Why Green Bonds Struggle to Take Root in Africa
This blog is a part of our 2025-2026 Climate and Cultural Heritage Series made possible by the Fletcher Center for International Environment and Resource Policy and the Fletcher Office for Inclusive Excellence.
By Calindy Johannes
Despite growing enthusiasm for sustainable finance, Africa remains a marginal player in the rapidly expanding green bond market. Since the European Investment Bank issued the first green bond in 2007, the market has grown to more than USD 2.8 trillion, representing nearly two thirds of all thematic bonds worldwide. Yet, Africa accounts for less than one percent of issuances and an even smaller share of total value.
This imbalance is striking given the continent’s vulnerability to climate change. Africa contributes less than four percent of global carbon emissions but faces some of the harshest consequences, including droughts, floods, and heatwaves that disrupt livelihoods and cause billions in economic losses each year. To meet its climate and development goals under the Paris Agreement, Africa must mobilize an estimated USD 190 billion annually, but current flows reach only a small fraction of that amount. Green bonds were designed to help bridge this gap by allowing governments and companies to raise funds for renewable energy, sustainable transport, green buildings, and climate adaptation projects. Yet progress has been slow.
One reason is the high cost of bringing a green bond to market. Issuance expenses in Africa can reach up to five percent of the bond’s total value because of certification requirements, legal and advisory fees, and environmental assessments. These costs are difficult to justify for smaller projects, which make up much of Africa’s climate investment landscape. Ironically, the very projects that could most improve resilience, such as small-scale irrigation or community solar systems, are often too small to support the additional expenses of certification and reporting.
Another challenge is the shortage of local expertise. Independent verification is central to the credibility of green bonds, but many African countries do not have domestic certifiers or auditors qualified to assess environmental performance. Issuers often rely on international firms, which increases costs and limits opportunities to build local capacity. Without a strong ecosystem of local professionals who understand both sustainability standards and domestic markets, green finance remains externally driven rather than locally grounded.
There is also a mismatch between global definitions of “green” and the realities of Africa’s climate needs. Most international frameworks focus on large-scale mitigation projects such as solar farms and mass transit systems. These categories often exclude adaptation efforts that are critical for African countries, including water conservation, sustainable agriculture, and community-based infrastructure. As a result, projects that are vital for protecting vulnerable populations rarely qualify for green bond financing.
Currency volatility and economic uncertainty create another layer of difficulty. Many African economies experience fluctuations in exchange rates and inflation, which heighten investor concerns about returns. Even when bonds are issued in stable currencies such as the US dollar, they are often priced with a premium to account for perceived risk. This increases the cost of borrowing and limits investor appetite, making green bonds less accessible for both public and private issuers.
Domestic institutional investors could play a major role in building stronger green bond markets, but they remain cautious. Pension funds and insurance companies tend to prioritize short-term stability and often lack the mandates or incentives to invest in green instruments. Without their participation, issuers are heavily dependent on foreign investors, which exposes them to global market shifts and reduces the long-term sustainability of the market.
Despite these challenges, several African countries have made important progress. Nigeria issued Africa’s first sovereign green bond in 2017 to fund renewable energy and reforestation projects, backed by clear national guidelines. Morocco built on its strong renewable energy strategy to issue a green bond that attracted both domestic and international investors. In Kenya, Acorn Holdings issued East Africa’s first corporate green bond in 2019 to finance environmentally certified student housing in Nairobi. The issuance was supported by a partial credit guarantee from GuarantCo that helped attract local investors. South Africa, with its developed financial sector, has integrated green finance more deeply into its markets. The City of Cape Town issued a green bond to fund water resilience efforts following the Day Zero drought crisis, proving that local governments can successfully leverage green finance for adaptation.
These examples show that success is not determined by a country’s wealth or governance ranking but by deliberate policy choices and collaboration. Clear regulations, political commitment, and support from development finance institutions have made it possible to issue green bonds even in challenging environments. Countries that have linked green bonds to broader development goals, such as job creation and competitiveness, have been able to attract stronger investor confidence. What distinguishes countries that have issued green bonds from those that have not is not income level or governance rankings, but readiness. In practice, green bond issuance depends on a small set of enabling conditions coming together at the same time: clear national guidelines, access to credible verification, a pipeline of eligible projects, participation by domestic investors, sufficient market infrastructure, and some form of cost or risk support. Where most of these conditions are present, issuance has followed. Where they are absent, interest alone has not been enough to move markets.
In contrast, other countries continue to face structural and policy barriers. Botswana, despite its strong financial system, has not issued a single green bond, largely because project sizes are small and green finance is not yet part of national economic planning. Ghana has made progress on sustainability goals but lacks a national green taxonomy that would help issuers identify eligible projects. Zambia faces debt distress and currency instability, both of which deter investors and make verification costs unaffordable. In these cases, the gap between national priorities and global green finance standards remains wide, leaving critical climate investments unfunded.
Expanding Africa’s green bond market will require targeted and practical interventions. Countries could begin by developing localized green taxonomies that include adaptation and small-scale infrastructure as qualifying investments. Building local verification and reporting capacity would reduce costs and foster credibility. Regulators could create incentives for domestic institutional investors to allocate capital to sustainable finance. Regional cooperation, such as shared verification services or harmonized standards, could further lower barriers for smaller economies.
The path forward for green bonds in Africa is not merely financial or technical; it is fundamentally about agency and ownership. For green bonds to take root, African countries must define what sustainable finance means within their own development and climate contexts, rather than relying on frameworks designed elsewhere. This requires shaping green bond standards that reflect local priorities, including adaptation, small-scale infrastructure, and resilience-building projects. The next phase of Africa’s green bond story will therefore be determined less by global capital markets and more by domestic choices and regional coordination. If countries can redefine what qualifies as green, adopt shared verification systems across jurisdictions rather than duplicative national processes, and anchor markets with domestic institutional investors, green bonds can move beyond isolated successes and become a practical tool for financing resilience, job creation, and innovation. The question is no longer whether the instrument works, but whether it will be adapted to African realities or remain an imported solution that fails to meet Africa’s most pressing needs.
Former South African President Thabo Mbeki once cautioned that Africa’s future will not be written in foreign capitals, but must be authored by Africans themselves.. The same lesson applies to green finance. The continent now stands at a turning point where it can either adapt this financial instrument to serve its goals or risk being left out of a global transition that will shape the future of investment for decades to come.
Calindy Johannes is a recent MALD graduate from The Fletcher School of Law and Diplomacy (International Business and International Development) with a professional background in financial services and project management. She brings over nine years of experience working in digital payments, financial operations, and regulatory environments, with a focus on payment system modernization and risk management. Her interests include financial inclusion, sustainable finance, and the role of financial infrastructure in supporting inclusive and resilient economies.