Sustainability funding has been relatively small in the African market, compared with other regions, but the continent is starting to catch the trend with green and social bonds becoming increasingly popular. Now sustainability-linked bonds and loans offer a new opportunity for African finance to access international capital with larger ticket sizes, while at the same time achieving a pricing premium and targeting the type of projects needed to develop the continent’s economy and tackle its developmental issues.
Tying financial performance to sustainability outcomes
Sustainability-linked bonds and loans allow issuers to label their tickets sustainable, but without having to mark out all projects. Instead, items such as the coupon are tied to green or social targets and the issuer benefits from a step down in the coupon rate if they achieve the targets. This enables issuers to increase the size of their tickets, while incentivising them to achieve sustainability goals, but without being limited to planning out every green or social project, and the respective cost and benefit, that the bond will fund.
One African bank that is exploring this financial product is Standard Ba...
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