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 (“SDGs”), 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).
To achieve its ambitious goals, significant investment is required to reduce reliance on fossil fuels and facilitate this transition towards cleaner energy sources 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 to integrate 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 several financial products and financial instruments are being developed to scale the flow of sustainable finance, the most mainstream 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 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 loan proceeds must be used for clearly identified sustainable objectives or projects that benefit 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 than 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 can assist in facilitating 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 aims to support SADC’s 16 members (including the NSX) to leverage domestic and international capital markets for investment in green projects. The programme aims to help its members, both private and public sectors, issue green bonds, thus creating a favourable ecosystem and improving knowledge and capacity for sustainable investments. The programme also aims to assist SADC countries in developing 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
The NSX has made great strides in the sustainable finance market in recent years. It has also become a signatory of the Marrakesh Pledge, representing a continental coalition that fosters green finance in Africa and enables 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 major 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 does not have a green finance taxonomy. A taxonomy is a classification system that can be used to determine eligibility for sustainable finance and, if developed by a country or region, sets out objective criteria to determine 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 in proactively approaching 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 organisational 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. One such organisation that has established international standards and practices that the NSX relies on is the International Capital Markets Association (“ICMA”), which has published a list of green and social bond principles and 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 specific to the Namibian landscape is still an issue that must be addressed. We recommend that Namibia establishes a taxonomy working group to develop such a regulatory framework that would correspond with Namibia’s sustainability objectives under Namibia’s Development Plans, the SDG 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 more confidently and efficiently.
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 faced by investors, issuers and other financial sector participants in Namibia.
About the authors
Twapewa Mwashindange
Twapewa Mwashindange is a Senior Associate at ENSafrica in the Banking and Finance practice. She specialises in banking and finance, banking and financial market regulation, project finance, M&A, and corporate and commercial law.
She has advised local and international clients in several industries and sectors, including financial institutions, corporate clients, state-owned entities, insurers, pension funds, and mining and energy companies.
Twapewa’s experience includes advising lenders and borrowers on a number of debt and equity transactions, drafting, reviewing, negotiating and implementing various agreements, including facility agreements, security agreements and general commercial agreements.
Additionally, Twapewa drafts legal opinions relating to financial regulatory issues, conducts legal, due diligence investigations, and advises on the set-up of companies in Namibia, regulatory licences and compliance requirements.
Cornelia Hausiku
Cornelia Hausiku is an Associate at ENSafrica in Namibia.
Cornelia specialises in banking and finance, corporate and commercial law.
Her experience includes advising lenders and borrowers on debt and equity transactions, locally and internationally, and drafting and reviewing finance documents, including various loan agreements, facility agreements and security agreements.
In addition, Cornelia is also experienced in drafting, negotiating and reviewing corporate commercial agreements, including credit agreements, sale of shares/equity agreements, shareholder agreements and lease agreements, conducting due diligence investigations and preparing opinions and memorandums on finance and corporate-related regulatory issues.
Cornelia has advised clients in the financial, fin-tech, insurance, mining, property and pension funds sectors and/or industries.
