Kathu Solar Park

21 Jul 2022

Green Bonds in South Africa, and How They Work

Green bonds raise money for projects that will have a positive impact on the environment and/or help to combat climate change. In this podcast, we explore how they work and how they can help solve SA's power crisis.

Listen to the podcast

The World Economic Forum expects the annual issuance of green bonds to exceed $1trillion in 2023, double 2021’s figure. But what are they, and can they help solve SA’s power crisis? Experts from Investec, Kathu Solar Park explain.


The Northern Cape is South Africa’s smallest province by population. But it’s home to big attractions like the Kgalagadi Transfrontier Park, the ‘Big Hole’ and Augrabies Falls.

Add the Kathu Solar Park to that list.

Should you visit, don’t expect to see any solar panels. Instead, don your sunglasses for a large array of curved mirrors. They track, reflect and concentrate the suns rays onto tubes filled with a salt solution that then turns molten; its heat is used to generate steam that drives electricity-generating turbines.

The neat part? Molten salt can retain its heat in insulated storage for up to four and a half hours. That means they can spin up their turbines as the sun is setting, dinners are cooking and geysers are warming.

The technology is called concentrated solar power (CSP). And it gives the Kathu Solar Park 100MW of generation capacity, enough to power 179,000 South African homes. The story of how it was funded provides an excellent case study and use case for an increasingly popular financing instrument: green bonds.

US$1 trillion
Annual issuance of green bonds in 2023

What is a green bond?

“Green bonds are structured in a very similar way to conventional bonds. They pay investors interest and return their principal borrowed at maturity. The difference comes in how the borrowers use the proceeds," says Melanie Jansen van Vuuren, Head of Group Sustainability at Investec.

Melanie Jansen van Vuuren, Head of Group Sustainability at Investec.
Melanie Jansen van Vuuren, Head of Group Sustainability at Investec

Investments in renewable energy are the obvious candidate, but proceeds can also be used to invest in projects spanning energy efficiency, electric vehicles, green buildings, clean cities, pollution prevention, water treatment and even regenerative agriculture.

The Kathu Solar Park – which is set to save six million tonnes of COover a 20-year period – falls neatly into her classification. Indeed, it was partly funded using green bonds.

In broad terms, a green bond is a financial instrument used to raise money for projects that will have a positive impact on the environment and/or help to combat climate change.

Why are companies keen on green?

The ‘greenium’ is the difference in the interest rate (read cost of funding) when raising capital for projects that will create positive environmental impact versus those that don’t – in other words, companies can theoretically borrow more cheaply when financing a green project.

There is evidence both in support of and in contradiction to the pervasiveness and sustainability (ahem) of the greenium. On home turf at least, it does seem to be a feature.

“Green bonds issued on the JSE so far have been anything between three and five times oversubscribed. In addition, issuers have been able to extend the duration of their loans into the 10- to 20-year range, as opposed to the five to seven years for traditional bonds.”

That is the corporate case for green bonds, explained succinctly by Shameela Ebrahim, Chief Sustainability Officer for the Johannesburg Stock Exchange

But with cheaper, longer-term financing at stake, regulatory oversight needs to be strong. As a result, issuing a green bond doesn’t come easy. According to Shameela, companies coming to market with green paper must do the following:

1.     Justify why their project qualifies as green using a local taxonomy or reference framework like that outlined by the International Capital Markets Association

2.     Facilitate an independent review of the bond to certify that the proceeds will create or are creating a positive environmental impact

3.     Deliver regular post-issue impact reporting that proves the bond proceeds are being used as originally stipulated by the issuer

Such measures are critical to uphold and strengthen the credibility of the green bond market in the eyes of investors – if the greenium does exist, they will want their slightly lower yields to be offset by tangible, legitimate impact they can confidently point to.

To be sure, green bonds offer investors more than just impact credentials.

The investment case for green bonds

Most investors want their capital to create positive impact, provided they can still achieve the returns they need at a palatable level of risk. Green bonds are fit for that purpose.

Cash flow certainty

Green bonds arguably come packaged with more certainty around future cash flows – and therefore interest and principal repayments – because the underlying assets are less likely to become ‘stranded’ by disapproving consumers or stricter regulations and policies implemented to combat climate change.

Engagement benefits

The additional transparency required around green bonds creates a platform for investors to engage with issuing companies, a right usually reserved for shareholders. That footing can be used to drive change that ultimately supports green bond returns.

Sticky investors

Just like their traditional counterparts, green bonds will be impacted by inflation and interest rate movements. However, investors that value impact in addition to return will, on average, be less likely to trade out of green bonds than might be the case with conventional bonds.

Key risks

As already alluded to, any corporate behaviour that undermines investor confidence in green bonds (‘greenwashing’ is the most common risk) has the potential to hurt demand and therefore returns. The green bond market is also less liquid, a risk that can be mitigated by holding the bonds to maturity.

In short, green bonds have characteristics that are attractive for both companies and investors before considering their ability to make an impact. But impact they do.

Green-tinted glasses

Tebogo Movundla
Tebogo Movundlela, CEO of the Kathu Solar Park

During the construction phase of Kathu, we created 500 jobs for South Africans. The operations team consists of 86 individuals, mostly black, sourced from local communities and then trained in CSP technology. Our senior management structure is 100% South African. We’re proud of the impact we’ve made.

