Green Bond Regulation In Ghana; An Overview Of The Securities Industry (Green Bond) Guidelines 2024
Green Bond Regulation In Ghana; An Overview Of The Securities Industry (Green Bond) Guidelines 2024
Publication | Update:
Jun 2024
Globally, green bonds are fast becoming a pivotal tool in the financial landscape, playing a crucial role in improving the environment. They fund initiatives that benefit the environment and tackle issues like climate change. Many investors are eager to invest in socially responsible and eco-friendly projects. This growing interest has driven the rapid expansion of the green bond market, even in Ghana.
In response to the increasing popularity of green bonds, Ghana’s Securities and Exchange Commission (SEC), per its functions outlined in the Securities Industry Act, 2016 (Act 929) as amended, has issued the Securities Industry (Green Bond) Guidelines 2024 SEC/GUI/003/03/2024 (the “Guidelines”).[1] These Guidelines aim to facilitate the development of a domestic green securities market while maintaining the credibility of green securities through transparency, disclosure, integrity, and quality.[2] They seek to prevent “greenwashing”- the issuance of and investment in misleadingly labelled green bonds.[3]
This article provides a comprehensive overview of the Guidelines, emphasising the crucial aspects to be noted by issuers of green bonds.
Green bond issuers, including public companies, external companies, supranational institutions, local government authorities, and statutory corporations must adhere to specific guidelines and regulations such as Act 929, the SEC Regulations, 2003 (L.I. 1728) and other applicable laws.[4]
Entities with an existing Note Programme can issue green bonds under the Programme. They must submit a Supplementary Prospectus or follow the SEC’s stipulations.[5] A Note Programme comprises bond issuances in tranches. Before converting the remaining tranche of an approved bond to a green bond, an issuer must inform the SEC through a Supplementary Prospectus.[6]
In instances of ambiguity in interpreting the Guidelines or any other SEC-issued Directives, the SEC’s interpretation will be final.[7] Additionally, the SEC can grant exemptions or waivers from complying with the Guidelines.[8]
Use of Proceeds
Proceeds from the issuance of green bonds must be used to finance projects with a positive environmental impact.[9] Where proceeds are used for refinancing, the issuer must estimate the share of refinancing, specify which investments or project portfolios may be refinanced, and indicate the expected look-back period[10] for eligible green projects to be refinanced.[11]
Eligible green-bond-financing projects include renewable energy, energy efficiency, pollution prevention and control, environmentally sustainable management of living natural resources and land use, and processes, and green buildings, among others.[12]
Proceeds must not be used to finance prohibited projects,[13] including but not limited to those involving weapons and ammunition, alcoholic beverages (excluding beer and wine), or forced or harmful child labour.[14]
Process for Project Evaluation and Selection
Issuers must ensure that the evaluation and selection process for eligible projects is clear, precise and transparent.[15] It should clearly outline the objectives of the projects, their environmental impact, the eligibility criteria for projects, and the process for identifying and managing potential environmental risks associated with the projects.[16]
Management of Proceeds
The net proceeds of the green bond, or an equivalent amount, shall be credited to an account opened specifically for the project.[17] If there are sub-projects, the proceeds shall be allocated accordingly.[18] Alternatively, proceeds may be properly tracked by the issuer and confirmed through a formal internal process linked to the issuer’s operations for eligible green projects.[19]
While the green bond is outstanding, the remaining funds will be adjusted regularly to match allocations to approved green projects during that time.[20] Issuers must explain in the offer document the intention to temporarily invest any leftover funds or the timeframe for the allocation of all the green bond proceeds to approved projects.[21] The issuer’s external auditor will report on how funds from the green bond are tracked internally and allocated to specific projects.[22]
Performance Measurement and Monitoring
