DBSA’s green bond: funding the future
The Development Bank of Southern Africa has taken another step forward in environmentally responsible financing, launching a €200m green bond
The Development Bank of Southern Africa (DBSA) has launched its first green bond. The €200m bond was issued through a private placement with French development finance institution Agence Française de Développement (AFD).
DBSA group executive for treasury and balance sheet management Ernest Dietrich responds to questions from the FM.
What is a green bond?
A green bond is a type of bond instrument exclusively applied to finance or refinance eligible green projects — essentially projects that contribute to environmental sustainability.
What is the DBSA’s definition of a green project that would be eligible for funding, and on which sectors will the bond focus?
It will be applied to projects that contribute to climate mitigation and/or adaptation; that are aligned to SA’s National Development Plan objective of an "environmentally sustainable and equitable transition to a low-carbon economy"; and that are aligned to UN sustainable development goals.
The inaugural issue is intended primarily to refinance select renewable projects under SA’s renewable energy independent power producer procurement programme. For future issuances renewable energy projects, including wind, solar, small-scale hydro and certain biomass energy projects would qualify.
Measures to facilitate the integration of renewable energy into grids and promote energy efficiency (such as green buildings and smart grids) would also be eligible. Other categories that would be supported include low-carbon public transportation, including electric rail, trams and other vehicles, and water and ecological infrastructure.
The bond will conform to the bank’s recently released green bond framework, which reiterates the DBSA’s commitment to playing a role in the just transition to a low carbon economy. It is also aligned with the International Capital Market Association’s green bond principles.
Will there be any investment restrictions or mandate exclusions for the green bond?
The proceeds of the green bond will not be used to finance any infrastructure projects that demonstrate clear and substantive environmental and social risks which cannot be mitigated. In particular, it won’t finance carbon-intensive projects, large hydropower schemes that involve significant environmental risk or require significant human resettlement, and nuclear power.
AFD is the sole investor in the DBSA’s inaugural green bond issue. How significant is the tie-up with AFD, and why choose an international development finance institution?
We chose the route of a private placement rather than a public issuance for the certainty it provided both in the final pricing and in the size of the issue, particularly in the face of the market contraction and risk aversion inflicted by the Covid-19 pandemic.
The DBSA has a long-standing, close partnership with the AFD. The green bond private placement is yet another in a long line of infrastructure financing facilities that have been concluded between the two institutions, and is a show of confidence in the DBSA and its sound governance structures.
How significant will the green bond be in terms of supporting climate-resilient and green development in SA? Do you see it as a game-changer for green financing in SA?
Depending on the extent of changing investor preference, green bonds might become the go-to instrument for financing climate mitigation or adaptation projects. Investors and lenders are increasingly shifting to impact investing, or at least becoming more demanding in terms of see-through into how investment proceeds are used. So it is becoming increasingly important to explore funding instruments and structures that provide for this.
For the DBSA, our green bond framework is just a first step towards developing further use-of-proceeds bond issuance frameworks … as we see these as a means to either attract dedicated impact investor interest or stimulate appetite on the side of the bank’s traditional investor base.
Is SA making any real headway in formulating a plan to manage a just transition away from coal, and will the green bond have any role to play in that regard?
The DBSA is in the midst of an iterative internal process aimed at crafting the bank’s just transition investment framework. Once finalised … it will define the DBSA’s intended role in supporting a just transition, both in SA and on the rest of the continent.
The bond is just one of many instruments used to finance climate mitigation and adaptation — so yes, as with all the other facilities deployed in this regard, it will contribute to financing the transition to a low carbon economy.
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