Going green: How a Landmark Bond is Supporting Climate-Friendly Projects in Egypt

Ask the CEO and Managing Director of Egypt's Commercial International Bank (CIB) if big banks have a role to play in combating climate change, and the answer is a resounding "yes".

"It's something we feel is very important," said Hussein Abaza. "Financial institutions have a responsibility to help combat this looming planetary threat. (Global warming) is not a joke."

CIB, Egypt’s biggest private lender, recently backed up those words by issuing the country’s first ever private sector green bond. An emerging type of fixed-income security, green bonds generate capital for development projects with environmental benefits. CIB has raised $100 million through the bond, money that will be lent to Egyptian businesses seeking to build energy-efficient buildings or improve their energy and waste management.

The bond comes amid a push by the Egyptian government to marshal private sector financing in the battle against climate change. In September 2020, Egypt issued a sovereign green bond worth $750 million, the first such bond in the Middle East and North Africa, which was five times oversubscribed. Rania A. Al-Mashat, Egypt’s Minister of International Cooperation, said the bond was an important step towards encouraging purpose-driven investments that support socio-economic improvements.

“The pandemic has pushed us all to be more innovative and resilient,” she said. “The Government of Egypt is eager to build back better for a greener and a more sustainable future, utilizing both the public and private sectors to fulfil Egypt’s Vision 2030.”

Industry players are hopeful the sovereign offering and CIB’s new bond will help jump-start the green financing industry, which is in its infancy.

“The green bond market has the potential to channel huge amounts of capital into climate-friendly projects,” said Walid Labadi, IFC country manager for Egypt, Libya, and Yemen. “That's crucial because the specter of climate change is now looming over Egypt and the world."

Greenhouse Gas Emissions

The last decade was the warmest on record globally, according to Nasa, and the United Nations says that without a concerted effort to lower greenhouse gas emissions, the Earth faces a future of droughts,  rising seas, and increasingly severe storms. Egypt is particularly vulnerable to global warming.

Once a niche market, demand for green bonds has risen dramatically as investors and policymakers pursue projects that limit or reduce emissions. Issuances reached a record high of $269 billion globally in 2020—and could top $400 billion this year, according to estimates. There are strict rules around what projects green bonds can finance; investments must not harm the environment and should lower greenhouse gas emissions.

International Standards

In Egypt, the Financial Regulatory Authority (FRA) unveiled guidelines for green bonds in 2018, following advisory support from IFC. 

“Without this regulation, we could not issue green bonds, so we looked to other countries’ experience and to international standards,” said Mohamed Omran, Chairman of the FRA. He added that CIB’s landmark issuance “will put Egypt on the map in the green economy and attract more domestic and foreign investors for the green economy.”

CIB’s Abaza said businesses have been eager to tap into financing that stems from the bank’s new green bond. He notes that a growing number of CIB clients are realizing that investments in areas like certified green buildings and energy efficiency can pay big financial dividends.

"It's all very good to talk about the good of the planet," says Abaza, “but at the end of the day, having an economic benefit will make (green bonds) much more relevant.”

Along with subscribing to the bond, IFC will also provide advisory support to CIB, helping it develop a pipeline of industrial energy efficiency and green building transactions. IFC will also help developers adopt low-cost and eco-friendly building solutions, and participate in IFC’s EDGE certification program for green buildings.

The green building project will leverage funding from the UK-IFC Market Accelerator for Green Construction with a funding contribution from the United Kingdom’s Department for Business, Energy, and Industrial Strategy, which provides incentives to developers who construct certified green buildings. This project is also supported by the Green Bond Technical Assistance Program with a funding contribution from the Swedish International Development Cooperation Agency.

IFC’s involvement is part of a wider effort to counter climate change and support the development of the green bond market. Since 2005, IFC has provided more than $28 billion in long-term financing for climate-smart projects and issued more than $10 billion in green bonds.

The Paris Climate Agreement, an international accord which aims to limit global warming, has opened up a $23 trillion market for climate-friendly investments in developing countries. According to IFC's Labadi, it’s a number that augurs well for the future of green bonds: "I think this new issuance is just the tip of the iceberg,” he said. “Based on what we’ve seen in other countries, there is so much room for growth when it comes to green bonds."

Published August 2021