Issuers must use quantitative and/or qualitative performance indicators to measure the results achieved for eligible projects.[23] They must define relevant indicators that quantify the expected impacts of projects.[24] If an impact measurement indicator changes, the issuer must disclose the change to bondholders and the public, explaining the reason for the change.[25] An issuer must ensure a 12-month transition period during which the abandoned indicators continue to be published.[26] Information regarding environmental impacts may be reviewed and confirmed by an independent expert.[27]
Communication and Reporting
At the time of issuance and throughout the lifespan of the green bonds, issuers must provide information on the procedures for evaluating, selecting and monitoring projects; allocation of the funds raised; and external evaluation report about these procedures to the public on their website and upon request.[28]
Issuers must publish an updated list of projects financed or refinanced by the green bonds annually, or immediately in case of material developments[29] including a brief description of the projects, the amount allocated to each project, the expected environmental impact and any unused balances.[30] In the annual report, issuers must disclose the impact of each project.[31] The information published must be comparable over time, maintaining consistent indicators in all publications.[32]
Independent Review
Issuers must provide an independent external review of the green nature of eligible projects and their compliance with the obligations.[33] This opinion must be given by a qualified, independent expert, per the International Capital Market Association (ICMA) Green Bond Principles, and submitted to the SEC at the time of issuance, along with the Green Bond Framework[34] (the issuer’s plan explaining how proceeds from a green bond will be used and managed, adherence to the rules for selecting projects, tracking spending and how the environmental impact of funded projects will be assessed).[35]
Issuers can obtain further assurance through certification, third-party assurance on the compliance of the issuance with an external reference or best practice, or green bond scoring/rating, an evaluation of the Green Bond Framework according to the methodology of a rating agency or an external third party.[36] Issuers can opt for other types of reviews, such as verification by an external third party to monitor certain aspects of the issuance against specific criteria set by the issuer, which can cover compliance with project selection criteria, fund management procedures, account balance monitoring and adherence to environmental impact criteria.[37]
The independent expert must be skilled to assess the green characteristics of the issuance.[38] The review report should include a general description of the objectives and scope of the review, qualifications and key references of the reviewer, a declaration of independence and conflict of interest management policy, a description of the analytical approach and methodology used, and the conclusions and possible limitations of the review.[39]
The due diligence report provided by the independent expert should contain an assessment of the expected environmental impact of projects financed or refinanced by the green bond, verification and recommendations for aligning the green bond with the necessary compliance elements, and an assessment of the material environmental risks associated with eligible projects and their management by the issuer.[40]
Pre-Issuance of a Green Bond
Issuers looking to engage in public bond issuance must follow a stringent regulatory framework including filing a draft information memorandum or prospectus with the Commission, especially in the context of a previously approved shelf programme.[41]
Issuances must comply with Act 929, the Companies Act, 2019 (Act 992), L.I. 1728, specific Guidelines[42] and detailed requirements such as obtaining approval from the relevant bodies; structuring the issuance with an advisor; obtaining a credit rating, where necessary; and effectively promoting the bond and setting the price is essential.[43] Internal processes must align with best practices described in the Guidelines and the ICMA Green Bond Principles.[44]
Identification of Projects
In identifying projects for a Green Bond Framework, clarity is key.[45] This involves accurately describing project types, expected environmental benefits, selection criteria, evaluating and financing projects, managing environmental risks, and specifying the portion of the issuance intended for refinancing eligible projects. The framework must indicate which projects or project portfolios are impacted by refinancing efforts.
