Alex Rose-Innes

With the South African (SA) cabinet in discussions with climate envoys from the European Union and first-world countries to obtain financing to enable the country to go green, the highlight is on sustainable development bonds. This comes ahead of the upcoming UN Climate Change Conference (COP 26) to be held in Glasgow at the end of this month.

Eskom needs R180 billion concessional finance (which comes at lower interest rates) to retire several of its coal-fired power plants and boost green energy on its carbon-heavy grid. However, the Department of Mineral Resources and Energy (DMRE) is still punting coal as per its retro-thinking minister, Gwede Mantashe, despite SA being Africa’s top emitter of greenhouse gases.

UN Climate Change Conference (COP 26)
UN Climate Change Conference (COP 26)

As opposed to Mantashe, whose passé and anti-green thinking is well-known and who did not join the discussions, SA’s shining star across all environmental spheres, Barbara Creecy, minister of Forestry, Fisheries and Environment (DFFE), is tirelessly advocating for a just transition as per the United Nations Framework Convention on Climate Change. Mantashe’s deputy, Tseliso Maqubela, during a recent mining conference said; “The attack on coal is premature. Investors who wish to continue investing in coal mining must proceed.” 

This is at odds with the unfolding economic reality as new coal mines and projects are finding it increasingly difficult to find financing as banks and investors do not wish to be associated with fossil fuels. The SA government is sending a mixed signal across the world.

How sustainable development bonds can address climate change

Thirteen years ago, the World Bank (WB) Treasury pioneered green bonds to support financing of projects addressing climate change. According to Heike Reichelt, head of investor relations and sustainable finance for the WB Treasury of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA),

These bonds raise funds from investors to support the financing of projects in developing countries. The International Bank for Reconstruction and Development, referred to as “World Bank” in the capital markets, started issuing green bonds almost 15 years ago.

Reicheld said the WB responded to the market’s growing interest in climate change risk by already providing the first green bond in 2008, which became the standard for a market focused on increasing transparency and investing for purpose. The WB equals the amount investors allocate to a project, the most important criteria being how many tons of carbon the projects are expected to reduce and/or how many trees would be planted as part of such a project. Funds raised support green and socio-economic goals in line with the Sustainable Development Goals (SDG’s).

All projects for climate change which are financially supported, focus equally on mitigation and climate change adaptation to build resilience in people and communities. About 95% of all WB projects received climate financing during the Bank’s 2021 fiscal year. Building resilience means improving people’s lives – better and more consistent access to education, health, jobs, water, sanitation, food, energy and other targets of the SDGs, while restoring or protecting the natural environment.

The WB Treasury works with banks and investors to raise about US$50-$60 billion per year through issuing of bonds. These bonds have the highest triple A rating, providing investors safety and a financial return while their investments support development in emerging countries. Most bonds are issued in the wholesale markets and buyers are big institutional investors such as central banks, pension funds, asset managers and bank treasuries from developed countries. 

Climate-Explainer-Series-banner(1)
Climate Explainer Series

Bond Guidelines and Green Bond Principles are published by the International Capital Market Association. Certain bonds address specific SDG’s such as gender equality as COVID-19 had disproportionately affected women. “Green bonds helped set the blueprint for the market; sustainable development bonds are bringing that level of impact reporting and transparency to all projects,” financial expert, Reichel said. (https://www.worldbank.org/en/about/people/h/heike-reichelt   According to her, addressing climate challenges at scale will require going beyond thinking only about “green” projects to greening entire economies.