FMDQ, DMC stakeholders launch project to deepen debt capital market

As part of its commitment to the transformation of the Nigerian debt capital market (DCM) into a world class, properly functioning and globally competitive, FMDQ OTC Securities Exchange, in collaboration with DCM stakeholders on Friday last week launched a Sustainable Finance Sub-Committee in its Debt Capital Market Development Project.
According to a press statement by FMDQ OTC Securities Exchange, the Sub-Committee which is the fifth lever of the overall DCM Transformation Structure will focus on entrenching sustainable finance principles and concepts into the Nigerian Capital Market.
To achieve this, the Sub-Committee will examine key issues which have been globally recognised as critical elements of Sustainable Finance such as impact investing, green bonds, microfinance, credits for sustainable projects, active ownership, and financial inclusion, among others.
This initiative stems from the growing global recognition of the role sustainability plays in strengthening financial stability and supporting economic growth. Membership of this Sub-Committee includes local and international stakeholders drawn from relevant government agencies/ministries, regulators, development finance institutions, and the financial market.
The Sustainable Finance Initiative is a market driven initiative spearheaded by FMDQ’s DCMD Project. The initiative involves key market stakeholders across the financial market and received the support and blessing of the Securities and Exchange Commission (SEC), Federal Ministry of Finance, Central Bank of Nigeria (CBN) and the Debt Management Office (DMO).
The Honorable Minister of Finance, Mrs. Kemi Adeosun, acknowledged the efforts of FMDQ and the financial market on the development of the Sustainable Finance Strategy for Nigeria, in furtherance of the goal of delivering our economy of the future, and nominated the Director-General of the Debt Management Office (DMO), Ms. Pat Oniha as the representative of the Ministry of Finance, to the Sustainable Finance Sub-Committee.
Ms. Pat Oniha was represented at the Sustainable Finance Committee Launch & Investors/Issuers Roundtable by the Director of Portfolio Management, DMO, Mr. Oladele Afolabi.
Consequently, an Investors/Issuers Roundtable Session organised in collaboration with the Climate Bonds Initiative (CBI) held immediately following the official launch of the Sub-Committee.
The Session focused on contemporary issues affecting the successful development of sustainable finance related bonds, such as green bonds principles, standards and benchmarks for the issuance of green finance notes, amongst others.
Attendance of the Session included key representatives and strategic subject matter experts from various institutions, including, the United Nations Environment Programme (UNEP) Inquiry, CBI, International Finance Corporation (IFC), the SEC, DMO, National Pension Commission (PenCom), Sub-national governments representative (Kaduna State), other regulatory and government agencies, as well as various market stakeholders; with presentations by Mr. Jingdong Hua, Vice President and Treasurer, IFC; Mr. Iain Henderson, Head, International Cooperation, UNEP Inquiry and Ms. Justine Leigh-Bell, Director, Business Development, CBI.
Mr. Bolaji Balogun, Group CEO of Chapelhill Denham Group, in his introductory address noted that the capital market has an integral role to play in the area of bridging infrastructure deficit, housing, education and power, with sustainable finance having a significant portion in the agenda to deliver on these objectives.
He stated that at the very minimum, Nigeria should be aiming to build over about 20,000MW of power, which requires huge financing commitment adding that over the next decade, Nigeria will need to invest over $200 billion in power alone, which therefore creates a significant opportunity for renewables.
He pointed that there is the general recognition that the base load power will not be renewables, however renewables can potentially grow up to 35 per cent of Nigeria’s need in areas of hydro, solar, wind, waste to power, all of which creates a phenomenal opportunity for sustainable finance.
He reiterated that everywhere across Nigeria’s National Infrastructure Masterplan is an opportunity to use Sustainable Finance, and significant amongst these is the social infrastructure, with one of the projects being developed by the Presidency- “the energising education project”- a central project that Nigeria’s green bond will be used to finance, which seeks to provide solar power to universities across Nigeria.
