- Ecobank has raised $350m with the first sustainable bond to be issued by an African bank, which was some four times oversubscribed.
- The Togo-based group will use some of the proceeds to help fill the huge infrastructure funding gap in Africa.
- The bank also aims to add substantially to financing aligned with the UN’s Sustainable Development Goals and pivot towards a green climate strategy.
“If you [want to] think about a transaction that is supporting the [United Nations’] Sustainable Development Goals [SDGs] in Africa, it doesn’t get much better than this in terms of impact,” says Oliver Phillips, a banker on Standard Chartered’s sustainable finance team in Dubai.
He is referring to Togo-based Ecobank Transnational’s debut sustainability bond, the first such issue by an African bank. Standard Chartered acted as sole sustainability structuring adviser.
Ecobank raised $350m of ten-year Tier 2 capital debt on 11 June that will help in its efforts to help plug the continent’s huge funding gap. The proceeds will be used to provide affordable basic infrastructure, clean transportation and employment generation, and to help the bank pivot towards a more climate-friendly strategy.
The lender, with operations in 33 African countries, launched its updated sustainable finance framework in May and has ambitious plans. It aims, at the heart of its strategy, to deliver digital banking services to 100 million Africans over the medium term. The goal is to help lift people out of poverty by creating wealth and bringing financial services to the dislocated and unbanked.
In addition to providing crucial retail banking services, pan-African lenders play an essential role in facilitating SDG-aligned finance. Ecobank’s day-to-day business activities have clear impact. They range from providing loan guarantees to Turkish developers in Tanzania to executing risk-sharing agreements with multilateral development banks that enable the likes of the International Finance Corporation to reach small and medium enterprises through microloans.
For investors who care about the impact of their capital, emerging market investing has huge potential. But it still fails to attract sufficient capital, for a variety of reasons, including perceived risk, a lack of sizeable opportunities and the fact that many ESG funds can only buy investment-grade assets.
Just 10% of the money needed to support SDGs is supplied in Africa, compared to 60% in emerging markets overall and 90% in developed markets, Phillips says. “That is the gap. Africa is facing so many challenges in terms of Covid 19, with vaccine rates so far behind everywhere else, so funding like this is crucial.”
Investors are open to backing deals that will help redress the balance. Order books for Ecobank’s bond peaked at $1.3bn, enabling it to increase the size of the issue from $300m to $350m while tightening coupon pricing from the initially mooted mid to high-9% range to 8.75%. Dutch development bank FMO came in with a $50m anchor commitment (also see charts below).
The proceeds will boost the bank’s existing $750m of sustainable finance exposure and help it direct more capital towards climate-related issues, chief risk officer Eric Odhiambo tells Capital Monitor. That exposure represents 8% of the bank’s lending portfolio and is currently funded by deposits and development finance institution (DFI) loans.
Africa’s largest bank by geographic footprint, Ecobank aligns its sustainable financing to 10 SDGs, (1, 2, 4, 5, 7, 8, 9, 13, 15 and 17). These include: No Poverty, Zero Hunger, Gender Equality, Affordable and Clean Energy, and Climate Action.
Most of the group’s sustainable financing currently sits in the social assets category covering affordable basic infrastructure, employment generation, access to essential services and affordable housing, Odhiambo says.
Just 10% of the money needed to support SDGs is supplied in Africa, compared to 60% in emerging markets overall and 90% in developed markets. Oliver Phillips, Standard Chartered
Ecobank invests heavily in social initiatives and financial inclusion. It revealed plans last year to scale up its regional microfinance operations though digital microsavings product Xpress Save and microloans product Xpress Loans.
The firm is also working with mobile phone operators such as Airtel Africa and South Africa’s MTN to expand its digital microlending business. The plan is to extend the service – which was piloted in Ghana in 2019 – to Nigeria, Côte d’Ivoire, Cameroon, Burkina Faso, Uganda and Kenya.
And in November 2020 the bank launched Ellevate, a programme to support businesses developed, managed and owned by women.
Moreover, in keeping with the infrastructure needs of the continent, Ecobank wants to drive more capital into renewable energy, green buildings, sustainable water and clean transportation.
Odhiambo says that access to energy is worse in Africa than anywhere else on earth. “There are places where electricity is a dream,” he adds.
The Covid pandemic has reversed progress made in improving access to affordable, reliable and sustainable energy – the aim of SDG 7 – across the continent. Now more than 590 million people in Africa lack access to power, according to the International Energy Agency’s (IEA) ‘World Energy Outlook 2020’. That is a rise of some 13 million people, or 2%, from 2019.
“[Governments] need to get power to the population[s]. There is still such a wide gap,” Odhiambo says.
Ecobank is considering opportunities such as geothermal energy in Kenya, he adds. The bond proceeds will help double the bank’s $80m exposure to green projects and build on the $100m–$150m it invests in hydropower, Odhiambo says. The balance will be allocated to financing or refinancing exposures under the social category.
On the more polluting side, the bank’s sustainable finance framework rules out certain activities. These include fossil fuel exploration and distribution, alongside banned sectors such as payday loans and predatory lending.
While the bank’s balance sheet retains large exposure to the petroleum sector, this move marks another important step for an institution. “At one stage, 23% of our portfolio was in oil and gas,” Odhiambo says, but that figure has fallen to 18%.
Ecobank is also taking a progressive approach to its own energy usage. At its headquarters in Togo, 1,728 solar panel grids provide 970,000kWh of energy, helping to power 32 of the bank’s locations and cutting 2.7 million kilogrammes of CO2 emissions. This year it plans to roll out solar power to its offices in Benin, Burkina Faso, Cameroon, Ghana, Ivory Coast, Kenya, Mali, Rwanda, Senegal, Togo, Zambia and Zimbabwe.
Ecobank aims to measure the impact of all its sustainable financing projects and plans to develop a methodology for doing so. It will set up a working group to screen every transaction. It has made these commitments under its sustainable finance framework, which is verified by DNV and aligned to the International Capital Market Association’s Green Bond Principles and Sustainability Bond Guidelines.
“So far we’ve been involved in sustainable financing for visible or observable impact, but as we go forward we have to have measurable impact, [in the form of] carbon emissions, carbon credits,” Odhiambo says.
One of Ecobank’s shareholders, African development company Arise – which is partly owned by FMO – is driving this initiative, he adds, “and helping us get to a stage where we can measurably report on impact”.
Ecobank hopes to publish its first impact report by December. It is also hiring a new head of sustainability, with Odhiambo retaining oversight of this area.
He is keen to underline that the green bond deal was in keeping with the bank’s efforts to be more sustainable. It was executed entirely digitally, as many transactions have been in the time of Covid. The resulting financial and carbon savings were huge, Odhiambo says.
He cites a roadshow the bank did in 2019, when it sent a team of some 14 bankers and representatives through London, New York, Boston and Los Angeles. The cost of the plane tickets, hotels and transportation was in the region of $250,000.
The latest transaction was run completely from the head office in Lomé, Odhiambo says. “The carbon footprint was minimal. Solar at our office supplements 50% of our energy, so we saved on carbon emissions.”
Another sustainability step in the right direction, to be sure. Virtual interaction with clients is set to play a bigger part for the bank than in the past – appropriately, given that the latest sustainable bond deal is unlikely to be its last.