Green bond snapshot
Issuer: City of Johannesburg
First green bond? Yes
Issue date: June 2014
Maturity: 10 years
Size: US$143 million
Annual coupon: 10.18 per cent (payable semi-annually)
Credit rating: A1(za)/AA-(za)
Bond type: General obligation bond
Use of proceeds: Renewables, energy efficiency, electricity grid extensions, fuel switching, low-carbon transport, waste management, and water conservation
Independent second opinion provider: None
Lead managers: Standard Bank Group and Basis Points Capital
Johannesburg was the first city in the C40 Cities Climate Leadership Group and the first city from an emerging economy to issue a green bond. The US$143 million bond was issued in June 2014 with an AA- rating. The bond was priced at 185 basis points above the R2023 government bond, was 1.5 times oversubscribed, and is a 10-year bond. Johannesburg had previously issued a total of seven general obligation bonds, and this eighth bond issuance was the first to be labelled green, as it was specifically for funding green projects. The coupon rate of 10.18 percent was 60 basis points lower than the preceding “non-green” issuance in March 2011, reducing the cost of finance for Johannesburg.
Use of proceeds
Johannesburg issued its green bond to help fund infrastructure and services to support goals set out under its Growth and Development Strategy. The Sustainable Services pillar of its strategy promotes “a resilient, liveable, sustainable urban environment that is underpinned by infrastructure supportive of a low-carbon economy.” This includes goals to reduce the city’s carbon footprint, provide equitable and affordable access to basic services, create a safe and walkable city with access to eco-friendly transport and sustainable services, maintain healthy ecosystems, and improve resiliency to successfully adapt to challenging conditions. The city’s intention is to strive towards minimal resource reliance and increased preservation of natural resources.
The bond also supports Johannesburg’s Energy and Climate Change Strategy and Action Plan, with part of the proceeds to be used for mitigation and adaptation projects.
According to the first annual investor report, over 50 projects are benefitting from the green bond proceeds. Project categories and examples of projects to be funded by the bond are set out in the table below.
Unique features and lessons learned
Adapting IFC and World Bank selection criteria
The City of Johannesburg followed the Green Bond Principles and identified projects with elements related to renewable energy, water conservation, energy efficiency, climate change; and waste and wastewater management within the water, power, transport, and waste sectors. To select eligible projects, the city defined criteria based on the IFC Performance Standards on Environmental and Social Sustainability and the World Bank criteria related to climate change mitigation and adaptation projects.
Establishing a framework for performance reporting
Environmental Resources Management (ERM) assisted the City of Johannesburg with establish-ing a green bond reporting framework to monitor and annually report performance to the investment stakeholders. The environmental indicators used for reporting are monitoring indicators based on inter-national reporting practices. Impact reporting will include details regarding the progress of projects against environmental-related metrics and, where specific indicators cannot be measured directly for certain projects, the numbers will be estimated.
When asked what advice Johannesburg would give to other cities based on their experience issuing their first green bond, the city offered the following:
- Quantify carbon emission reductions for each project upfront.
- Have a green project implementation strategy.
- Transparency and communication breeds confidence—sell the credit and talk to investors.
- The quality of leadership and management of an issuer goes a long way towards providing confidence and comfort—cities need to know their problems, have a plan to deal with them, and show some progress.
- Keep the market abreast of developments in the municipality. This could also be facilitated by a good long-term strategy and planning.
Investor base diversification: New types of investors who have not previously purchased Johannes-burg’s regular bonds invested in this green bond issuance. This includes those with environmental, social, and governance investment criteria. Issuing a green bond therefore helped Johannesburg by diversifying the city’s investor base and growing the potential market for future issuances.
Access to finance: The city had a pipeline of planned projects that could not be undertaken due to insufficient capital. The green bond issuance enabled the city to finance these projects, which are expected to deliver considerable benefits to its citizens in terms of waste and water management, reduced traffic congestion, better air quality, and lower energy costs in low-income areas.
Promoting cross-agency collaboration: The process of preparing a green bond for issuance required Johannesburg to engage multiple city government agencies to work together to identify suitable projects to be funded by the proceeds. Johannesburg identified this as one of the key benefits of its first green bond, creating new and productive connections between the finance team and the environment team that had not existed previously.
Putting Johannesburg on the map as a sustainable city leader: The issuance generated considerable positive domestic and international media coverage highlighting the city as a leader in promoting sustainable development. The Mayor of Johannesburg was honored in Paris in December 2015 during COP21, receiving the C40 Cities Climate Leadership Award for the green bond issuance.