Are green bonds a MENA climate finance hack? Potentially, the IFC tells us, but it needs some work: With less than 27 days to go before COP27 kicks off in Egypt’s Sharm El Sheikh, questions on how we finance the climate finding gap — which Egypt’s UN High Level Climate Champion Mahmoud Moheildin puts in the tns of USD each year — linger without a definitive consensus. One avenue that is slowly emerging in MENA as a major long-term financing solution has been sustainable bonds. Green debt issuances in MENA grew 122% y-o-y in 2021 to USD 18.6 bn. And while debt markets — particularly in the region — have dried up for much of 2022, green bonds are gaining momentum in the Arab world.

So can bonds be a reliable source of green finance in MENA? Well, the demand and appetite is there, Emmanuel Nyirinkindi, the International Finance Corporation’s (IFC) vice president of cross-cutting solutions, tells us. But much needs to be done for the market to reach its potential. He tells us that building a pipeline of bankable projects, good governance, and capacity building are the key to channeling as much climate financing as possible.

And Nyirinkindi knows a thing or two about the subject: He oversees a range of what the institution calls global cross-cutting functions at the IFC, including public-private partnerships, corporate finance, sustainability, and climate. Before joining the IFC, Nyirinkindi worked at the Ugandan finance ministry, where he introduced PPPs in the electricity and railway sectors and coordinated legal and regulatory reform in infrastructure. We spoke with him during a recent trip to Cairo to dive into the IFC’s plans and hopes for COP27.

Edited excerpts from his our discussion:

The appetite for MENA green financing is and has been strong: We can see a growing appetite for green finance across emerging markets in both MENA and Africa. We recently supported South Africa’s NetBank with a USD 100 mn green bond issuance for the residential housing market.

The green bond market has been developing actively from about 2010, with the IFC being one of the earlier developers and issuers. We've done about 178 issuances worth a collective USD 10.5 bn in about 20 local currencies. The IFC supported CIB in issuing Egypt’s first private sector green bond last year, worth USD 100 mn.

Beyond just green: Blue bonds and loans are also really good examples of instruments that would be good to spur climate action in MENA — and they too are growing.

And they’re important when it comes to mitigation and new tech: Decarbonization technologies are often high cost. But instruments like blended finance can make them much more affordable, especially for the end user. This increases the speed of adoption, particularly in EMs.

The current constraint within wider EMs is the size of the market and the availability of projects that would use green financing — rather than, say, regulation. You need a market for uptake, especially considering the burden that using USD can put on some local markets.

And a lack of bankable projects: There is a general lack of projects that are built to an international bankable standard. It’s a bit of a truism in the development world that there’s a lot of money chasing very few bankable projects.

There’s something like 900x the amount of money available in non-DFI institutions as there is in all the DFIs. We need to create really bankable projects — built to environmental and social standards — to channel that financing effectively.

Governance and capacity building is crucial: We need to build the capacity of policymakers, regulators and the domestic market to support the roll-out of these instruments. Once the market understands how the instruments work, and the projects scale, it speeds up the next set of projects and financing. So guidelines and good governance are key to developing depth of market and pace of market uptake. We work with governments to make sure they have good policies — for example, that any incentives offered are stated transparently and investors can expect to see their returns and have access to FX.

This all helps investors feel more comfortable taking on [risk], especially in green projects, which are often inherently risky. Many involve new technology — like green hydrogen — while wind projects come with their own set of technological risks.

The IFC has three core pillars for COP27: climate finance, decarbonization and energy access, and adaptation resilience. On the climate finance front, we plan to showcase examples of products and instruments.

My hope is that we retain a sense of urgency. We need to speed up action on all fronts, developing bankable projects and financial instruments. Public and private partners need to come together to do this.

We know the [Egyptian government] wants to emphasize and showcase action. There’s the sense that a lot of time has been spent on negotiating and planning, but we need to see the impact on the ground. For the World Bank, emphasizing action aligns with our views that climate and development go together.

I’d also like to see an emphasis on adaptation and more money flowing into this space. I think that a lot of attention — and a lot of the available financing — is going towards mitigation. Many of the big discussions at COP26 focused on funding new technologies. Mitigation has shaped a lot of the dialogue, but we need to look at how to bring the same attention to adaptation — coping with the fallout from climate change that’s already happening. Globally, we’re already facing massive challenges, as we can see in Pakistan and the Sahel in Africa.

For the World Bank, this isn’t an either/or question — both are critical. Of the long-term financing that we’ve made available for green projects, 50% is meant to be allocated to adaptation. And we’re hoping to increase that.