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Nigeria plans to raise a total of N300 billion ($186 million) through green bonds in two separate offerings before the year ends, as part of its efforts to fund climate related projects and drive sustainable development.

Balarabe Lawal, Environment of Minister announced last Wednesday, that a 50 billion-naira ($31 million) green bond will be sold in two weeks, followed by a larger 250 billion-naira bond offering in October.

Lawal emphasized that key stakeholders, including the European Union, World Bank, Ministry of Finance, and the Debt Management Office, are involved in the initiative. He expressed confidence that both bond issuances will be oversubscribed.

The green bonds will finance sustainable projects, including those focused on water security, green mass transportation, and clean energy, contributing to the nation’s broader environmental and economic goals.

What are green bonds?

Green bonds are financial instruments designed to promote sustainability and fund projects focused on environmental and climate-related initiatives. These bonds support efforts in areas such as energy efficiency, pollution control, sustainable agriculture, fisheries, and forestry, as well as the preservation of both aquatic and terrestrial ecosystems. They also finance clean transportation, clean water projects, and sustainable water management. Additionally, green bonds are used to support the development of eco-friendly technologies and the mitigation of climate change.

The Purpose of Green Bonds

Green bonds play a vital role in tackling environmental issues and advancing sustainability worldwide. These specialized financial tools are created to fund projects that deliver clear environmental benefits, offering investors a direct means to support eco-friendly initiatives.

Nigeria’s N25.69 billion first and second green bonds

In December 2017 and June 2019, Nigeria issued green bonds valued at N10.69 billion and N15 billion, respectively, marking a significant milestone in the continent’s green finance efforts. These issuances – oversubscribed- were the most ambitious at the time and positioned Nigeria as a leader in sustainable finance within Africa.

Notably, yields on Nigeria’s N15 billion green bond, maturing in 2026, have reportedly decreased by more than 200 basis points, dropping from a high of 21.87% in February to 19.72%.

The seven-year bonds, initially issued with a coupon rate of 14.5%, were designed to fund critical projects such as solar power plants, wind farms, irrigation systems, and afforestation initiatives.

These projects are integral to the country’s transition to a low-carbon economy, aligned with Nigeria’s Nationally Determined Contributions (NDCs) under the United Nations Framework Convention on Climate Change (UNFCCC).

The green bond program is not only pivotal for accelerating Nigeria’s sustainable development but also serves as a vehicle for generating significant employment opportunities.

By focusing on renewable energy, climate resilience, and conservation, the initiative supports Nigeria’s efforts to meet its climate targets while fostering job creation in green sectors.

Furthermore, Nigeria’s green bond issuances have attracted international investor interest, showcasing the country’s leadership in sustainable finance and reinforcing its commitment to the global climate agenda, particularly the Paris Agreement of 2015.

According to the Department of Climate Change (DCC) at the Federal Ministry of Environment, N1.99 billion from the 2017 green bond and N1.22 billion from the 2019 issuance have been directed towards afforestation programs, underscoring the bonds’ contribution to combating deforestation and enhancing carbon sequestration efforts.

Expert weighs in, warns against ‘misallocation’

While the bond promises to finance projects that support the country’s climate goals, concerns over its effective implementation and potential mismanagement have been raised.

Greg Odogwu, an environmental expert and CEO of Jupiter Earth Green Limited, highlighted the significant potential of the green bond, emphasizing that N300 billion could have a far-reaching impact.

“This amount can go a long way in reviving Nigeria’s forests, supporting climate-friendly entrepreneurship, and funding energy efficiency projects,” he said.

“However, we must first assess how the previous green bond floated from 2017 to 2019 was managed and its environmental impact.”

Odogwu, however, pointed out that the earlier green bond, which focused on afforestation projects in Cross River State, was largely unsuccessful.

Investigations into the projects revealed that many failed to deliver lasting environmental benefits. “If we do not address the issues of sustainability and accountability, the N300 billion could end up being misallocated, much like the previous green bond,” he warned.

While the green bond is part of Nigeria’s efforts to meet its climate targets, including its commitment to net-zero emissions by 2060, Odogwu stressed the need for a more robust approach to ensure the funds are used properly.

“It’s not just about the money,” he explained. “We have ecological funds in Nigeria, but they haven’t achieved their intended purpose. We need to ensure that this green bond is allocated to projects that can truly make a difference.”

Odogwu’s concerns are rooted in the lack of capacity within the public sector to handle such funds. He believes that previous failures stemmed from a lack of understanding of the green bond’s importance.

“Projects were treated like any other contracts, with no focus on sustainability,” he noted. “Without the right capacity and knowledge, these funds won’t achieve their intended purpose.”

He also emphasized the importance of a multi-sectoral approach to ensure transparency and accountability.

“There needs to be an intergovernmental management body overseeing the distribution and utilization of the funds,” he said.

“The monitoring and evaluation (M&E) processes must involve multiple sectors such as agriculture, infrastructure, and transportation to ensure that funds are being used effectively.”

Looking ahead, Odogwu believes that the private sector has a crucial role to play in complementing the government’s efforts.

“The private sector must come on board, not just as investors, but as active participants in building capacity and promoting carbon literacy,” he said. “

With the right knowledge and transparency, the private sector can help Nigeria leverage international climate funds and meet its climate goals.”

Despite the challenges, Odogwu remains cautiously optimistic that Nigeria’s N300 billion green bond could help the country move toward its net-zero target. “If allocated correctly, with a focus on eco-projects in sectors like transportation, agriculture, and waste management, we can significantly reduce our carbon footprint,” he concluded.

“It’s a practical step toward achieving our climate goals, but the success of the bond depends on how well we manage the funds and ensure their effective use.”