Project financing appears to be taking an environmentally-friendly route, with green bonds gaining popularity. In 2017, green bond issuance touched a record US$155.5bn and is expected to touch US$1 trillion by 2020. Former UN climate chief Christiana Figueres says, “When green investments move from business plans into budgets and balance sheets a wealth of opportunity will be unlocked across the value chain.”
Last year, China emerged ahead of the list of top ten nations issuing national green bonds, trailed by France, USA, Germany, Netherlands, Sweden, Mexico, Spain, India and Canada. Until now, Poland, France and Fiji have who issued sovereign green bonds, and Nigeria is the latest to be part of this list. In December 2017, the Nigerian government provided a five-year green bond worth US$29mn to financially support regional solar and forestry projects. Investors will receive a 13.48% yearly coupon. Given the solid market uptake, green security development is becoming a priority in Africa. Nigeria’s green bond was the first of four sovereign green bonds granted the CBI’s best practice refinement, loaning certainty to banks, institutional and retail financial specialists who took up the bond.
Now, governments in Morocco, Sweden and Belgium are showing interest in green bonds. Since the principal wave of green bonds issued by the European Investment Bank and World Bank in 2007, companies like Apple, Toyota and the New York’s Metropolitan Transport Authority have raised more than US$80bn for green bonds. As Nigeria’s government guarantees pending tranches of issuance to help meet the global $1tn target, state governments and private parties are now hoping to come onboard.
Lebanon’s Fransabank took a keen interest in green bonds a few years back and issued its first green bond in April, incidentally becoming the first in Lebanon. Fransabank general manager M Nadim Kassar talks to International Finance exclusively on the bank becoming the first in Lebanon to enter the green bond market
In the Lebanese green bond market, Fransabank has the first-movers advantage. What was the reason behind this?
Fransabank has been working since 2013 to include Sustainable Energy Finance in its core business and have built capacity to become the pioneer in this field. Supported by IFC teams, Fransabank has financed more than 175 projects for a total worth of US$110mn. It was only logical to go a step further by issuing the green bonds. The programme is for US$150mn. The first tranche for US$60mn was issued last April with IFC as anchor investor with US$45mn share and EBRD as the second investor for US$15mn. This investment from prime International Financial Institutions represents a vote of confidence for Lebanon and Fransabank in particular. It sends a strong signal with regards the development of the green market in Lebanon and Fransabank’s role in this field.
With an initial investment of US$60mn in April 2018, the aim was to support the green projects in Lebanon. We are ready to promote and boost this field as developing Climate Finance is part of Fransabank’s Strategy.
What kinds of green projects has Fransabank strategised to invest in and why?
We would like to finance all projects that reduce greenhouse gas emissions, save energy or water but also any environmental or climate project. This includes among others, energy efficiency projects, renewable energy (solar farms, wind farms, solar photovoltaic for businesses or individuals, biomass, hydropower if any), green buildings, waste water, water management, etc. We are also focusing on the industrial sector to assist the industrialists in reducing their energy bill.
In a press release, Fransabank mentioned that its latest green bond project will help Lebanon to handle the 28% rise (since 1994) in greenhouse gas emissions and has geared up to reduce harmful emissions by at least 6,000 tons per year by 2022. How has Fransabank planned to attain this goal? How is the plan shaping up so far?
The green projects that we financed through the last three years have allowed a decrease of 2,500 tons of CO2 emissions and saved more than 4.2 million of kilowatt hour energy/ year (kWhe/year). We did not put an objective for 2022 but it will surely support the national plan to reduce greenhouse gas emissions.
Fransabank and IFC have a long standing relation in different forms of financing. Are the two organizations considering in working together for Green Bonds?
Fransabank and IFC’s relation dates back to the 1990’s. IFC supported Fransabank in many areas through several credit lines for productive sectors of the economy and advisory services. In 2013, with the support of IFC we launched the Sustainable Energy Finance initiative and benefitted from a US$40mn credit line specific for green projects. It is then with no surprise that IFC is the anchor investor in Fransabank’s first issuance of Green Bonds for US$45mn. IFC has also pledged to support an additional green bonds issuance by Fransabank.
The European Bank for Reconstruction and Development’s (EBRD) subscription of US$15mn marks the institution’s first debt project in Lebanon and follows the US$ 50mn trade finance line signed with Fransabank on 15 March 2018 in Beirut. Explain.
As you have highlighted clearly, EBRD first debt project and first Trade Finance Commitment line was done with Fransabank. This is a result of several years of discussion that we were unable to materialize before September 2017 when Lebanon became a Country of Operations for EBRD. These investments effected by EBRD represent very important milestones supporting the Lebanese economy and highlighting Fransabank’s pioneering role in trade business and green financing.
Until now, how has the entry into the green bond market turned out?
The issuance of green bonds is a first in Lebanon but also a first in the Levant region. Therefore, in order to launch this new financial instrument, it took a lot of commitment from our management. In addition, we had to make sure all necessary bodies were involved and we held several meetings with regulators whether Central Bank or the Capital Market Authority. The issuance of green bonds took place in April 2018 and went very smoothly.
What are the biggest hiccups in the regional and global market?
The advantages of Lebanon is the presence of natural resources whether the sun, the wind, the water, the biomass, etc. This is a key element that could change the energy mix in Lebanon. The hiccups remain the regional political instability and the awareness of clients: clients tend to think more about the profits they make than the environmental aspects of their projects. Fransabank is organizing workshops and conferences in each sector to create awareness, showcase costs reductions thus convincing clients that Climate Finance make business sense.
What can be done to boost the growing green bond market?
Several actions can support this field. In the last years, we have witnessed a very attractive and competitive financing mechanism developed by the Central Bank and the Lebanese Center for Energy Conservation at the Ministry of Energy and Water. We know the proper ministries are working on regulations and support schemes, we also know that the international development banks and UN based bodies are very supportive of the green market. With the CEDRE conference and the pledges from international communities towards supporting the Lebanese infrastructure and with the finalization of the PPP law, we have entered a new era towards sustainability and climate-related projects. In order to grow the green bond market, we have to continue creating awareness, to replicate success stories in sectors and hope for a snowball effect.
How does Fransabank see the future green bond market?
We believe that it is a very serious financial instrument. We know that in order to issue green bonds, the financial institution must abide by the green bond principles. This is a very sound and important commitment from the financial institutions towards sustainability. Therefore we sincerely believe in its future and we do hope for a quick development.
What are the bank’s own green financing milestones strategised for the future?
We are continuing on the same path, with a clear strategic objective to be the pioneer and innovative green bank in Lebanon.