Q: Egypt broke new ground for the Middle East and North Africa (MENA) region last year when it became the first sovereign in the region to issue a green bond. How do you assess the growth potential of the green bond market in MENA, and more specifically in Egypt and North Africa?
Egypt led the way regionally in sovereign green bond issuances, listing $750mn in sovereign green bonds in September 2020 on the LSE. The issuance was well-received by the market as it was five times oversubscribed, attracting new investors and putting Egypt on the map of sustainable financing. The emblematic transaction allowed Egypt to become the first sovereign from the MENA region to issue a green bond, demonstrating its leadership in developing sustainable finance instruments in the region.
In June 2021, CIB launched the first corporate green bond in Egypt, with a total value of $100mn in cooperation with the International Finance Corporation. CIB’s green bond programme underpins national efforts to scale up the share in green projects. The growth potential of green bond markets in the MENA region is high as economic diversification and the transition to clean energy accelerates.
Investment in renewable energy projects in the region has been robust, including several large-scale solar projects and water treatment and desalination projects. The bond issuance momentum created by the Egyptian sovereign green bond and by CIB corporate green bond, both aligned with the best market practices, has created considerable interest in the region, which paves the way for other issuers in the region to follow. The green bond market in MENA surged by 38% in the first half of 2021 signalling a burgeoning appetite but still there is ample need for growth as it still constitutes a tiny fraction of the global issuance.
Q: In addition to the green bond market, what other developments in sustainable finance are developing in Egypt and the MENA region? For instance, what developments are we seeing in green and sustainable lending?
Green and sustainable finance in Egypt and the MENA region face several challenges that require collaboration across the whole ecosystem to develop the market.
With the irrefutable impacts of climate change felt across Africa and the Middle East, financing climate change adaptation is now a top priority for the region. As Egypt’s leading private sector bank and a strong advocate of climate change, CIB was the only Egyptian bank present at COP26 held in Glasgow and engaged in active discussions on the hot topic of private-public partnerships for climate finance in the region.
CIB co-organised a panel discussion with the Egyptian Ministry of Planning and Economic Development and the Ministry of Environment titled, “Public-Private Partnerships for Improved Climate Finance in Africa and the Middle East.” The panel was chaired by H.E Dr Hala El Said, the Egyptian minister of planning and economic cooperation. It discussed climate finance risks and opportunities as well as explored the tools and policies through which developing countries can access climate finance.
CIB also contributed to another panel titled, “Going Green: Developing an International Framework for Innovative Climate Financing”, headed by Dr Rania El Mashat, the Egyptian minister of international cooperation and Dr Yasmine Fouad Egypt's minister of environment. The events came as part of the bank’s continuous endeavours to adopt best practices in sustainability and support Egypt’s Sustainable Development Vision 2030 and global initiatives that accelerate the transition to a green economy.
Egypt's financial services industry is playing an essential role in driving finance and awareness to key sectors of the country's economy. With the pandemic forcing banks in the country to pay more attention to ESG issues, amid strong guidance from the Central Bank of Egypt (CBE), the sector is adopting and integrating ESG practices. The first step the country has taken is to develop a green growth strategy and sustainable development agenda. Furthermore in its efforts to focus on ESG issues, it has developed a national sustainable finance framework/strategy, issued environmental, social and governance (ESG) guidelines.
In addition to these measures, the country has conducted related awareness-raising and education programmes/initiatives. While it has also promoted the development of financial market innovations, such as green bonds and green finance and enacted regulatory reforms to support the green growth transition process.
CIB offers a range of green financing products and incentives for its corporates to increase sustainable activities, and is helping clients prepare for mandatory ESG and climate disclosure requirements due to come in next year. What’s more, the bank in August became the first in Egypt to issue a green bond. The $100m note was bought wholly by the International Finance Corporation (IFC), the World Bank’s private sector arm.
CIB also participated in several funded green financing programmes with its development partners: the European Union, the World Bank, the French Development Agency, the European Bank for Reconstruction and Development, the Japan International Cooperation Agency, the European Investment Bank, the United Nations Development Programme and KFW Development Bank. These include the Egyptian Pollution Abatement Programme (phase I, II and III), KFW Private Sector Industry Programme (PSI) and energy efficiency and agribusiness programmes.
