In our previous publication, we had introduced the concept of environmental, social and governance (ESG), and how organisations can leverage on this to attract ESG investments from ESG-conscious investors.

In the wake of the increased consciousness of corporate entities towards their ESG responsibilities, especially on climate change, Green Bonds have been gaining some popularity across the globe as a means of generating finance to fulfil these corporate responsibilities. States and corporate entities over the years have relied on the issuance of green bonds to obtain financing for climate and environmental projects.

In this publication, we define the concept of green bonds and how they serve as a financing tool.

  1. What are Green Bonds?

Green Bonds (also called Climate Bonds) are debt securities issued by States and organisations to finance or refinance environmental and climate-related projects ("Green Projects"). The Rules of the Securities and Exchange Commission (SEC), 2013 (as amended) (the "SEC Rules") has defined Green Bonds as "any type of debt instrument, the proceeds of which would be exclusively applied to finance or refinance in part or in full, new and/or existing projects that have positive environmental impact".

Green Bonds were first issued by the World Bank in 2008 in response to the increasing demand to finance projects which contributed positively to the environment. Since then, the global green bonds market has continued to grow. In 2017, Nigeria issued its first sovereign Green Bond, a 5-year N10.69 billion demonstration green bonds, which proceeds were used to finance renewable energy and afforestation projects.

Green Bonds are essentially the same as the conventional bonds, as they mirror the same repayment structures. The major difference between Green Bonds and the conventional lies in the purpose of the financing; while proceeds from the issuance of conventional bonds can be utilized to finance general projects and other capital requirements, the proceeds from the issuance of Green Bonds are utilized specifically to finance projects that will have a positive impact on the environment.

  1. What are the Principles Governing the Issuance of Green Bonds?

There are voluntary guidelines outlined by the International Capital Markets Association (ICMA) to foster transparency and disclosure and promote trust to enhance the development of the Green Bond market. These principles assist investors by ensuring the availability of required information for the evaluation of the impact of their Green Bond investments in the environment. They also help underwriters to determine certain disclosures that may be required by investors to facilitate transactions and move their market in this direction.

There are 4 main Green Bonds principles, and they are:

  1. Use of proceeds: this is the main and distinctive feature of Green Bonds. The use of the proceeds of the Green Bonds issued must be clearly stated and described by the issuer in the bond transaction documents. The environmental benefits of the Green Projects itemized must be clearly stated in the document. Also, where any part of the proceeds will be used to refinance a Green Project, the issuer must provide an estimate of the proportion that will be used for refinancing.
  2. Process for project evaluation: the issuer is required to adequately inform the investors of the process by which the issuer determines the projects and how they fit into the eligible Green Project categories. The issuer is also required to inform the investor of its environmental sustainability objectives.
  3. Management of proceeds: it is recommended that the net proceeds of the Green Bonds be moved to a separate account or another portfolio, and diligently tracked by the issuer. It is also recommended that while the Green Bonds subsist, the balance of the tracked net proceeds should be adjusted periodically to match allocations to eligible Green Projects made that period. The issuer is also advised to supplement its management of the proceeds using an auditor or a third party to verify the internal tracking method and allocation of funds.
  4. Reporting: issuers are required to maintain and keep readily available up-to-date information on the use of the proceeds, and this is to be reviewed annually until fully allocated.
  1. What Projects Qualify as Green Projects?

The SEC Rules provides that for a project to qualify as Green Projects, the proceeds of the Green Bonds must be invested in one or more of the following:

  1. renewable and sustainable energy
  2. clean transportation
  3. sustainable water management
  4. climate change adaptation
  5. energy efficiency
  6. sustainable waste management
  7. sustainable land use
  8. biodiversity conservation
  9. green building (commercial real estate development)
  10. any other categories as may be approved by the Commission from time to time.
  1. What are the Legal Frameworks for the Issuance of Green Bonds in Nigeria?

The main legislation governing the issuance of bonds in Nigeria is the Investments and Securities Act, 2007 (ISA) and the SEC Rules (and the relevant amendments). In 2018, the SEC Rules was amended to include rules providing specifically for issuance of Green Bonds, including its definition as provided above, list of investments that qualify as Green Projects, and conditions for the approval of Green Bonds.

The SEC Rules provide that in addition to the general registration for debt issuances applicable to states, local governments, federal governments and corporate entities, an issuer of Green Bonds will also be required to file the following:

  1. a letter from the issuer committing to invest all the proceeds of the bond in the Green Projects itemized;
  2. a feasibility study and report clearly stating the measurable benefits of the proposed Green Projects;
  3. a prospectus which shall include project categories, project selection criteria, decision making procedures, environmental benefits, use and management of the proceeds;
  4. an independent assessment or certification issued by a professional certification authority or person approved or recognised by the Commission.

It is evident that the SEC Rules shows that its provisions relating to Green Bonds align with the principles outlined by the ICMA.

In addition to the SEC Rules, it is important to note that rules of the relevant platforms where the Green Bonds will be listed will also apply to any issuance, e.g. the Listing Rules of the Nigerian Exchange Commission and FMDQ Listing Rules.

  1. What are the Opportunities in and Advantages of Green Bonds?

Some of the advantages of Green Bonds include:

  1. Availability of capital to finance projects while freeing the company's resources to be utilized for other purposes.
  2. Exposure to a new pool of investors and alternative source of funding- as more bond purchasers clamor to be recognized as ESG friendly, bond issuers are exposed to an alternative source of funding to perform their ESG agenda.
  3. Enhancement of the issuer's reputation and credibility
  4. Enables a higher level of transparency and accountability that is usually not obtainable with conventional bonds.
  5. In some jurisdictions, issuers of Green Bonds may benefit from some tax incentives such as tax exemptions and tax credits.


While the Nigeria Green Bond market is still in its nascent stages, there is evidence of its growing popularity and increased investor interest both within the nation and globally. The exponential increase of investor appetite in Green Bonds makes it viable tool for capital financing. It also provides an opportunity for the public and private sector in Nigeria to attain its climate targets following the Paris Agreement.

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.