Mandatory Declarations
Issuers must comply with the mandatory declarations in L.I. 1728[46] including a declaration by the Directors accepting responsibility for the accuracy of the information provided; a statement by the Promoters and Directors indicating their intention to realise or transfer any part of their interests in the issue within two years; a statement by the person managing the issue stating that all material facts about the issue and the issuer have been fully disclosed; and bold cautionary statements on the Offer letter stating that the Offer document or prospectus has been reviewed and approved by and delivered to the relevant regulators.[47]
Periodic Information
After issuing green bonds, issuers must adhere to the applicable disclosure requirements and any additional reporting commitments made during the issuance as outlined in the Green Bond Framework.[48] These include reporting on the use of raised funds, allocated amounts to projects or types of projects, issuance schedules and any unused balances; the environmental impacts of funded or refinanced projects in clear and measurable terms. The impacts achieved by projects must be compared to the expected impacts and the eligibility criteria outlined in the Green Bond Framework.[49]
Immediate Disclosure of Information
Issuers must promptly disclose to the SEC, bondholders, and the Securities Exchange on which it is listed any major events, and changes in commitments made by the issuer before issuing the bonds that require prior approval from the SEC.[50]
Penalty
If an individual does not adhere to the Guidelines, the SEC can refuse to renew their license, revoke or suspend their license, or reprimand, disqualify or impose an administrative fee on them.[51] The SEC may take any other appropriate remedial action to protect investors and the integrity of the securities market.[52] Criminal proceedings may also be initiated against an issuer if they fail to make payment within 14 days of a demand being made.[53]
The Guidelines mark a significant advancement towards nurturing a dynamic green securities market in Ghana. They provide explicit standards for issuing and managing green bonds, promoting transparency, integrity and quality in the market. Companies and investors are encouraged to familiarise themselves with the Guidelines to maximise the advantages of green bonds. The SEC must implement robust measures to educate stakeholders about the Guidelines to guarantee adherence when issuing green bonds.
Find more information on environmental, social and governance laws and regulation in Ghana with B&P Associates' contribution to ICLG - Environmental, Social & Governance Law 2024.
Endnotes
[2] Securities Industry (Green Bond) Guidelines 2024 SEC/GUI/003/03/2024, Paragraph 1(2).
[3] ibid.
[4] ibid, Paragraph 2(1), 2(2) & 2(3).
[5] ibid, Paragraph 2(4).
[6] ibid, Paragraph 2(5).
[7] ibid, Paragraph 2(6).
[8] Supra (no.1), Sections 210.
[9] Supra (no.2), Paragraph 3(1).
[10] The number of years that the issuer will look back to identify assets or earlier disbursements.
[11] Supra (no.2), Paragraph 3(2).
[12] ibid, Paragraph 3(3) and Schedule 1.
[13] ibid, Paragraph 3(4).
[14] ibid, Schedule 2.
[15] ibid, Paragraph 4.
[16] ibid.
[17] ibid, Paragraph 5(1).
[18] ibid.
[19] ibid.
[20] ibid, Paragraph 5(2).
[21] ibid, Paragraph 5(3).
[22] ibid, Paragraph 5(4).
[23] ibid, Paragraph 6(1).
[24] ibid, Paragraph 6(2).
[25] ibid, Paragraph 6(3).
[26] ibid.
[27] ibid.
[28] ibid, Paragraph 7(1).
[29] ibid, Paragraph 7(2).
[30] ibid.
[31] ibid, Paragraph 7(3).
[32] ibid, Paragraph 7(4).
[33] ibid, Paragraph 8(1).
[34] ibid, Paragraph 8(2).
[35] ibid, Schedule 3.
[36] ibid, Paragraph 8(3); ibid, Paragraph 15.
[37] ibid,Paragraph 8(4).
[38] ibid, Paragraph 8(5).
[39] ibid.
[40] ibid, Paragraph 8(6).
[41] ibid, Paragraph 9(1).
[42] ibid, Paragraph 9(2).
[43] ibid, Paragraph 9(3).
[44] ibid, Paragraph 9(4).
[45] ibid, Paragraph 10.
[46] ibid, Paragraph 11.
[47] Securities and Exchange Commission Regulation, 2003 (L.I. 1728), Schedule 5, Part V (H).
[48] Supra (no.2), Paragraph 12.
[49] ibid.
[50] ibid, Paragraph 13.
[51] ibid, Paragraph 14.
[52] ibid.
[53] ibid.
