Nedbank issues green bond backed by IFC to fund green residential developments in South Africa

SOUTH AFRICA – To help improve access to certified green homes in South Africa, International Finance Corporation (IFC) and Nedbank have announced the issuance of a green residential development bond under Nedbank’s domestic medium-term note program, with IFC as the anchor investor.

This is the first green bond by a commercial bank in Africa focused on green residential housing developments.

The green bond will contribute to South Africa’s reduced emissions targets and enable Nedbank to expand its portfolio of green buildings certified under IFC’s Excellence in Design for Greater Efficiencies (EDGE) program, which makes it easy to design and certify resource-efficient and zero-carbon buildings.

The bond, which raised a total of US$68.1 million, aligns with the International Capital Market Association Green Bond Principles and is listed on the Johannesburg Stock Exchange (JSE) in the Sustainability Segment, a platform for companies to raise debt for green, social, and sustainable initiatives.

Green buildings help address climate change and resource scarcity in South Africa and support the country’s economic recovery from COVID-19.

Although the number of green buildings in South Africa is growing, the market is still nascent and the IFC study estimates that the green building investment needs in South Africa, in both the commercial and residential segments, amount to US$7 billion between 2016 to 2030.

This latest green bond issued by Nedbank will increase the availability of financing to boost South Africa’s green building market and scaling up green building financing, particularly in the residential sector, is critical to supporting the decarbonization of South Africa’s energy sector while contributing to economic recovery and addressing the large housing deficit in the country.

“This deal represents a ground-breaking issuance that aligns with the objectives of Sustainable Development Goal 9: Industry innovation and infrastructure. It forms part of Nedbank’s overall sustainability strategy and sets a prime example of how the capital markets in South Africa can be used as a vehicle to unlock blended finance and move green development forward,” said Arvana Singh, Head: Sustainable Finance Solutions at Nedbank CIB.

“The collaboration between IFC and Nedbank on this green bond is a win-win that helps address both climate change and housing demand while contributing to South Africa’s economic recovery plan. Leveraging the capital markets is a central pillar of IFC’s strategy to scale up private sector capital to address the climate and housing finance gaps,” said Adamou Labara, IFC’s Country Manager for South Africa.

Performance-based incentives

As part of the partnership with Nedbank, IFC will also provide performance-based incentives to developers financed by the bond to partly offset greening and EDGE certification costs. The incentives are designed to benefit the bank’s end-borrowers, with payment contingent on their ability to meet specific green building eligibility criteria and completion of the EDGE building certification process.

Nedbank will also benefit from IFC’s advisory services, which include EDGE tool training and certification support for the bank and prospective developers to be financed with the bond proceeds.

Both the performance-based incentives and the advisory services will be funded by the IFC-UK Market Accelerator for Green Construction (MAGC) program, which is sponsored by the United Kingdom, acting through the Department for Business, Energy, and Industrial Strategy.

MAGC helps scale green construction across emerging markets by incentivizing financial intermediaries to develop and introduce new green building finance products.

By improving energy efficiency through green-certified homes, this transaction will also contribute to South Africa’s ambitious nationally determined contribution under the Paris Agreement to reduce greenhouse gas emissions by 42 percent by 2025 and to decarbonize the electricity sector by 2050.

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