2 February 2023

A Case For An Increase In The Issuance Of Green Bonds In Emerging And Developing Economies

Lexworth Legal Partners


Lexworth is a a full-service commercial law firm in Nigeria, offering a full complement of legal services to local and international clients. Its primary focus is Business Law, and practice areas include Corporate and Commercial transactions, Finance, Capital Markets, Tech law, Intellectual Property, Legal and Regulatory Compliance, Data Privacy, Real Estate, and Commercial Disputes.
For several years, there has been increased global awareness of the negative effects of human activity and development on the earth's climate.
Nigeria Environment
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For several years, there has been increased global awareness of the negative effects of human activity and development on the earth's climate. Industrialisation and its accompanying emissions have contributed its fair share to environmental degradation and the world is gradually moving towards the full-scale adoption of sustainable development practices.

The effects of climate change have become glaring and as such, many concerned nations have deemed it pertinent to take action to achieve the United Nations' Sustainable Development Goals. The Paris Agreement on Climate Change was to this end adopted by a group of countries in December 2015.

The primary objective of the Paris Agreement is to keep a global temperature rise this century well below 2 degrees Celsius and to drive efforts to limit the temperature increase even further to 1.5 degrees Celsius above pre-industrial levels. The Agreement also aims to strengthen the ability to deal with the impact of climate change and as such, requires each Party (signatory) to prepare, communicate and maintain successive Nationally Determined Contributions (NDCs) that it intends to achieve. Parties are expected to pursue domestic mitigation measures, with the aim of achieving the objectives of such contributions.

Battling climate change takes a tremendous amount of financial resources and nations have had to come up with innovative financial solutions to achieve development in a manner that still protects the environment. The issuance of Green Bonds, also referred to as climates bonds has developed in response to this need.

The Emergence of Green Bonds

A Green Bond is simply a bond which proceeds are used to fund environmentally sustainable projects. These projects include but are not limited to green building projects, public transport infrastructure, renewable energy, solid waste management, sustainable agriculture, etc.

The market for Green Bonds began in 2007 when the European Investment Bank issued a climate awareness bond. This was further expanded by the World Bank in 2008 which issued a Green Bond and created the blueprint for today's green bond market.

Issuance of Green Bonds by the World Bank defined the criteria for projects eligible for green bond support and added impact reporting as an integral part of the process. It also piloted a new model of collaboration among investors, banks, development agencies and scientists.1

The World Bank Green Bonds raised awareness for the challenges of climate change and demonstrated the potential for investors to support climate solutions through safe investments without giving up financial returns. It formed the basis for the Green Bond Principles (GBP) coordinated by the International Capital Markets Association (ICMA) and highlighted the social value that bonds could create and the need for a sharper focus on transparency.

Because of the standard financial features and the dedication to climate change, Green Bonds are of interest to a broad range of investors – from retail and high-net-worth, to institutional investors with large allocations, to fixed income investors.

The most positive feature of green bonds is that 'stakeholders' – the issuer, the investor and the environment benefit from the investment.

Green bonds are of significant importance to both investors and policy makers. On one hand, governments need access to affordable and reliable financial resources in order to fulfil their commitment under the Paris Agreement while on the other hand, investors are increasingly encouraged to adapt their business models to create not only financial values but also social and environmental values.2 They in turn help bond issuers communicate their sustainability strategies, create internal synergies between financial and sustainability departments, and expand and improve relationships of borrowers with debt providers. They also support the implementation of national climate policies – through improved awareness and more efficient capital allocation, especially in the perspective of redirecting capital towards low-carbon and climate resilient projects.3

Green bonds provide all the benefits that regular bonds provide such as low risk, fixed regular income, tradability, tax savings and capital appreciation.

The GBPs promote integrity in the green bond market through guidelines that recommend transparency, disclosure and reporting. Green Bonds therefore encourage enhanced transparency of information which allows investors to monitor the use of proceeds in green projects which may reduce the risks associated with investments.

Additional advantages of Green Bonds include:

  • providing more investment opportunities for investors who are committed to making socially responsible investments. It assists investors who are signatories to the Principles for Responsible Investment or members of the Institutional Investors Group of Climate Change (IIGCC) to identify target projects which would assist in fulfilling their commitments.
  • helping investors implement their long-term climate strategies and enable responsible investors to have alternatives to broaden their portfolios.
  • having the potential to attract new investments at cheaper costs, on account of the huge demand for bankable green projects over their supply.
  • helping to enhance the reputation of institutions that offer green bonds and also promote interests in investments that deliver sustainable development.
  • facilitating the establishment of public private partnerships that might accelerate the pace of green investments and lead to the adoption of new technologies.

The Green Bonds market rapidly became global, dynamic and well-known, because of the number of financial players involved.

