‘They are a valuable tool to mobilise private capital towards sustainable development,’ says Loshni Naidoo, Chief Sustainability Officer at the JSE, on the subject of green bonds. ‘While still smaller than global markets and some emerging markets, South Africa’s green bond market remains positive in 2025. However, challenges remain, such as data gaps, verification costs, and limited investor awareness.’

A green bond is defined as a fixed-income debt instrument that is specifically issued to finance projects with ‘green’ benefits, such as renewable energy, sustainable infrastructure or climate adaptation efforts. While its structure is similar to a conventional bond, the difference lies in how the proceeds are used.

Globally, the green bond market exceeded $500 billion in annual issuance in 2023, according to the Climate Bond Initiative, with SA contributing less than $0.2 billion. ‘For the remainder of the year, we are on track to meet 2024 listings,’ said Naidoo in June. ‘Interest rate cuts by the SA Reserve Bank (relative to the start of the year) will impact new activity in the broader debt market.’

There is still significant room for growth of SA’s green bond market, granted the entire African continent accounts for less than 1% of global issuances, says Chris Ahlfeldt, founder and strategic adviser at Blue Horizon, a Cape Town-based firm for energy consulting services. ‘Green bonds have become a gateway for international capital, as global asset managers associate green bonds with lower risk since proceeds are ring-fenced and externally reviewed,’ he says. ‘The South African Green Finance Taxonomy and JSE listing rules have also added considerable credibility to this asset class and help to avoid greenwashing.’

So, how relevant are green bonds in driving sustainable finance in SA? First and foremost, they are providing low-cost and longer-term capital for climate mitigation and adaptation infrastructure projects, say the experts. As their potential extends across sectors and themes, from clean energy, water and waste management to biodiversity conservation, they are versatile instruments for sustainable development

Most of the green bond funding in SA has gone to renewable energy, water resilience infrastructure, green buildings and clean transport (electric buses, for instance), says Ahlfeldt. ‘Municipalities such as the City of Johannesburg and Cape Town were the first to introduce the bonds and show that a significant supply of low-cost capital is available for green bonds as both were oversubscribed by potential investors,’ he says.

The private sector has directed a significant portion of green bonds towards solar and wind projects. To date, Africa’s largest green bond ($200 million or R3.57 billion at the current exchange rate) was issued by Standard Bank for the International Finance Corporation back in 2020. The proceeds are going into climate-smart projects that include renewable energy, energy efficiency, water efficiency and green buildings.

Essentially, green bonds contribute to the financing of SA’s Just Energy Transition by funding large-scale renewable energy projects and supporting companies’ transition plans, says Naidoo. As an added benefit, she mentions they can assist in job creation, for example when investments in renewable energy projects lead to employment opportunities or local community inclusion.

When, for example, Investec issued its first green bond in 2022, it was backed by several wind and solar projects, which were already generating returns and ‘in many cases had concurrent programmes helping create jobs and uplifting communities’. In a media release, Investec singled out the 100 MW Kathu Solar Park in the Northern Cape, saying it had created 500 jobs during the construction phase and its operations team consisted of ‘86 individuals, mostly black, sourced from local communities and then trained in concentrating solar power technology’. At the time, the bank called green bonds ‘the most well-developed of the sustainable finance markets’, and as such well-aligned with the group’s aspiration to fund a clean and energy-efficient world.

Green bonds can create value for a number of stakeholders. Johan Malan, principal of sustainable finance solutions at Nedbank CIB, gives the example of sustainable housing, where green bonds deliver value to investors through returns and measurable impact, to developers through access to capital, and to communities through improved access to electricity, water and energy-efficient homes. ‘After six years of local issuances, a strong example of this is green bonds funding green buildings,’ he says. ‘Green buildings result in reduced operational costs through energy and water efficiencies and can potentially attract higher demand from tenants and buyers; when paired with incentive programmes that subsidise greening costs, the business case becomes even more compelling.’