ICLG.com is a leading global platform for legal reference, analysis and news, hosting comprehensive comparative legal guides and research tools that cover law in more than 191 jurisdictions across 59 practice areas. ICLG.com also provides daily legal news and legal conference directories, as well as online purchasing of the renowned International Comparative Legal Guide series of print publications. https://iclg.com
Delivery Format:
HTML
Immediate Delivery
Access Rights | Content Availability: 
The content of this subscriber knowledge library area, the technology platform and tools are provided for information purposes only. No legal liability or other responsibility is accepted for any errors, omissions, or any loss, damage or inconvenience caused as a result of reliance on such information, or statements on this site, or any site to which these pages connect, since we cannot control the content or take responsibility for pages maintained by external providers. Where we provide links to sites, we do not by doing so endorse any information or opinions appearing in them. This courseware includes resources copyrighted and open educational resources (OER) by multiple individuals and organizations. If someone else is given access to your account login information, that person has read, understands and accepts the Conditions of Use for this platform.
Objectives and Study Scope
This study has assimilated knowledge and insight from business and subject-matter experts, and from a broad spectrum of market initiatives. Building on this research, the objectives of this market research report is to provide actionable intelligence on opportunities alongside the market size of various segments, as well as fact-based information on key factors influencing the market- growth drivers, industry-specific challenges and other critical issues in terms of detailed analysis and impact.
The report in its entirety provides a comprehensive overview of the current global condition, as well as notable opportunities and challenges.
The analysis reflects market size, latest trends, growth drivers, threats, opportunities, as well as key market segments. The study addresses market dynamics in several geographic segments along with market analysis for the current market environment and future scenario over the forecast period.
The report also segments the market into various categories based on the product, end user, application, type, and region.
The report also studies various growth drivers and restraints impacting the market, plus a comprehensive market and vendor landscape in addition to a SWOT analysis of the key players.
This analysis also examines the competitive landscape within each market. Market factors are assessed by examining barriers to entry and market opportunities. Strategies adopted by key players including recent developments, new product launches, merger and acquisitions, and other insightful updates are provided.
Research Process & Methodology
We leverage extensive primary research, our contact database, knowledge of companies and industry relationships, patent and academic journal searches, and Institutes and University associate links to frame a strong visibility in the markets and technologies we cover.
We draw on available data sources and methods to profile developments. We use computerised data mining methods and analytical techniques, including cluster and regression modelling, to identify patterns from publicly available online information on enterprise web sites.
Historical, qualitative and quantitative information is obtained principally from confidential and proprietary sources, professional network, annual reports, investor relationship presentations, and expert interviews, about key factors, such as recent trends in industry performance and identify factors underlying those trends - drivers, restraints, opportunities, and challenges influencing the growth of the market, for both, the supply and demand sides.
In addition to our own desk research, various secondary sources, such as Hoovers, Dun & Bradstreet, Bloomberg BusinessWeek, Statista, are referred to identify key players in the industry, supply chain and market size, percentage shares, splits, and breakdowns into segments and subsegments with respect to individual growth trends, prospects, and contribution to the total market.
Research Portfolio Sources:
Global Business Reviews, Research Papers, Commentary & Strategy Reports
M&A and Risk Management | Regulation
The future outlook “forecast” is based on a set of statistical methods such as regression analysis, industry specific drivers as well as analyst evaluations, as well as analysis of the trends that influence economic outcomes and business decision making.
The Global Economic Model is covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes,
financing, the labour market and infrastructure.
We aim update our market forecast to include the latest market developments and trends.
Review of independent forecasts for the main macroeconomic variables by the following organizations provide a holistic overview of the range of alternative opinions:
As a result, the reported forecasts derive from different forecasters and may not represent the view of any one forecaster over the whole of the forecast period. These projections provide an indication of what is, in our view most likely to happen, not what it will definitely happen.
Short- and medium-term forecasts are based on a “demand-side” forecasting framework, under the assumption that supply adjusts to meet demand either directly through changes in output or through the depletion of inventories.
Long-term projections rely on a supply-side framework, in which output is determined by the availability of labour and capital equipment and the growth in productivity.
Long-term growth prospects, are impacted by factors including the workforce capabilities, the openness of the economy to trade, the legal framework, fiscal policy, the degree of government regulation.
