects and reporting has not been made available on the environmental impact of the bond proceeds. Ensuring best practices in reporting is likely to increase confidence in the market, particularly among international investors.”

The issue of transparency

Recall that in April 2023, TheTimes reported that a 2022 Heinrich Boll report on Green Bond issuance highlighted the fact that future projects funded by green bonds should have publicly accessible up-to-date information on the status of funded projects. The report also stated that there should be tracking of carbon results in green bond projects.

These will encourage proper monitoring and management, thereby increasing trust between the Nigerian government and green bond investors.

What you should know: The IEA report also highlights the fact that sustainability-linked bonds are on the rise and they provide more flexibility. This is especially true for emerging and developing economies like Nigeria.

  • According to the IEA report, sovereign green bonds in emerging and developing economies have benefited from a greenium, demonstrating their value as a tool for governments that already have high debt burdens.

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