Nedbank Ltd and the International Finance Corporation (IFC) have issued a green residential development bond under Nedbank’s domestic medium-term note programme with the IFC as the anchor investor.
“This is the first green bond by a commercial bank in Africa focused on green residential housing developments, and it will help improve access to certified green homes in SA,” said the companies in a media statement.
By improving energy efficiency through green certified homes, this transaction will also contribute to SA’s ambitious, nationally determined contribution under the Paris Agreement to reduce greenhouse gas emissions by 42% by 2025 and to decarbonise the electricity sector by 2050, said the companies.
Nedbank Group is one of SA’s four largest banking groups, with Nedbank Ltd as its principal banking subsidiary. The bank holds leadership positions in renewable-energy finance, corporate lending, commercial property finance, retail vehicle finance, card acquiring and asset management, as well as digital product innovation.
The IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets. In 2021, the IFC committed a record $31.5bn to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the effects of the Covid-19 pandemic.
Nedbank has been issuing green bonds since 2019, and this is the first green bond focused on climate and housing objectives. The IFC has also invested in many green bonds issued by financial institutions globally to support access to climate finance.
In SA, the IFC also invested in a $200m green bond issued by Standard Bank in March 2020, which was SA’s first offshore green bond issuance, listed on the London Stock Exchange.
The green bond will contribute to SA’s reduced emissions targets. It will also enable Nedbank to expand its portfolio of green buildings certified under the IFC’s Excellence in Design for Greater Efficiencies (Edge) programme, which makes it easy to design and certify resource-efficient and zero-carbon buildings.
Nedbank said the bond raised R1.09bn, an amount that is in alignment with the International Capital Market Association Green Bond Principles. It is also listed on the JSE in the sustainability segment, a platform for companies to raise debt for green, social and sustainable initiatives.
Arvana Singh, head of sustainable finance solutions at Nedbank Commercial Investment Banking, told Business Day that the target was to issue up to R1bn. “We ran a private book build process which was oversubscribed, therefore we issued just over a R1bn,” said Singh.
She said the bank arranges bonds, which are financial instruments that enable the raising of funding from institutional investors. The proceeds raised have a specific purpose, which in this case would be to direct the financing towards property developer clients engaging in new green residential developments.
“The bond will be exclusively for green residential developments and will be targeted at the affordable housing market (but not exclusively),” she said.
Singh said the latest green bond issued by Nedbank will increase the availability of financing to boost SA’s green building market. “Scaling up green building financing, particularly in the residential sector, is critical to supporting the decarbonisation of SA’s energy sector while contributing to economic recovery and addressing the large housing deficit in the country.
“This deal represents a groundbreaking 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 SA can be used as a vehicle to unlock blended finance and move green development forward,” said Singh.
In terms of the partnership with Nedbank, IFC will 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 the IFC’s advisory services, which include Edge 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) programme, which is sponsored by the UK, acting through the department for business, energy and industrial strategy. The MAGC helps scale green construction across emerging markets by incentivising financial intermediaries to develop and introduce new green building finance products.
The green bond will contribute to increasing the supply of green residential developments in SA, which in turn will offer more green housing options to end-consumers, said Adamou Labara, the IFC’s country manager for SA.
He said green buildings help address climate change and resource scarcity in SA and support the country’s economic recovery from Covid-19. Green buildings are designed and constructed in such a way that they are water and energy efficient, among other features.
SA has a growing number of green buildings, with green certified buildings reaching more than 600 since 2009, according to the Green Building Council SA (GBCSA) 2020 integrated annual report. In 2020 alone, 103 buildings were certified green.
The GBCSA uses market rating tools to certify buildings and precincts that have worked through the rigorous systems to be proclaimed certified green buildings.
It’s not only commercial property owners who are interested in green buildings. With many people spending more time and working from home, they are becoming aware of the increasing costs of heating and electricity bills, coupled with load-shedding. The GBCSA said during lockdown in 2020 that it saw an influx of enquiries from individual homeowners about how to green their homes.
Labara said an IFC study estimates that the green building investment needs in SA, in both the commercial and residential segments, amount to $7bn between 2016 to 2030.
“In SA, the IFC’s investments in the green building space include the green bond issued by Nedbank, R600m senior loan to Business Partners, focusing on green buildings for small- and medium-sized enterprises (2021), and a $21.25m investment in International Housing Solutions, an affordable housing fund that aims to develop SA’s first Edge-certified affordable homes (2014),” said Labara.
He added that the collaboration between the IFC and Nedbank on this green bond is a win-win that helps address both climate change and housing demand, while contributing to SA’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.”
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