Movundlela believes the uptake in renewable energy will increase rapidly in the years ahead, particularly in the energy-intensive mining industry. For her, it’s not just about adding capacity to the grid – a saintly cause given our familiarity with load shedding schedules – but also building the capacity to manufacture the components and offer the services needed to support a thriving renewables sector.

It is the second-order effects of projects like the Kathu Solar Park, as much as their direct positive impact on the environment, that make green bonds such an important instrument for the future development of our country.

If you ever get to see that impressive array of mirrors in the Northern Cape, don’t be surprised if you see the slightest shade of green through your sunglasses.

  • Disclaimer

    Investec Corporate and Institutional Banking disclaimer

    The views expressed are those of the contributors at the time of publication and do not represent the views of the company. These views do not constitute a recommendation or advice and should not be treated as such.

    Investec Corporate and Institutional Banking, a division of Investec Bank Limited. Reg. No. 1969/004763/06, which is a registered bank, an Authorised Financial Services Provider, member of the JSE and registered Credit Provider. A member of the Investec Group.

    Investec Bank Limited disclaimer

    The information furnished in this report, brochure, document, material, or communication (“the Communication”), has been prepared by Investec Bank Limited. This Communication does not constitute: a research recommendation, investment, legal, tax or other advice; and is not to be relied upon in making an investment or other decision. The intended recipients should consider the information contained herein to be objective and independent of the interests of the trading and sales desk concerned. Opinions and any other content including data and market commentary in this Communication are provided for information purposes only. The information contained herein has been obtained, where required, from various sources believed to be reliable and may include facts relating to current events or prevailing market conditions as at the date of this Communication, which conditions may change without notification to Investec and/or the recipient.  This is a summary of relevant information and should not be considered as complete. 

    This Communication may not be considered as “advice” as contemplated in the Financial Market Act, 19 of 2012 and/or the Financial Advisory and Intermediary Services Act, 37 of 2002 as it does not take into account your financial position or needs. This Communication may also not be seen as an offer to enter into or conclude any transactions.  In relation to the information, Investec does not guarantee the accuracy and/or completeness thereof and accepts no liability in relation thereto. You should make your own independent evaluation of the relevance and adequacy of the information contained herein and make such other investigations as you deem necessary, including, where relevant, obtaining independent financial advice, before participating in any transaction in respect of the securities referred to in this document.

    Any opinions, forecasts or estimates herein constitute the personal judgment of the party who compiled this Communication as at the date of this document. Thus, this Communication reflects the different assumptions, views, and analytical methods of the specific individual/party who prepared this Communication. As such, there can be no guarantee that future results or events will be consistent with any such opinions, forecasts or estimates. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied is made regarding future performance. There may be risks associated with the information, products, or securities, including the risk of loss of any capital amounts invested or traded due to market fluctuations. There is no obligation of any kind on Investec or any of its Affiliates to update this Communication or any of the information, opinions, forecasts or estimates contained herein. 

    This Communication is confidential for the information of the addressee only and may not be reproduced in whole or in part, nor shall it be copied, redistributed or circulated, or disclosed to another unintended party, without the prior written consent of the relevant entity within Investec. In the event that you contact any representative of Investec or any party in connection with the receipt of this Communication, you should be advised that this disclaimer applies to any subsequent oral conversation or correspondence that occurs as a result of this Communication. 

    Any subsequent business you choose to transact shall be subject to the relevant terms and conditions thereof. 

    Neither Investec nor any officer or employee thereof accepts any liability whatsoever for any direct or consequential loss arising from any use of this Communication or its contents. 

    Investec Bank Limited registration number 1969/004763/06, an Authorised Financial Services Provider (11750), a Registered Credit Provider (NCRCP 9), an authorised Over the Counter Derivatives Provider, and a member of the JSE. Investec is committed to the Code of Banking Practice as regulated by the Ombudsman for Banking Services. Copies of the Code and the Ombudsman's details are available on request or visit Investec COBP.

    Investec Private Banking, a division of Investec Bank Limited registration number 1969/004763/06. Investec Private Banking is committed to the Code of Banking Practice as regulated by the Ombudsman for Banking Services. Copies of the Code and the Ombudsman's details are available on request or visit www.investec.com. A registered credit provider registration number NCRCP9.

    Investec Wealth & Investment, a division of Investec Wealth & Investment International Proprietary Limited, registration number 1972/008905/07. A member of the JSE Equity, Equity Derivatives, Currency Derivatives, Bond Derivatives and Interest Rate Derivatives Markets. An authorised financial services provider No.15886. A registered credit provider registration number NCRCP262. The disclaimer is deemed to form part of this message in terms of Section 11 of the Electronic Communications and Transactions Act 25 of 2002. 

    Investec Life Limited, a member of the Investec Group is a registered Long-term Insurance Company (Reg.No. 1944/017130/06) and an authorised Financial Services Provider (FSP number 47702).
    Terms and conditions apply.

Receive Focus insights straight to your inbox


Please complete all required fields before sending.

Thank you

We look forward to sharing out of the ordinary insights with you

Sorry there seems to be a technical issue