Interesting development over Summer was from South African’s Nedbank, which announced it was going to raise R4bn ($490m) from a green savings bond programme, the proceeds of which will be used to finance renewable energy projects in South Africa. This will be a great test of demand.
We spend a lot of time on mobilizing institutional investors at the Climate Bonds Initiative, but enthusiastic retail investors may prove to be the drivers of change - and they are also members of pension funds, so could be important in pushing institutional investors to better address the huge risks involved in climate change.
We spoke with Nedbank in Jo’burg this week. Before we spoke to them, we were a little worried – news reports looked good, but a conversation with a junior Nedbank staffer suggested the bond may in fact one of those where you can allocate a portion of interest to an environmental charity. That’s not really our definition of a green or climate bond, however happy the environmental charity may be.
But rest easy - Nedbank staff who were closer to the issuance explained that the offering is designed more like a project bond, where funds are earmarked for renewable energy development finance.
Nedbank is providing funding to a good whack of the solar and wind plants being developed under South Africa’s ambitious clean energy plans; proceeds from the bonds will go to those projects.
The big difference here, of course, is that the bank is guaranteeing the return. So from a bond buyer’s perspective the bond is exactly the same as a normal Nedbank savings bond, except that proceeds are earmarked for clean energy projects. In Climate Bonds parlance we’re calling this an “asset-linked” bond. The investor is assured that funds are going to a climate change solution, while the return is guaranteed by the bank – basically the same as the World Bank Green Bond.
One difference is that Nedbank don’t have third party verification of the asset-linking; but that may yet change.
The bonds are targeted at retail clients from both the low and high end of the market by allowing investments from as little as R1000 ($122). Investors can choose to invest for terms between 18 months and five years, with the 60 month rate earning 6.85%. As well as being a way of raising money to fund renewable energy investment, the bank also sees the bond as supporting of the green image it's cultivating.
Bank spokesperson Anton de Wet said says the bank is confident it will raise the R4bn target, and sees this as just an initial tranche. Thus far, the bank has been heartened by demand which is roughly in line with previous retail bond issuances.
South Africa’s Business Day commented that the bond “is attractive when compared to the Treasury's RSA Retail Savings Bond.”
He said that one of the bank’s motivations for issuing the bond was to diversity funding in line with Basel 3, so that it is not reliant on wholesale funding.
Nedbank has already supported a number of renewable energy initiatives and recently became involved in the Department of Energy’s Renewable Energy Independent Power Producers (REIPP) programme. REIPP has been designed to build South Africa’s renewable energy sector and introduce independent power providers as a supplement to traditional forms of energy supply.
We think this is pretty cool. With IDC’s recent green bond, South Africa is in danger of becoming a hotbed of climate bond activity. So when will we see an offering from Standard Bank?
> Read more, or, if you're very keen, watch Mike Peo, Nedbank Head of Infrastructure, launch the bond. But you’re right, launching a bond does not exactly make riveting video.