Recognising these benefits, Redefine Properties has made it its mission this decade ‘to deliver the smartest and most sustainable spaces’, using green bonds as a way of raising capital from like-minded investors. Although the real estate investment trust considers the green bond market in the property sector and in SA in general to still be in its infancy, it had 11 listed green bonds in issue at the beginning of 2025 – with the first expiring in September 2025. ‘The bonds’ proceeds are used to refinance eligible, green-rated property assets and to finance new qualifying green projects,’ says Lesley Baerveldt, Redefine’s head of corporate finance and investor relations. Operationally, green bonds enable the group to diversify its funding base on a cost-competitive basis. ‘As of 28 February 2025, we had raised R15.6 billion in green funding, comprising R1.7 billion in green loans, R8.5 billion in unlisted green bonds and R5.4 billion in listed green bonds,’ she says. ‘This green funding accounted for 37% of the group’s total debt, reflecting our ongoing commitment to embedding sustainability into our capital structure.’

Since its inaugural green bond issuance in 2022, Redefine’s listed green bonds have been well supported by investors, says Baerveldt. ‘For example, our most recent green bond auction in 2023 received R1.9 billion in bids, of which R1 billion was allocated, which underscores the level of demand and support we receive in the market.’ The money raised supports the long-term decarbonisation of Redefine’s portfolio, which includes highly rated green buildings that incorporate a variety of initiatives aimed at improving their energy and water efficiency.

Nedbank’s Malan sums up why green bonds are so attractive for issuers. ‘They present an opportunity to link the organisation’s debt fundraising efforts with its sustainability objectives in a tangible way. It can often attract additional liquidity through capital sources that were previously untapped and, in some cases, result in lower cost of financing or a “greenium”,’ he says. ‘By aligning economic activities to green taxonomy criteria such as the SA Green Finance taxonomy or EU taxonomy, there could be opportunities to attract additional investors, strengthening the liquidity and financing benefits outlined above.’

For investors, on the other hand, green bonds promise financial benefits through the coupons on the bond, says Malan, ‘while also resulting in positive environmental impacts – which often supports investors in achieving their organisation’s own impact mandates or sustainability targets’.

However, he points out that the pricing advantage or ‘greenium’ from green domestic bond issuances was more pronounced a few years ago (between 2019 and 2022). ‘It’s no longer a certainty that a green or sustainable issuance will attract better pricing,’ he says. ‘But when targeted with the crowding in of investors based on aligned objectives (such as impact measures) there can still be a pricing advantage, as some investors are willing to pay a bit more for an investment that helps them achieve their non-financial impact metrics whilst still earning a commercial return which meets their objectives.’

In November 2024, Nedbank issued an innovative R2 billion sustainability bond that combines ‘green’ with ‘social’ impact. The bond addresses multiple crucial local issues in a single issuance and was awarded the ESG Bond Deal of the Year by Global Banking Markets. ‘By combining three important yet different categories (water infrastructure, climate-smart agriculture and affordable housing) with clear impacts, this structure is innovative and speaks to addressing real needs,’ says Malan.

In the green category, the bond proceeds will go towards expanding the supply of safe drinking water and improved sanitation through sustainable water management projects. In addition, it will also be used for sustainable agricultural practices, including water conservation, improvements to soil health, advanced irrigation techniques and shade-netting to protect crops during adverse weather events. In the social category, it will make housing more affordable by targeting mortgages for low-income female borrowers, in an effort to increase female home ownership and housing accessibility. ‘The impact of the bond will be measured and reported on, with this reporting detailing the capacity of water supplied or saved annually, the water-saving and/or productivity gains achieved by climate-smart agriculture projects and the number of mortgages issued to women,’ says Malan.

While green bonds were the first bonds issued in the global sustainable finance markets (in 2007), issuers and investors can now also choose from social bonds, sustainability bonds and sustainability-linked bonds, and even sub-themes such as gender bonds or blue bonds.

To increase acceptance and attract the large scale of investment required to meet climate goals, Ahlfeldt suggests looking not only at green bonds, but at those funding vehicles ‘that simultaneously address environmental and social challenges’, as he says these will become even more important for SA’s future.

By Silke Colquhoun
Image: Gallo/Getty Images