Support to the Development Bank of Southern Africa (DBSA)’s inaugural green bond

The challenge of climate change in Africa requires a significant amount of investment, one that public funds and bank loans alone cannot raise. As such, bond markets have a key role to play in mobilizing the necessary financial resources held by public and private institutional investors. The fast-growing green bond market (nearly US$248 billion of green bonds issued in 2019 compared to US$40 billion in 2015) is facilitating the flow of funds from capital markets to green investments. However, Africa is underrepresented in this trend: the volume of green bonds issued by African issuers was less than $0.5 billion in 2019. Governments and development banks are positioned to play a pioneering role in strengthening the presence of African issuers in the green bond market, to further encourage the development of climate finance on the continent. 

It is in this context that DBSA, the second largest African development finance institution in terms of loans volume (second to the African Development Bank), and historical partner of AFD since 1994, undertook to issue its first green bond.

The purpose of the green bond was to support investment in climate change mitigation and adaptation projects in Africa. More specifically, it will support DBSA in:

• The diversification of its refinancing tools; enabling it to carry out its first green bond issue and to become one of the pioneers in this market in Sub-Saharan Africa. 
• Enhancing the climate strategy of DBSA through the adoption of a certified green bond framework in line with market standards (Green Bond Principles - GBP) allowing DBSA access to the green bond market. 
• Advancing its efforts to finance climate friendly investments in Africa by opening up a new investor base in support of its growing portfolio of climate change mitigation and adaptation projects. 
• The strengthening of short-term liquidity in this period of uncertainty, where the continuation of DBSA's activity is essential to support the economy.

The project focused on:

• AFD’s subscription to the EUR 200 million green bond, issued by DBSA, to finance climate change mitigation and adaptation projects 
• Technical assistance of up to EUR 150,000 financed by grant (FAPS) to support the institution in procuring the requisite third party certifications in adherence to the Green Bond Principles.in:
• Preparing its certification of compliance with good practices for green bond issuance as set out in the Green Bond Principles
• Identifying and analyzing climate change adaptation projects.

As the first DBSA green bond issue, the project helps to further structure the climate and climate finance strategy within DBSA. The implementation of a certified framework in line with the Green Bond Principles requires an institutional effort, with the participation of DBSA in its entirety, in order to ensure:

1. Traceability and transparency of the use of the funds raised 
2. Quality of the procedures for identifying, appraising, monitoring and evaluating projects and impact
3. Regular audited annual reporting, which will also be published. The project will lay the foundations for a new green investment financing tool for DBSA. This allows DBSA to to access the green bond market according to its needs and, at the same time, strengthen its practices, particularly in terms of analyzing projects with adaptation co-benefit projects. 

In addition, the program will be backed by projects aimed at reducing greenhouse gas emissions (particularly in the renewable energy sector) and improving adaptation and resilience to climate change. 

Lastly, we envisage the DBSA leveraging its Green Bond Framework for further green bond issuances in support of its climate finance strategy. In addition, this project sought to increase the presence of African issuers on green bond markets with an expected knock-on effect for other issuers, particularly development banks in the Southern African region.