By Roger Atwood
With its boutiques, fast-food restaurants, and computer stores, the Cosmos Yopougon shopping center in Abidjan looks like plenty of other commercial hubs in a fast-developing country with a growing middle class.
But Cosmos Yopougon is different. In August 2021, its owner, Emergence Plaza, became francophone West Africa’s first company to issue a corporate “green bond,” a financial instrument with positive impacts on climate and the environment.
The pioneering bond issue, worth $18.1 million in local currency, followed another environmental first for the retail center. In 2019, it became the first commercial site in the region to win an EDGE green-building certificate from IFC), thanks to a panoply of energy-saving electrical and plumbing features.
The Emergence Plaza green bond opened a promising new phase in private-sector climate finance in the eight-nation West African Economic and Monetary Union (WAEMU). Eight-year privately placed notes with a 7.5 percent coupon rate, they were the first issued under green-bond guidelines from the West African regulatory agency known by its French acronym CREPMF.
Those guidelines were issued in 2020 with key assistance from the World Bank Group’s Joint Capital Markets Program (J-CAP.)
Sonia Iacovella, a World Bank Senior Financial Sector Specialist who led J-CAP’s team at CREPMF, said the guidelines were essential “to building transparency and improving the quality of information” so companies can sell – and investors will buy – an unfamiliar product in a part of the world with little experience in leveraging financial markets for climate goals.
“There is a big demand [for green investment], but there is also a need for a lot of capacity-building and information on what we’re talking about when we talk about ESG (environmental, social and governance) finance,” said Iacovella.
J-CAP was launched in 2018 to deliver advisory sequenced with investment in support of capital markets development in emerging markets and developing economies, with the goal of unlocking the power of local capital markets to promote resilient and sustainable growth. Bringing together experts from across the WBG, the J-CAP initiative focused originally on Bangladesh, Indonesia, Kenya, Morocco, Peru, Vietnam, and the WAEMU sub-region, which is comprised of seven francophone West African states and Portuguese-speaking Guinea-Bissau. J CAP has since expanded to include Colombia, Serbia and the Philippines. J CAP’s work is supported by the governments of Switzerland, Germany, Norway, Australia, Luxembourg, Japan, and the Netherlands.
The bond issue in Abidjan showed how private finance can be mobilized to support climate action and sustainability even in countries where there is room for further capital market growth. While local capital markets may still be relatively small – as in the WAEMU region – they can be an alternative mechanism for climate finance when banks are reluctant to lend money, or when raising finance via the local capital markets is cheaper, as was the case with Cosmos Yopougon. What’s more, local capital markets can be an alternative to cross-border funding in hard currency-denomination, which may not be optimal for private-sector borrowers.
“Commercial banks are not funding climate projects at present, so there is a lack of finance. Capital markets are a way of bridging that gap,” says Riccardo Ambrosini, IFC Climate Finance Specialist for MENA and West Africa. Green bonds fund various kinds of green-eligible projects, from biodiversity to waste-water treatment to agricultural adaptation to climate change.
“One issue that came to the fore during negotiation for the Paris Agreement was that, to keep temperatures to an acceptable level, a large level of investments would be needed. While some will be done on the sovereign side, there is a large component that is going to be funded by the private sector,” he said. Banks have untapped liquidity due to pandemic-related economic slowdown and will likely finance climate projects in the future, “but capital markets are an important player now,” he said.
Africa has been slow to join the booming green bond market but is making important strides. “This is one of the most macro-challenged regions of the world, a region with maybe five or six corporate bond issues a year,” said Mehdi Cherkaoui, an IFC Principal Investment Officer in Dakar, referring to WAEMU. “It’s going to take time” for a substantial green bond market to emerge, he said. Other kinds of thematic or ethical bonds are gaining momentum, such as those intended to raise money toward reaching United Nations Sustainable Development Goals (SDGs).
Emergence Plaza used proceeds from its oversubscribed, local-currency, green-bond sale to refinance debt accumulated to build the mall. The sale thus signaled to builders and investors in West Africa that bonds could be used not just to pay for new green projects, but to refinance existing ones.
“We didn’t do this for P.R. purposes. We believe in it,” said Cheick Sanankoua, Managing Partner of Cosmos Yopougon’s developer HC Capital Properties. As a tool for financing or refinancing construction of retail space, “we and other builders, our colleagues, have seen the potential of tapping into the market for green bonds.”
‘From the Fringes to the Forefront’
Innovative business models and dynamic capital markets can harness the power of private investment to promote climate-smart industries including renewable energy, urban transport, and green buildings in emerging economies, according to an IFC report in 2017.
Some private capital leaders are stepping up their own efforts to move the world toward carbon-neutrality. At the Glasgow climate conference in November 2021, a multinational alliance of banks, investors and insurers that collectively hold $130 trillion assets vowed to achieve carbon-neutrality across their portfolio by 2050.
IFC was one of the first organizations to issue climate bonds, launching a Green Bond Program in 2010 with the goal of mobilizing market forces in favor of renewable energy and energy efficiency. In its first decade, the program issued $10.4 billion in green bonds in 172 operations in 20 currencies globally, marking an important presence in the world’s green bond market, which has grown exponentially to hit an accumulated $1 trillion by October 2020. Annual issuances were worth nearly $300 billion that year and are expected to surpass $1 trillion per year by 2023, according to the World Economic Forum.
Less than one percent of global green-bond issues had taken place in Africa from 2007 to 2018, with South Africa, Morocco, and Nigeria accounting for more than 95 percent of the total, according to a 2021 report from the Brookings Institution. Yet interest is growing in green bonds in Africa, dampened little by the pandemic.
The success of the Emergence Plaza bond issue has opened developers’ eyes to the potential of green finance, said Conrad Sanama of Stop-Winlock’s Green Building Market Transformation Program in Abidjan. Real momentum has been unleashed. “The Emergence Plaza [bond] issue has sparked interest among developers, as bonds were not something that they necessarily believed in at the beginning,” said Sanama. “Now they can see it is possible.”
Published in February 2022