What happened to Nigeria’s green bonds?

They were launched with plenty of fan fare. Climate activists praised it. Economists salivated at their potential returns. And government leaders lauded it as a firm step to rid Africa’s largest country off its dalliance with fossil fuels. Four years later, the praises have dried up and discontent is brewing.

The story of Nigeria’s green bonds begins on December 2015 when the country joined the global community in signing onto the Paris Agreement Pact. This was part of a larger stated goal by the federal government to curb carbon emissions by 2030.

To meet its climate goals, Abuja embarked on an array of projects ranging from afforestation to adaptation and mitigation. However, it is the launch of two green bonds worth $26 million and $36.6 million in 2017 and 2019 respectively that caught the eye.

Nigeria had effectively become the first African country, and the fourth in the world, to raise a debt instrument entirely for the purpose of financing sustainable environmental projects.

The bonds essential offered the country an opportunity to demonstrate leadership in its green financing agenda, while granting exposure to new investors helping in boosting climate resilience. Some of the several projects funded from the proceeds of the bonds was the restoration of degraded areas in about nine states and the installation of renewable energy in 37 tertiary institutions.

But like many government projects, the green projects under the historic green bonds were poorly implemented and allegations of wastage and corruption have appeared. For example, afforestation that was to be implemented in Old Oyo National Park was hardly ever carried out despite consuming $73,000.

Green-bond project in Oyo State. Courtesy

Razaq Fatai, a policy manager at One Campaign, praised the issuance of green bonds by Nigeria’s federal government “as a right step” to finance much-needed transition to a greener and sustainable economic development. But he cautioned that “Not much has been achieved with the proceeds of the bonds.”

“Since 2017, we haven’t seen a significant outcome.”

According to Fatai, most of the agro-ecology projects under the bonds are difficult to track because of unclear project descriptions. He said that evidence from field surveys indicate poor community engagement in project development and implementation, which could undermine the sustainability of the projects, especially those related to agroforestry.

Mr. Fatai was part of the team that tracked the aforementioned agroforestry restoration project in Old Oyo National Park earlier in the year, and his team concluded that the project would deliver no value for the money invested in it because it does not mirror what it was reported to be by the Government’s “restoration of degraded areas.” Also, he explained that most of the crops planted will never grow to maturity due to poor management and inadequate irrigation system, while most of the planted trees are perceived to be less beneficial to the host communities.

It is not just Nigerians that have become exasperated with the green bond projects. David Michael, Executive Director of Global Initiative for Food Security and Ecosystem Preservation (GIFSEP), said he is aware that the proceeds from the green bond issuance are project tied but he cannot single out any significant project implement so far.

“If you observe, the green bond was issued when Amina Muhammed was the Minister of Environment and as soon as she left, I don’t think there’s anybody talking about it anymore,” he said.

As economies worldwide were struck down by the COVID-19 pandemic last year, a new form of investment, fueled by climate change and social activism, gained ground.

The term impact investing has been around for a decade now, but its crescendo only arrived in 2020, according to a report released by the International Finance Corporation (IFC). The Global Impact Investing Network describes impact investments as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”

The Washington-based lender says that impact investments reached a record $2.3 trillion globally in 2020. It attributed this rise to a boost in popularity due to heightened awareness of social challenges such as unequal access to healthcare and racial and gender inequality, as well as increased attention to the effects of climate change.

Companies with solid Environmental, Social, and Governance (ESG) practices outperformed their peers last year, leading to a shift in the way institutions invest.

Green, Social, and Sustainability Bonds also grew in popularity last year. Kenya welcomed its first green bond in January 2020 after Acorn Holdings listed the bond on the Nairobi Securities Exchange.

According to the report by IFC, cumulative investments in green bonds have so far exceeded $1 trillion.

In September, Assistant Director, Securities Issuance Unit, Debt Management Office, Adamu Mohammed pointed out that investors are increasingly demanding socially responsible investment and have expressed a strong appetite for green bonds.

He noted that the subscription rates in Nigeria’s sovereign green bonds increased to 220 per cent in 2019 over the 110 per cent at the debut issuance. The value of Nigeria’s green bonds market has hit $136 million.

However, for green bonds to succeed, transparency and accountability is key.

“Government should engage communities early on in project development and implementation. Citizens should be able to follow the money, and the Government should ensure transparent selection of contractors and timely release of project funds,” Fatai added.

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