Green bonds balance traditional investment vehicles


Compared to traditional impact investment vehicles, which tend to be private equity, green bonds offer a “good balance” to achieve the desired impact on investment, environment, social and social. governance (ESG) Consulting firm EBS Advisory CEO Jacques Brice said during the intensive Southern Africa Green Bonds webinar on September 23.

Private equity in Africa has traditionally taken the lead in pioneering infrastructure investments in markets that other investors would find too risky and is the only formal asset class that invests in the small and medium enterprise sector, a- he stressed.

However, green bonds provide an important innovation in that they allow investors to access impact strategies within a liquid asset class, but focus on the ESG performance of the issue and not necessarily on the transmitter, he said.

“This is a very important distinction – as long as the sectors and taxonomies, as well as monitoring and reporting are defined very thoroughly. “

From an issuer’s perspective, Brice said the benefits gained through access to a greater number of investors, according to the research he has seen, indicates that 98% of green bonds in 2020 have attracted new investors who had previously invested in fixed income products. of this nature.

“It also diversifies your investor base, so that it covers not only institutions, such as pension funds, but also asset managers with green mandates, as well as central banks,” he said. he noted.

By diversifying an investor base and expanding the supply of capital, investors should be able to lower their cost of capital, Brice said, adding that other factors contributing to the lower cost of capital are that Green bonds have traditionally shown a greater accounting gap during the construction process.

This can allow issuers to cut prices more effectively and make projects feasible, he added.

Regarding private issuers, Brice said these investments typically experience a spike in share prices when they venture into new territory, as the investment community “perceives the issuer to be at the top of its game. and anticipates future regulatory pressures, being a first or first -mover and signaling to the investor market that the entity that the issuer is preparing to protect income from climate change risks ”.

“.. investors are increasingly being watched to demonstrate their responses to various climate change scenarios, and issuing a green bond would be seen as a very proactive asset protection measure,” he said declared.

For the investor, green bonds tighten more effectively than their non-green counterparts in the secondary market, Brice said.

In this regard, studies over a seven- and 28-day cycle show around 40-70% price tightening in the secondary show, he said.

Green bonds also exhibit high volatility in secondary markets and are increasingly evidence of greater liquidity, he added.

There are important benefits for investors and issuers looking at green bonds, enthuses Brice.

However, overall, much of what he describes takes place largely internationally, with the scenario in Africa, and in particular South Africa, being slightly different.

According to the Climate Bond Initiative, developed markets accounted for 76% of green bond issuance in the first half of this year, just 1% more than in 2020, he said.

But the share of emerging countries increased slightly from 18% to 19%, without any new issues in Africa in the first half of this year, said Brice.

Nonetheless, he said markets see opportunities, especially in public sector financing to achieve the United Nations Sustainable Development Goals (SDGs).

“If you look at trends internationally, you see that just over 50% of global green bond issuance was from various forms of government entities, asset-backed securities, loans, municipalities. local to government backed entities, bonds and development banks, ”said Brice.

In the future, he said, this might be a logical place for Africa to start its efforts to align with the SDGs.

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