Africa is expected to be hardest hit by the adverse impacts of climate change if significant investments in mitigation and adaptation, as well as other relevant measures remain insufficient. The area of sustainable finance appears to offer some hope in the form of green bonds – a financial instrument that is labelled green because the proceeds raised from the bond issue are used to finance or refinance projects and assets that have environmental benefits.

The issuance of green bonds as a tool for unlocking significant capital for sustainability-related investment has been gaining traction in Africa in recent years. Despite its touted potential, however, the nascent market for green bonds on the continent is still underdeveloped. This report surveys some of the growing literature on sustainable finance. It uses extensive data on green bonds to map the African landscape in order to understand the structure and development of the green bonds market, the challenges and the opportunities it faces, and the outlook.

The findings provide some insights on the modest growth of the green bonds market in Africa. The market is dominated by a small number of states with a cumulative issuance of less than 1% of global volumes. The role of multilateral development institutions has been significant but many inherent challenges remain, such as the lack of national frameworks, which is linked to institutional incapacity, and a low level of awareness.

Nonetheless, the prospects for growth are quite high given that a growing number of states are either planning to issue green bonds or developing their own national guidelines. The report makes recommendations on how to develop the market, should sovereign states wish to do so.