Direct contribution to GDP
The method for calculating the direct contribution of an industry to GDP, is to measure its ‘gross value added’ (GVA); that is, to calculate the difference between the industry’s total pretax revenue and its total boughtin costs (costs excluding wages and salaries).
Forecasts of GDP growth: GDP = CN+IN+GS+NEX
GDP growth estimates take into account:
Market Quantification
All relevant markets are quantified utilizing revenue figures for the forecast period. The Compound Annual Growth Rate (CAGR) within each segment is used to measure growth and to extrapolate data when figures are not publicly available.
Revenues
Our market segments reflect major categories and subcategories of the global market, followed by an analysis of statistical data covering national spending and international trade relations and patterns. Market values reflect revenues paid by the final customer / end user to vendors and service providers either directly or through distribution channels, excluding VAT. Local currencies are converted to USD using the yearly average exchange rates of local currencies to the USD for the respective year as provided by the IMF World Economic Outlook Database.
Industry Life Cycle Market Phase
Market phase is determined using factors in the Industry Life Cycle model. The adapted market phase definitions are as follows:
The Global Economic Model
The Global Economic Model brings together macroeconomic and sectoral forecasts for quantifying the key relationships.
The model is a hybrid statistical model that uses macroeconomic variables and inter-industry linkages to forecast sectoral output. The model is used to forecast not just output, but prices, wages, employment and investment. The principal variables driving the industry model are the components of final demand, which directly or indirectly determine the demand facing each industry. However, other macroeconomic assumptions — in particular exchange rates, as well as world commodity prices — also enter into the equation, as well as other industry specific factors that have been or are expected to impact.
Forecasts of GDP growth per capita based on these factors can then be combined with demographic projections to give forecasts for overall GDP growth.
Wherever possible, publicly available data from official sources are used for the latest available year. Qualitative indicators are normalised (on the basis of: Normalised x = (x - Min(x)) / (Max(x) - Min(x)) where Min(x) and Max(x) are, the lowest and highest values for any given indicator respectively) and then aggregated across categories to enable an overall comparison. The normalised value is then transformed into a positive number on a scale of 0 to 100. The weighting assigned to each indicator can be changed to reflect different assumptions about their relative importance.
The principal explanatory variable in each industry’s output equation is the Total Demand variable, encompassing exogenous macroeconomic assumptions, consumer spending and investment, and intermediate demand for goods and services by sectors of the economy for use as inputs in the production of their own goods and services.
Elasticities
Elasticity measures the response of one economic variable to a change in another economic variable, whether the good or service is demanded as an input into a final product or whether it is the final product, and provides insight into the proportional impact of different economic actions and policy decisions.
Demand elasticities measure the change in the quantity demanded of a particular good or service as a result of changes to other economic variables, such as its own price, the price of competing or complementary goods and services, income levels, taxes.
Demand elasticities can be influenced by several factors. Each of these factors, along with the specific characteristics of the product, will interact to determine its overall responsiveness of demand to changes in prices and incomes.
The individual characteristics of a good or service will have an impact, but there are also a number of general factors that will typically affect the sensitivity of demand, such as the availability of substitutes, whereby the elasticity is typically higher the greater the number of available substitutes, as consumers can easily switch between different products.
The degree of necessity. Luxury products and habit forming ones, typically have a higher elasticity.
Proportion of the budget consumed by the item. Products that consume a large portion of the
consumer’s budget tend to have greater elasticity.
Elasticities tend to be greater over the long run because consumers have more time to adjust their behaviour.
Finally, if the product or service is an input into a final product then the price elasticity will depend on the price elasticity of the final product, its cost share in the production costs, and the availability of substitutes for that good or service.
Prices
Prices are also forecast using an input-output framework. Input costs have two components; labour costs are driven by wages, while intermediate costs are computed as an input-output weighted aggregate of input sectors’ prices. Employment is a function of output and real sectoral wages, that are forecast as a function of whole economy growth in wages. Investment is forecast as a function of output and aggregate level business investment.
APU Content Aggregation Service