Nigeria Launches Regulatory Framework for Green Bonds

• Nigeria Launches Regulatory Framework for Green Bonds

Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), has unveiled a regulatory framework for issuance of green bonds in Nigeria, providing the much-needed guidelines for the development of the new market.

SEC has issued a circular on the incorporation of new rules and regulations on green bond into the rules and regulations at the Nigerian capital market.

The green bond regulatory framework defined a green bond as any type of debt instrument, the proceeds of which will be exclusively applied to finance or re-finance in part or in full new and or existing projects that have positive environmental impact.

The rules indicated that green bonds would be used exclusively to finance renewable and sustainable energy, clean transportation, sustainable water management, climate change adaptation, energy efficiency, sustainable waste management, sustainable land use, bio-diversity conservation and any other categories as may be approved by SEC from time to time.

The regulations highlighted some special conditions that any issuer of green bond must fulfill in addition to the general registration requirements for debt issuances as stated in the Rules and Regulations of the Commission for states, local governments, corporate and supranational agencies.

According to the rules, an issuer of a green bond shall also file a feasibility study and report, stating clearly the measurable benefits of the proposed green project or assets such as green house gas reduction, reduction of water use and reduction of harmful emissions.

The issuer must also file a prospectus, which shall include project categories, project selection criteria, decision-making procedures, environmental benefits, use and management of the proceeds as well as a letter from the issuer committing to invest proceeds of the bond in green projects or assets.

The issuer must also provide an independent assessment or certification issued by a professional certification authority or person approved or recognised by the Commission in addition to any other documents that may be required by the Commission.

“The net proceeds shall only be utilised for the purpose stated in the approved offer documents and shall be tracked as stated in the approved internal policy of the Issuer which shall be disclosed in the offer documents,” the rules stated.

The parties to the issue are expected to create an escrow account meant specifically for the net proceeds of the offer while the proceeds shall be domiciled with the custodian. While the trustees shall ensure that the proceeds are used for the purpose stated in the prospectus, the issuer and the trustees shall be the signatories to the escrow account.

“The issuer shall invest proceeds in green projects within the given time frame prescribed in the prospectus. Unallocated proceeds shall be invested in money market instruments with investment grade rating and this shall be disclosed in the offer documents,” according to the rules.

According to the rules, where the issuer proposes to utilise a proportion of the issue proceeds of the issue of green bonds, towards refinancing of existing green assets, the issuer shall clearly provide in the offer document the details of the portfolio, assets and projects which are identified for such refinancing.