SA Affordable Housing May - June 2020 // ISSUE: 82 | Page 30

FINANCE MATTERS
A look at impact lending and
incentives for green funding
By Eamonn Ryan
Homeownership is key to wealth-building and upward mobility, and a
foundational part of the South African dream. Affordable housing has
grown legs across the African continent, with the subject of impact
lending and incentives for green funding resulting in a panel discussion at
the IHS Affordable Housing Conference held on 5 September last year.
EAMONN RYAN
The panel consisted of: Leonore Cairncross, Green
Building lead – Africa at the IFC; Graham Cruickshank at
the Green Building Council of South Africa (GBCSA);
Dirkje Bouma, Treasurer at Growthpoint; and Arvana Singh of
Nedbank Corporate and Investment Banking’s Debt Capital
Markets. The moderator was Myles Kritzinger, CFO of
Transcend Residential Property Fund.
Singh says that Nedbank CIB has long been involved in
issuing Green Bonds, and in April last year launched a new
model of Green Bond defined by impact metrics, to test
the market and prove the concept as it relates to market
incentives and access to capital by developers.
“Nedbank CIB issued its first Green Bond in 2013, a
process really aimed at creating a mind-set shift. Nedbank
is a constant, regular fundraiser on the Debt Capital Market
(DCM). The Green Bond market – not being a regular
commercial bond – requires a shift in transparency in
disclosure in respect of the proceeds of funding – and it
is this that the ‘impact metric’ provides. To design that,
Nedbank looked at the business case regarding ESG
(environmental, social and governance) criteria in terms of
measuring how assets can meet the global test of limiting
global warming to 2°C in line with the Paris Climate Accord.
By testing those assets as to whether they meet these
Nedbank senior economist, Nicola Weimar, speaking ahead of the
panel discussion.
criteria, funders will be able to unlock domestic as well as
international investment in local currency.
“The objective is that by adding this impact metric to bond
issuance it will benefit the supply-demand balance – albeit
the evidence is that the improvement is only slight for the
moment, in a market which has hitherto been reluctant to
take on US dollar risk. While the case for pricing and the
credit is not the primary motivator of issuance right now,
Nedbank CIB believes it is only a matter of time. The supply/
demand dynamic chasing green assets means these assets are
becoming ever more valuable in the eyes of investors of ESG
assets. It also makes it easier for issuers to raise capital, as it
really enhances ones ESG rating,” says Singh.
Nedbank embarked on a roadshow at the end of 2018, and
from this market intelligence constructed the impact criteria
instrument by referencing four renewable energy projects –
in solar and wind energy – and had bids of R4-billion for an
issuance of just R1-billion. Many fund managers have a green
mandate, so this ‘ticks the box’. Consequently, the evidence
is that for funders looking at this space, having a ‘green’
certification compliant with CBI (Climate Bonds Initiative)
assists in unlocking new pockets of liquidity.
More complex is the issue of incentives available to
developers or borrowers for energy efficient projects.
International schemes involve a reduction in interest rates,
improved gearing or better access to capital in terms of LTV
(loan-to-value). One way to encourage green funding is for
developers to be incentivised to apply for green funding.
“The EU is currently looking at the Suspendable Finance
Action Plan and taxonomy and that is going to drive central
bank decision making in terms of capital costs. It is going to
get to a point where asset allocation decisions will be based
on whether an asset is green or not, and this will eventually
affect pricing. Right now, the issuance of a Green Bond is the
same as a normal bond, as the credit risk is still the same, so
while there’s no pricing motivator it’s the supply/demand
dynamic that will affect pricing.
Over time Nedbank CIB anticipates that as this dynamic
matures there could be pricing benefits. Nedbank CIB is
relooking its models as to whether the owner of a green
28 MAY - JUNE 2020 SAAffordHousing saaffordablehousingmag SA Affordable Housing www.saaffordablehousing.co.za