Biodiversity finance steps into Zambia's capital market development plan

By Bruno N Mweemba, BIOFIN Zambia Team Leader

Zambia, through the Ministry of Finance, recently finalized the country’s Capital Markets Development Master Plan (CMDMP) in which green finance instruments related to biodiversity conservation and climate change were successfully mainstreamed. 

The core objective of the CMDMP is to lay a framework for Zambia’s capital market development which will support economic development for over a period of 10 years. This will also help the country achieve its development agenda as outlined in the country’s 7th National Development Plan (7NDP) and the Vision 2030 which envision an environmentally and socially sustainable development trajectory that minimizes “environmental risks, such as shortage of water, air pollution and other effects.”

Green bonds 

BIOFIN Zambia through its partnership with the Securities and Exchange Commission (SEC) participated in the development of the CMDMP by providing technical input into the capital markets master plan consensus building workshops. SEC is one of the key stakeholders of BIOFIN Zambia which has been instrumental in pushing the green finance agenda in the country, particularly following the signing of a certificate of collaboration with UNDP/BIOFIN Zambia in 2019.

The collaboration with the SEC, which is the regulator of the capital markets in Zambia, was also made in view of sustainability of the biodiversity mainstreaming agenda beyond the BIOFIN Project tenure in the country. 

One of the core green finance instruments that is outlined in the CMDMP is the green bonds which is one of the leading finance solutions that is being pioneered by BIOFIN Zambia together with its key stakeholders.

The Green Bond Guidelines lay a foundation for the development of the green bond market in Zambia and attract investments in projects that will help protect and even restore biodiversity.  

The CMDMP acknowledges that "the development of securities to finance green bonds is an essential step in building a broader suite of financial products, particularly as these products have the potential to drive infrastructure development as well as counteracting climate change impacts, which is one of Zambia’s overarching goals."

Mainstreaming of biodiversity and climate finance in the country’s CMDMP entails a very well sounding stance the country has taken to stay abreast with emerging disruptions and trends across the global capital markets. The launch of green bonds signifies the development of long-term debt instruments that will enable the country raise additional funds for its developmental goals and green growth agenda with targets pointing to initiatives that have co-benefits between biodiversity conservation and climate change. 

In Zambia’s CMDMP, green bonds are also viewed as a positive signal to international investors especially at a time when the world is grappling with the challenges of COVID-19, biodiversity loss and climate change. The Master Plan is anchored on five key development areas or building blocks, one of which includes the development of new and innovative products/markets such as green bonds.

Mainstreaming biodiversity

BIOFIN Zambia's work to mainstream biodiversity into Zambia’s financial sector has created a number of other finance solutions besides green bonds which are already being planned for implementation beginning in 2021 through to 2025. These include the development of a green finance policy and tagging/reporting systems for the financial sector.

The CMDP envisages that Zambia will raise about $400 million in green bond issuances by 2030. The CMDMP further emphasizes the critical role that the Ministry of Finance has in the development of the green bond market by developing conditions and incentives. 

Moving forward, BIOFIN Zambia has set its focus on issuing the country’s first maiden green bond. The process of identifying potential issuers of green bonds and incentives to both investors and issuers has commenced and a pipeline of green bond projects has been established following the green bonds project review workshop that was held in the first quarter of 2021 and a further engagement with the Industrial Development Corporation to vet the projects that were presented during the workshop.

BIOFIN Zambia also intends to advocate for the introduction of customized incentives for green bonds by engaging the Ministry of Finance. Thus far, two incentives related to zero rating of withholding tax on interest for green bonds and making green bonds insurance costs tax deductible have since been conceptualized but are yet to be approved by the Ministry of Finance.