Q: What are some of the challenges to the growth and development of green and sustainable finance in Egypt and the broader MENA region? Is there sufficient appetite among the corporate sector, and local institutional investors?
Green and sustainable finance in Egypt and the MENA region face several challenges that require collaboration across the whole ecosystem to develop the market. CIB is tackling these challenges via creating innovative out of the box solutions to turn challenges into opportunities. We are working towards data digitisation to benefit our reporting and decision support in tackling both climate finance risks and opportunities.
We are developing frameworks for green and sustainable products and instruments to serve the challenge of financing the transition to green economies. In line with our efforts in promoting financial inclusion as a vehicle for sustainable finance, we recently joined the PRB Commitment to Financial Health and Inclusion by the United Nations Environment Programme Financial Initative (UNEP FI) as a founding signatory and will be an active member in drafting its KPI’s.
Since awareness and knowledge are key in sustainable finance development, CIB is investing heavily in the training and capacity building in the field of sustainable finance of its employees, in addition to offering customised sectoral capacity building for its clients. We are leading the region in transparency and disclosures by releasing an ecological footprint report, which reports comprehensively on the carbon footprint, the water footprint and the land footprint.
Our sustainability report for 2020 includes SASB disclosures, being the first bank in Egypt and the region in this respect. CIB is also the first bank in Egypt in the process of implementing the Task Force on Climate-Related Financial Disclosures recommendations. We are optimistic that the market is evidencing movements in the right direction, with increased interest in green finance and rising investor appetite for ESG investing.
Q: CIB is in the process of issuing its own green bond. What is the importance of this transaction to the bank, and what will the proceeds of the transaction be used for?
As the leading private sector bank in Egypt and in line with its commitment to advancing sustainable finance, CIB issued Egypt’s first green bond as the latest addition to a suite of environmentally beneficial products to leverage capital market fixed income instruments and fund adaptation and mitigation measures. CIB’s green bonds’ proceeds will be used in consistence with ICMA’s Green Bond Principles and align with several UN Sustainable Development Goals (SDGs) that are relevant to CIB’s strategy, namely: SDG 6; clean water and sanitation, SDG 7; affordable and clean energy, SDG 9; industry, innovation, and infrastructure; SDG 11; sustainable cities and communities and SDG 13; climate action.
This determination comes in line with the urgent, global need to address climate change. Global warming is compelling financial institutions across the globe to seek innovative means of financing projects that can have a positive impact on the environment and thus slow down or reverse the trajectory of a rapidly warming planet.
The Paris Agreement adopted at the COP21 climate change conference in 2015 urged financial institutions to broaden their funding mechanisms to address mitigation and adaption measures for tackling climate change and encouraging both governmental and the private sector to take the lead in catalysing a global energy transition. Green bonds constitute a financial tool for countering the impact of climate change by promoting renewable energy, energy efficiency, waste management and green buildings among other environmentally friendly solutions.
Q: The process involved in bringing this green bond to market will no doubt be different – longer, perhaps more complex – to more conventional bonds. Can you provide some insight on the process i.e. what areas of the process required the most amount of time and discussions, for instance?
In order for the green bond issuance to take place, the Financial Regulatory Authority required that CIB publishes a green bond framework that sets out use of proceeds, project selection and validation, management of proceeds and reporting framework. The CIB green bond framework is aligned with the four core components of 2018 Green Bond Principles (GBP), according to verified provider of Second Party Opinions (SPO), Vigeo Eiris. The bond issuance serves as the latest addition to a suite of environmentally beneficial products to leverage capital market fixed income instruments, fund adaptation and mitigation measures.
CIB’s green bonds’ proceeds are used in consistence with the International Capital Market Association's Green Bond Principles and align with several UN SDGs that are relevant to CIB’s strategy. The projects are selected according to the following eligibility criteria: energy efficiency; reducing absolute energy consumption by 15%, renewable energy; solar, wind, geothermal, biomass, biogas, and waste-to-energy, energy efficient products; vehicles, clean transportation, appliances and lighting fixtures, green buildings; buildings that comply with green buildings standards, water efficiency; decrease in water utilisation from baseline by 15% and energy management systems; compliance with ISO 50001 or equivalent certification.