He concluded by saying “to consolidate all these efforts, we need to get the debut sovereign green bonds concluded very quickly, get a sub-national to debut corporate green issuances and subsequently a number of repeat issuances in the market”, a process which requires three (3) key elements- engagement with key regulators, buy-side education, engagement with potential sub-nationals and corporate issuers to encourage frequent issues.
Mr. Jingdong Hua in his keynote address, stated inter alia: “as more and more of our society become aware of the importance of financial and green sustainability, green bonds will achieve better pricing than regular bonds.”
He stated further that within the World Bank Group, there was an estimated $20 billion of fixed income products related to green bonds. Furthermore, Mr. Hua indicated that the IFC have started exploring how to incorporate Environmental, Social and Governance (ESG) factors when they invest in bonds issued by companies.
He iterated the fact that as more investors become conscious or selective of where they want to put their monies to work, the whole society will move towards supporting green financing. He stated emphatically that globally, the green bond market which started less than five years ago was crowding in investors who have never invested in green finance and provoking other investors to invest in issuers who they have never invested in previously.
In his concluding remarks, Hua assured participants that the IFC is looking forward to becoming the first international ‘AAA’ rated financial institution to issue the first ever “Naija Green Bond.”
The Director for Business Development, Climate Bonds Initiative, Ms. Justine Leigh-Bell in her presentation titled “Green Bonds- an opportunity for Nigeria” pointed out that with green bonds, 100% of the proceeds are used to finance eligible projects and assets with environmental, social and governance benefits.
She stated further that the global green bonds market is a global market that is growing exponentially with global issuance in green bond market (currently standing at over $72billion year to date, with potential issuance up to $130billion) on target to significantly exceed the previous record of $81billion for the whole of 2016.
She pointed out that the diversity of issuers is expanding rapidly globally and across issuer types, encompassing financial institutions, supranational and corporate issuers, as well as recent landmark inaugural sovereign issues from France and Poland; and Nigeria soon to join the league.
The geographic spread of issuers has also increased in both developed and emerging markets, in all continents. The common thread remains the reliance on the Green Bonds Principle. In her conclusion, she stated that global investors are looking for high quality grade products and green bonds are falling into that category.
The event secured the commitment of the buy-side to invest in green bonds with the proviso that issuances must be sizeable to encourage tradability.
Mr. Iain Henderson, Head of International Cooperation in his presentation titled “Global Trends in Sustainable Finance” pointed out that UNEP Inquiry is working on aligning the financial system with sustainability outcomes across developing, emerging and developed countries.
He pointed out further that UNEP Inquiry and the World Bank are collaborating on a ‘roadmap for sustainable finance’, to be released later in 2017, for advancing a transformational agenda internationally.
He stated that there are several metrics for describing sustainable finance progress in the market indicating its growing momentum, some of these include- increase in globally sustainably managed assets by 25 per cent from 2014 – 2016; 100 per cent growth in green bond issuance from 2015 – 2016; increase in issuer and investor types, types of bonds, tenor, issue size, tighter pricing; increased liquidity which allows for products such as new indices and Exchange Traded Funds, as well as new debt products linked to sustainability.
He also added inclusion of new risk management tools along the investment chain (e.g. asset owners, data providers, investment banks), toolkits, listing requirements, etc.; emergence of new funds such as increase in green bond funds, emergence of Green Private Equity Funds; and more active engagement from asset owners with over 100 firms, including asset owners and managers, providing statements of support for the Taskforce on Climate-related Financial Disclosures’ recommendations.
Henderson concluded by saying that green and sustainable finance represents a strategic opportunity for the world’s 100+ financial centres, and that the time has come for financial centres to develop a comprehensive approach and cooperate internationally.
Mr. Bola Onadele.Koko, MD/CEO of FMDQ, in his closing remarks acknowledged the support of various stakeholders, as well as the Management and Board of FMDQ in promoting initiatives that will facilitate future growth and sustainable development of the Nigerian economy and highlighted the fact that FMDQ’s Board has encouraged the OTC Exchange to be a member of the Sustainable Stock Exchanges.