Maiden sustainability bond in SA to boost green hydrogen

From the newsletter

South Africa’s first sustainability bond will support green hydrogen projects and other renewable energy initiatives in the country. Recently issued by the Industrial Development Corporation (IDC), the $112.3 million bond aims to accelerate the sector’s commercialisation, attract investment, and drive the country’s clean energy transition.

• The bond marks a significant milestone in South Africa’s low-carbon transition, directing capital into green hydrogen and renewables while supporting industrial decarbonisation and job creation.

• The strong investor demand for the bond highlights the growing appeal of Africa’s green finance market, signaling confidence in sustainable investments and the region’s energy transition.

More details

• Initially targeting $82.3 million, the bond attracted strong investor interest, resulting in an $18.9 million oversubscription. Among the investors in the 5, 7, 10 and 12-year tenured bond, the World Bank’s International Finance Corporation (IFC) served as the anchor investor, purchasing over $54.85 million worth of the bond.

• “Our anchor investment in IDC’s inaugural sustainable bond issuance will not only mobilise additional investor participation but also empower Micro, Small and Medium Enterprises in the manufacturing sector while supporting the government’s Just Energy Transition Investment Plan,” IFC regional director for Southern Africa, Cláudia Conceição, said.

• According to IDC CEO Mmakgoshi Lekhethe, the successful sale of the bond underscores the market’s confidence in the corporation’s commitment to “investing in sustainable and climate-resilient projects that seek to strengthen and industrialise South Africa.”

• This funding aligns with South Africa’s Just Energy Transition Investment Plan (JET-IP), which aims to reduce coal dependence while ensuring economic and social stability. As one of the world’s largest coal-dependent economies, the country is banking on green hydrogen to drive industrial decarbonisation and create new job opportunities in the renewable energy sector.

• The IDC’s $112.3 million sustainability bond provides crucial capital to scale up green hydrogen production, renewable energy projects, and industrial decarbonisation efforts. Its oversubscription by nearly $18.9 million underscores strong investor confidence in Africa’s ability to attract green finance.

• Unlike traditional green bonds, which focus solely on environmental projects, sustainability bonds allow for a broader scope by financing both environmental and social initiatives. This makes them particularly relevant to Africa’s Just Energy Transition, where economic and social stability are key considerations alongside decarbonisation. 

• By incorporating social impact elements such as job creation in manufacturing and SME development, the IDC’s sustainability bond expands the role of climate finance beyond emissions reductions, reinforcing a more inclusive transition.

• Africa’s journey into green finance began modestly, with Nigeria issuing the continent’s first sovereign green bond in 2017, raising $29 million. In 2021, Benin launched Africa’s first sustainability bond, securing $535 million, while Egypt followed with a $750 million green bond issuance. South Africa, which previously issued a $3 billion green bond through its national treasury, is now reinforcing its leadership in climate finance with the IDC’s latest sustainability bond.

• South Africa’s  green hydrogen sector stands to benefit from this momentum. With seven announced projects, green hydrogen is central to the country’s  decarbonisation strategy and plans to position itself as a global hydrogen supplier. The IDC bond’s proceeds will accelerate this transition, reinforcing South Africa’s ambition to lead in the emerging hydrogen economy.

• IFC’s involvement was instrumental in the bond’s success. By committing $54.85 million, the World Bank’s investment arm de-risked the issuance, attracting additional investors. This underscores strong institutional confidence in South Africa’s green economy and signals a growing appetite for sustainability bonds as a viable asset class for global investors.

Our take

• The oversubscription of IDC’s sustainability bond highlights the untapped potential of green finance in Africa. With rising investor demand, African nations can diversify funding sources beyond traditional loans and aid, accelerating climate-friendly industrialisation while strengthening financial markets.

• Institutional investors have traditionally been cautious about African debt markets, but IFC’s backing of IDC’s bond marks a shift. The growing presence of multilateral lenders in sustainability bonds could lower financing costs and improve credit perceptions, making it easier for African economies to attract large-scale private investment in green projects.

• South Africa’s green hydrogen ambitions are advancing with strong financial backing, but execution remains key. Moving projects from announcements to large-scale production will require clear policies and infrastructure investment. If successfully implemented, this momentum could position South Africa as a major global player in the green hydrogen economy.