Footprints of the Biodiversity Finance Initiative (BIOFIN) in Zambia’s Maiden Green Bond Issuance: A Win for Greening Zambia’s Financial Sector

In a historic move that was made public today at COP28 in Dubai, the Copperbelt Energy Corporation Plc (CEC) has announced the registration of Zambia's inaugural green bond issuance. This ground-breaking US$200 million bond programme has already obtained express approval from the Securities and Exchange Commission of Zambia. The bond is structured as a programme, whose proceeds will accelerate the actualisation of CEC’s ambitions to generate at least 200MW of renewable energy and specifically solar energy. The US$200 million bond programme has its first tranche of US$54 million closing by the end of the year 2023. The lead arrangers of the Green Bond are Cygnum Capital, with Emerging Africa Investment Fund as cornerstone investors in partnership with Absa Group. This marks a significant stride in the country's commitment to sustainable finance and environmental stewardship.

Whilst this bond may be construed to be purely contributing towards climate change mitigation, it has all the hallmarks of biodiversity conservation from the following perspective. Zambia’s rate of deforestation is currently estimated between 250,000 - 300,000 ha/yr. Among the key drivers of deforestation and forest degradation in Zambia include unsustainable agricultural practices as well as the heavy reliance on wood fuel (including charcoal use) as main source of energy. In the quest to reduce the direct pressures on biodiversity and promote sustainable use, Zambia’s National Biodiversity Strategy and Action Plan (NBSAP) has a target to reduce deforestation rate in Zambia by at least 25% partly through the promotion of alternative renewable energy technologies. The green bond's proceeds, channelling a substantial 200MW of renewable energy into Zambia's grid once completed, will represent a critical milestone towards reducing the direct pressures on biodiversity and promote sustainable use.

This momentous occasion can be traced back to the pivotal role played by BIOFIN Zambia arising from Zambia’s Biodiversity Finance Plan (BFP). Collaborating with the Securities and Exchange Commission (SEC) and other stakeholders, BIOFIN Zambia spearheaded the formulation of green bond guidelines officially gazetted in December 2019 complimented by the development of green bond listing rules in collaboration with the Lusaka Securities Exchange (LuSE). This was necessitated through a certificate of collaboration that was signed between UNDP Zambia and the SEC on the 18^th of September 2019. This laid the foundation for future green bond issuances as well as other financial sector reforms which have continued to be a core mandate of BIOFIN in Zambia.

In the quest for goal congruence among various players in the green finance space, BIOFIN Zambia championed the establishment of the Green Finance Mainstreaming Working Group (GFMWG), a collaborative effort involving the country’s three financial sector regulators, key government ministries, and other critical stakeholder institutions. With support from BIOFIN, this working group aggressively advocated for fiscal incentives for green bonds. The fruits of this effort materialized in September 2022 when the Minister of Finance and National Planning announced a 15 percent withholding tax waiver (see section 226g of the budget speech on page 51) for investors in green bond transactions listed on a local exchange with a tenure longer than 3 years. As part of their commitment to market development, the Securities and Exchange Commission and the Lusaka Securities Exchange augmented the gesture from Ministry of Finance and National Planning by offering further incentives to issuers of green bond through a 50% discount on green bond registration and listing fees for both entities respectively. These incentives have been very catalytic towards this maiden green bond registration as echoed by CEC during the announcement at the COP28 today.

This green bond issuance not only serves as a testament to Zambia's commitment towards sustainability but also contributes to the mobilization of financial resources to support the implementation of the NBSAP-2 as outlined in target 18. BIOFIN Zambia envisions this as a catalyst for future green bonds whose proceeds can be channelled more significantly towards supporting biodiversity initiatives. Plans are already underway for BIOFIN to support at least five (5) entities in 2024 and beyond towards issuing green bonds whose use of proceeds is expected to have a significant inclination towards biodiversity conservation. Target 19 of the Kunming-Montreal Global Biodiversity Framework calls for the mobilisation of at least $200 billion per year by 2030, partly through stimulating innovative schemes such as payment for ecosystem services, green bonds, biodiversity offsets and credits, and benefit-sharing mechanisms, with environmental and social safeguard. This green bond registration in Zambia is a great milestone by Zambia towards fulfilling the aspirations of Target 19 of the GBF.

As the green finance landscape evolves, BIOFIN Zambia is poised to further bolster the development of the green bond market in Zambia. Through a Green Bond Market Development Project currently underway, plans are already in place to create a green bond taxonomy in 2024 and extend technical support to other potential issuers. This technical support includes reviewing project portfolios, crafting green bond frameworks, developing reporting templates, and offering capacity-building initiatives. In 2024, BIOFIN will further support the development of Zambia’s green bond Investment portal which will provide a pipeline of bankable projects that could be next in line for green bond issuances.

The unveiling of plans for Zambia's inaugural green bond issuance at COP28 not only validates BIOFIN Zambia’s ongoing endeavours to promote sustainability in the country's financial sector but also stands as a beacon for the broader financial landscape. This announcement signals a pivotal moment, underscoring that sustainability and profitability can harmoniously coexist. The decision to also form the green finance mainstreaming working which has continued to be a great milestone that acts as a clearing house for all green finance mainstreaming work all in the quest to create an enabling environment for green investments in Zambia.

With BIOFIN Zambia leading the way, the journey towards a greener and more resilient financial landscape in Zambia is just beginning.