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Lagos, Nigeria, Capital Markets in Africa: Sean Kidney, CEO of the Climate Bonds Initiative talks to Capital Markets in Africa about the role of Climate Bonds in financing Infrastructure and how Governments can support their Issuance. The Climate Bonds Initiative is an investor focused NGO working to mobilize debt capital markets for green investments. It works towards providing an ongoing platform for close interaction between governments, green infrastructure developers, development banks and the world’s largest investors.
For Sean Kidney, Climate Bonds are vital to emerging markets growth and that for Africa “Green Bond markets actually start with Sovereigns providing liquidity and pricing. This is a Demonstration Issuance, for example the Indian Minister of Energy has asked 8 State Energy Enterprises to issue Green Bonds. This attracts investors but, this also demonstrates liquidity. Next you need to look at your regulatory framework, the Capital Markets framework is always important for Bond Issuance, for example Kenya which has a very good Capital Markets Authority, has already done this”.
Are there positives with using Green Bonds in Financing? Sean believes that Green Bonds are the future and Governments have a major role to play. “Governments need to start looking at things such as tax incentives. It is important that deal flow comes together; and then ensures that the deals get done. The Issuance of a Green Bond by a Government or by a Government associated entity like a Water Utility or a Transport Authority encourages investors. Once it’s been done once or twice, every one follows.” Sean is convinced that “once it gets going it can start getting to the detail which will show how it works, and then of course education will play a key role too.”
Sean believes the outlook for the Green Bond-financed market is optimistic. “Based on our current work programmes we can see the market develop to $300bn USD in new Issuances in 2018 so a big part of our work now is working with Governments on deal flow design, for example how do we design Metro systems in Nairobi so that they can be more financially viable than the current model which is to Issue a Government Bond and just build the Metro! That is not very financially viable because the capital cost is so high. We need different models such as profit development over the Stations which, if you kept to the value of the property, you pay for your subway. That is where our work is taking us now.”
At a recent Summit Institutional investors with $43 Trillion USD of assets were ready to invest. Governments have been called on to take action and Sean says “The Climate Bonds Initiative supports governments in figuring out how to make decisions which can get private capital to become involved too. In a way you’ve got to differentiate between the various types of PPP’s.” Private sector involvement could also play a pivotal role by encouraging the public sector to deliver more effective environmental agreements.
Contributor Profile: Sean leads the Climate Bonds Initiative whose aim is to increase the flow of capital to green infrastructure around the world. He is a regular public speaker on the subject and recently hosted the Green Infrastructure Forum Coalition, India Forum at the London Stock Exchange in June 2016.
This interview features in the INTO AFRICA August 2016 edition which focuses on Infrastructure Finance in Africa.