The first U.S issuer of green bonds was the Commonwealth of Massachusetts, which in June 2013 raised $100 million of 20-year notes it referred to as "green bonds." The Commonwealth disclosed what projects had been funded with the bonds, providing socially conscious investors with the means to track how the money was being put to work. In April 2017, the Commonwealth of Massachusetts again raised over $1 billion in a mix of green bonds, using the proceeds to fund developments in water infrastructure through the state.4

Poland and France hit the market with the first sovereign green bonds, principally for the financing of renewable energy and sustainable infrastructure projects. In the US, municipal green bonds were issued to help cities and local communities with the aim of reinforcing the fight against climate change and promoting a transition to renewable energy in line with international practices and standards.5

Green Bonds in Emerging and Developing Economies

Initially, the majority of green bonds were issued by developed nations. Statistics however now show that Green Bonds issuance in emerging markets has taken over with a total of $140 billion issued cumulatively between 2012-20186

In May 2017, Brazilian development bank BNDES raised $1 billion in one of the largest green-bond offerings from Latin America. Proceeds are being used to finance a wide range of wind and solar projects in Brazil.7

Fiji working in conjunction with World Bank and the IFC became the first government of a developing country to issue their own sovereign green bonds. With the aim of raising 100 million Fijian dollars (US$50 million). The first two tranches drew unprecedented demand from investors and were heavily oversubscribed. Through the bond, Fiji has created a new way to mobilise finance for development and a market for private capital seeking climate-smart investment opportunities.8

Sub Saharan Africa is not left out of the Green Bonds adoption as nations in this region are now looking at harnessing the advantages of sustainable finance through the issuance of Green Bonds.

The Nigerian Government for instance has taken major steps in combatting climate change and seeking sustainable development by signing the Paris Agreement in September 2016 and joining other nations to commit to reversing the negative effects of climate change.

Nigeria's Nationally Determined Contribution under the Paris Agreement is to reduce carbon emissions by 20% unconditionally and 45% with international support by 2030 through energy, transport and agriculture projects that would reduce carbon emissions and mitigate the effects of climate change in the country; such effects including desertification, flooding, erosion, erratic rainfall, flooding etc.

In an effort to achieve its NDCs, Nigeria in December 2017, became the first African nation to issue a sovereign green bond. Nigeria issued a ?10.69 billion green bond with a five-year tenor to fund projects to develop renewable energy. This bond also happens to be the first Climate Bonds Initiative certified sovereign bond. In June 2019, Nigeria issued another green bond worth N15 billion.

Green bonds have therefore proved to be of great help in providing governments with a means to securing large amounts of capital to support environmental investments that they may not have had access to otherwise.

All the projects financed by Green Bonds have positive, climate friendly spill-overs, mitigating the downside risks of traditional fixed income instruments. As green bonds have a high degree of transparency, investors can also quantify the benefits of investing in them using accessible metrics such as reduced CO2, or gigawatt hours (GWh) of clean energy produced.9

Research has shown that apart from sovereign green bonds, Green bonds offered by corporates are also associated with a 2.4% increase in long-term value, measured by the ratio of the firm's market value to the book value of its assets. (All results are averages across all green bond issues.) Moreover, issuers of green bonds, compared to a control group of companies that issue bonds but not green bonds, saw an improvement in operating performance as measured by the return on assets (ROA). In the long run (two years after the green bond issue), ROA increases by 0.6 percentage points. Because investments in green projects take time to pay off, higher operating profits only appear after two years, while no effect is found in the short run.10

Corporate green bonds have therefore proven effective as they not only yield improvements in companies' environmental footprint, but also contribute to financial performance. Moreover, they help attract an investor base that values the long run and the natural environment.

It has been suggested by many experts that financial institutions will play a key role in making the future issuance of Green Bonds possible. A perfect example of this can be seen in Nigeria's tier 1 bank- Access Bank PLC's recent issuance of a 5-year fixed rate unsecured Green Bond of up to ?15 billion. This is notably the first corporate Green Bond to be issued in Africa.


Green bonds have successfully garnered a positive response across emerging and developing markets and its introduction into Nigeria provides an opportunity for the nation to develop solutions to the environmental challenges being faced by the country. It is a low-risk investment which provides a means for the country to finance projects to tackle pollution, deforestation, climate change, desertification etc.

The Covid-19 pandemic from 2020, led to an economic crisis which reduced the channeling of scare resources to green projects. Green investments, being quite capital intensive, therefore suffered a significant decline during that period. The advantages of such investments must however not be forgotten.

It is hoped that more African nations, corporates and financial intuitions will key into this effective capital market instrument that will not only attract excellent financing opportunities but will in addition ensure the attainment of sustainable development.



2. Banga, Josué. (2018). The green bond market: a potential source of climate finance for developing countries. Journal of Sustainable Finance & Investment. 9. 10.1080/20430795.2018.1498617.

3. Beyond transparency: unlocking the full potential of green bonds - June 2016 – I4CE

4. Thomas Kenny, How Green Bonds are a Cornerstone of Responsible Investing available at

5. Enrico Lo Giudice, The Green Bonds Market Explained (25 July 2017) available at

6. IFC Emerging Markets Green Bonds Report 2018 available at

7. IFC perspectives – Capital Markets, Climate finance available at

8. IFC perspectives – Capital Markets, Climate finance available at

9. Enrico Lo Giudice, The Green Bonds Market Explained (25 July 2017) available at

10. Flammer, Caroline, Corporate Green Bonds (July 5, 2018). Available at SSRN:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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