The Government of Namibia has expressed its commitment to ensuring the effective implementation and achievement of the regional and international climate change agreements to which it is a party. Chief among them, is Namibia's Development Plans, Agenda 2030 with its 17 Sustainable Development Goals ("SDG's"), and the UN Paris Agreement (in which governments all over the world have agreed to tackle climate change by reducing greenhouse gas emissions to net zero by 2050).

In order to achieve its ambitious goals, significant investment is required to reduce reliance on fossil fuels and facilitate this transition towards cleaner sources of energy by tapping into Namibia's world-class renewable energy resources. To initiate a positive transformation and tackle the environmental challenges in Namibia, this investment requires a blend of financial and non-financial resources from various sources. There is also a need for the integration of public, private, domestic, and international funds. Sustainable finance emerges as a crucial illustration of the investment approach needed to drive meaningful change and address the pressing environmental concerns that Namibia is presently confronted with.

In this article, we consider the growing trends in sustainable finance in Namibia, the role of the Namibian Stock Exchange (the "NSX") in the fight against climate change and the need to establish a Namibian green finance taxonomy.

Sustainable Finance: What is it and why is it important?

Sustainable finance has become a hot topic in Namibia in recent years. It is a broad term including various financial instruments such as green bonds and loans and other sustainability-linked financial instruments that incorporate non-financial factors, such as ESG considerations, into the instrument's terms and conditions for:

  • identifying material risks and growth opportunities which are becoming increasingly relevant for the financial sector; and
  • making business decisions and formulating investment strategies.

While there are several financial products and financial instruments being developed to scale the flow of sustainable finance, the most main stream of these in Namibia are arguably sustainability-linked loans, sustainability-linked bonds, green loans and green bonds. Sustainability-linked loans are made available to borrowers for general corporate purposes but which provide an economic benefit to the borrower for achieving negotiated sustainability performance targets. Green loans, in contrast, are advanced for a specified green purpose and the proceeds of the loan must be used for clearly identified sustainable objectives or projects which are beneficial to the environment.

Green bonds have emerged as an important instrument in the Namibian sustainable finance market in recent years and occupy a larger market share compared to sustainability-linked bonds which are not as common in Namibia. Green bonds are bond issuances in which the proceeds must be exclusively applied to finance or refinance, in part or in full, new or existing eligible projects that promote progress on environmentally sustainable activities while sustainability-linked bonds are designed to provide capital at a lower cost to issuers in exchange for meeting one or more sustainability performance targets.

The Role of stock exchanges in driving sustainable finance

Stock exchanges are integral in the fight against climate change. At their heart, they bring together companies who issue securities, whether equities, bonds or other instruments, and investors who want to invest and trade in those investments and so can assist to facilitate the flow of funds into sustainable investments.

In March 2021, FSD Africa (a non-profit specialist development incorporated in Kenya) signed a cooperation agreement with the Committee of SADC Stock Exchanges ("CoSSE") to support the development of a green bond market in the SADC region. The cooperation agreement established the FSD Africa-CoSSE partnership programme. This programme is aimed at supporting SADC's 16 members (including the NSX) to leverage domestic and international capital markets for investment in green projects. The programme aims to support its members, and both private and public sectors, to issue green bonds, thus creating a favourable ecosystem and improving knowledge and capacity for sustainable investments. The programme also aims to assist SADC countries to develop listing guidelines and regulations for green bonds, build a pipeline of potential green bonds issuers, tap the countries' institutional investment community for investment into green bonds, train stakeholders on climate finance and support the adoption of climate-related financial reporting and disclosure.

Positive steps by the NSX

In recent years, the NSX has made great strides in the sustainable finance market. It has also become a signatory of the Marrakesh Pledge, which represents a continental coalition dedicated to fostering green finance in Africa and enabling an effective shift towards a low-carbon economy. Namibia's first green bond was successfully issued by Bank Windhoek Limited in December 2018 and listed on the NSX. Since then, two of Namibia's majors banks have issued green bonds, namely First National Bank Namibia Limited and Standard Bank Namibia Limited and the Development Bank of Namibia plans to issue its much anticipated green bond in July 2023.

Despite the strides made by the NSX, Namibia currently does not have a green finance taxonomy. A taxonomy is a classification system which can be used to determine eligibility for sustainable finance and if developed by a country or region sets out objective criteria to be used in determining whether instruments can be considered "sustainable" or "green" in that country or region. The provision of such guidance in Namibia would assist Namibian investors, issuers and other financial sector participants in facilitating sustainable investments. A taxonomy would also assist borrowers to proactively approach lenders with projects which fall within the criteria for green or social projects and this would assist lenders in deploying sustainable finance.

The NSX currently requires listed companies wishing to list debt instruments to comply with Listing Disclosure Requirements and Rules for Bonds published by the NSX in 2004 and all Namibian companies are encouraged to comply with the NamCode. On 14 January 2022, the NSX published the NamCode's Directive on Social, Ethics and Sustainability Committee which requires institutions subscribing to the NamCode to appoint a social, ethics and sustainability committee (the SES committee) as an annual standing committee. The responsibilities of the SES Committee include, inter alia, overseeing and reporting on organizational ethics, driving sustainable development, integrating ESG factors into its business strategy and overseeing and managing ESG-related risks and opportunities.

Finally, the NSX requires companies that intend to list green bonds to have an ESG framework that complies with established international standards and practices in place. One such organisation that has established international standards and practices which the NSX relies on is the International Capital Markets Association ("ICMA") which has published a list of green and social bond principles as well as sustainable bond guidelines. Although the principles and guidelines prepared by ICMA do not contain provisions that prescribe in detail the terms of, for example, green bonds, it does include general guidelines relating to the origination of bonds, to ensure that bonds that are not labelled as green, social or sustainability linked without proper reason or justification (so-called greenwashing).

The way forward

The absence of a green finance taxonomy that is specific to the Namibian landscape is still an issue that must be addressed. We recommend that Namibia establishes a taxonomy working group for the purposes of developing such a regulatory framework that would correspond with Namibia's sustainability objectives under Namibia's Development Plans, the SDG's and the UN Paris Agreement and can be used by investors, issuers, and other financial sector participants to track, monitor, and demonstrate the credentials of their green activities in a more confident and efficient manner.

In the meantime, investors, issuers, other financial sector participants and the NSX should assess whether the continuous adoption of standards developed in and for other countries, particularly developed countries, is appropriate and applicable to Namibian companies and projects. Rather, such standards may require localisation to address the specific needs and practical realities which are faced by investors, issuers and other financial sector participants in Namibia.

Reviewed by Jessica Blumenthal, an Executive in the ENSafrica Banking and Finance department.

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