South Africa eyes first sovereign green bond as climate financing needs hit $228bn

South Africa is preparing to enter the sovereign green bond market for the first time as the government looks to attract new pools of capital to finance its energy transition, infrastructure needs and wider climate commitments.

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The National Treasury is targeting an inaugural issuance before the end of the current financial year in March 2027, although officials say the timing will depend on market conditions and the outcome of the medium term budget process.

Wanga Cibi, chief director for liability management at the National Treasury, said the government was working towards an issuance this financial year.

“Aspirationally, we would like to issue something within this fiscal year, so we’ve got from now until March 2027,” Cibi said. “If not, definitely in the 2027 to 28 fiscal year.”

The planned bond would give South Africa another source of government financing while opening access to investors seeking assets linked to environmental and sustainable development goals.

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Treasury officials are currently identifying projects that can qualify for funding under South Africa’s sustainable finance framework, which was introduced in May.

Green bond to support energy transition

The framework allows proceeds from the bond to be directed towards projects supporting South Africa’s transition to a lower carbon economy.

Potential areas include hydrogen production, hydropower, geothermal power, bioenergy and electricity transmission infrastructure. Funding could also support renewable energy distribution, water security and energy efficiency projects.

The eligible projects extend beyond physical infrastructure. The framework allows for worker retraining and employment programmes for people affected by the move away from coal, as well as public healthcare, education and housing projects targeted at lower income communities.

Treasury is expected to decide on the size and timing of the inaugural bond as part of the medium term budget statement due in October.

The government has also not decided whether to sell the bond in South Africa or international markets.

“We can opt to do either a domestic or even a foreign euro or dollar denominated issue, which will attract an even bigger base of investors,” Cibi said.

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A foreign currency issue could give South Africa access to a wider pool of international investors, while a domestic issue could deepen the local sustainable finance market.

Funding gap runs into trillions

The proposed bond comes against the backdrop of a much larger financing challenge.

South Africa estimates that about R250 billion will be needed between 2026 and 2035 to implement its environmental commitments, while a further R3.47 trillion is required for mitigation measures.

That puts the combined requirement at roughly R3.7 trillion over the decade, or about R372 billion a year.

The government aims to mobilise about R160 billion annually from international climate finance institutions by 2030, with the remaining funding expected to come from domestic and international private capital as well as government spending.

The green bond is therefore expected to play a role beyond raising money for individual projects. Treasury also sees sustainable finance as a way to attract institutional investors that may otherwise have limited exposure to South African climate related assets.

Investors see potential cost advantage

There could also be a borrowing cost benefit if strong investor demand allows the government to secure better pricing.

Nigel Beck, head of sustainable finance and ESG at Rand Merchant Bank, which helped develop South Africa’s sustainable finance framework, said sustainable bonds had generally achieved stronger pricing in several corporate transactions.

“What we have seen on a number of corporate bonds that we’ve worked on with clients, generally sustainable issuances, that is, green and social issues will price better,” Beck said.

He said large pools of international capital were looking for sustainable investments, particularly hard currency assets.

“There are significant pools of capital, locally and especially globally in hard currency, that are looking for sustainable finance instruments and you’re able to crowd in those pools of capital,” he said.

For South Africa, stronger demand could result in an oversubscribed bond and potentially lower the cost of borrowing.

The government is targeting the mobilisation of as much as $8 billion a year by 2030 from public and private, domestic and international sources.

Its first sovereign green bond would therefore serve two purposes: helping finance the country’s costly transition while testing whether global investors are willing to provide capital on attractive terms for South Africa’s sustainable development plans.

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