Bankers and sustainability analysts tell us why the green debt market went quiet

Framework, no flow: Five years after the government’s USD 750 mn sovereign green bond debut — and three years after a promised USD 500 mn follow-on that never materialized — cumulative green and sustainability-linked issuance in Egypt sits at just USD 1.45 bn. As we flagged last week, Egypt has the framework for a green debt market without a market. Bankers and sustainability experts we spoke to converge on why.

The rulebook was never the problem, sources tell us. What’s strangling the market is punishing borrowing costs, a currency that’s made every USD-denominated issuance harder to justify, and a pipeline of bankable projects too thin to bring to market — a combination that reshaped issuers’ priorities long before it hit green debt specifically.

REMEMBER– Since the 2020 sovereign debut, the market has produced three transactions of scale: CIB’s USD 100 mn corporate green bond in November 2021, taken in full by the IFC; the Arab African International Bank's USD 500 mn sustainability bond, IFC subscribed to the bond with USD 300 mn while the European Bank for Reconstruction and Development (EBRD) and British International Investment invested some USD 100 mn each; and Banque Misr’s USD 100 mn sustainability-linked loan in July 2024, arranged by EBRD and tied to social performance targets. Each of the three needed a development finance institution to get to market.

The promised USD 500 mn green bond follow-on for 2023 never came. The Finance Ministry is still waiting on an African Development Bank guarantee to unlock a new framework and USD 500 mn in green samurai bonds, a senior government official told EnterpriseAM last November. Egypt has borrowed abroad three times since — but never in green.

The macro backdrop: Non-equity issuance — corporate bonds and securitization combined — fell 36.2% in 2024, according to data released by the Financial Regulatory Authority (FRA), as the Central Bank of Egypt’s benchmark rate climbed from 9.75% in March 2022 to 27.75% in March 2024. It’s not a green-market problem specifically, this is what happens to debt issuance of every kind when borrowing costs nearly triple in two years. “When interest rates reached around 27%, no issuer was willing to issue a 10-year bond in EGP,” environment and energy expert Moustafa Mourad tells EnterpriseAM. “At the same time, issuing in USD became considerably riskier because of exchange-rate volatility.”

The regulatory frame isn’t what's holding it back. “The framework is already in place, but the challenges relate to pricing and the high cost of funding,” financial analyst Mohamed Abdel Moneim tells us, referring to the FRA’s carbon and sustainable finance framework, first launched with green bond guidelines in 2018 and expanded since, alongside the Finance Ministry's 2022 Sovereign Sustainable Financing Framework. Abdel Moneim points to five compounding factors: higher rates, corporates deferring long-term financing, a thin pipeline of issuance-ready projects, and the cost of preparing green frameworks and obtaining independent external opinions.

Not to mention, the CBAM overhang. “The uncertainty surrounding the EU's Carbon Border Adjustment Mechanism has also contributed to slower issuance, particularly for exporters that are still assessing its long-term implications,” Hesham Eissa, environmental science and climate change analyst and DCarbon Global board member, adds.

Meanwhile, SLLs are picking up the slack. “Sustainability-linked loans have become more attractive because they are simpler, less costly, more flexible, and do not require proceeds to be allocated to specific green projects,” Abdel Moneim says. AASTMT economics professor Shaimaa Wagieh says banks are increasingly favoring SLLs while waiting for issuance conditions to improve — quicker to execute, linked to measurable KPIs, and cheaper than public debt.

All four sources we spoke to agree on the market’s biggest structural weakness: too few projects are ready for capital-market financing. “There are good projects, but not all of them are ready to be financed through the capital market,” Abdel Moneim says. “We need to develop a larger green pipeline, particularly in renewable energy, clean transport, desalination, waste management, and green buildings.” Financing itself isn’t the constraint, EG Bank board member and veteran banker Mohamed Abdel Aal — the market lacks projects meeting the environmental, technical, and financial standards issuance requires. Eissa adds Egypt needs more technical expertise to structure bankable green projects, particularly in green buildings.

Green bonds carry costs conventional debt doesn’t. Second-party opinions, external verification, ongoing reporting — the premium alone is enough to push issuers who can borrow conventionally to do so, Mourad says. In a market where the underlying cost of capital has already tripled, the additional green premium is doing double damage.

DFIs are still the market. “There is growing interest in this type of financing, but it remains limited compared to international financial institutions, which continue to represent the largest investor segment,” Abdel Moneim tells us. Mourad names them specifically: IFC, EBRD, and the African Development Bank. One reason domestic demand remains shallow, he argues, is the absence of incentives — or requirements — for local institutional investors to allocate part of their portfolios to sustainable debt instruments. Wagieh argues investment funds, insurers, and pension funds will need to play a much larger role if the market is to deepen.

A new sovereign bond could reset the benchmark, but won’t be enough on its own. “It would establish a pricing benchmark for corporate issuers, restore foreign investor confidence, and help reactivate the domestic market,” Mourad says. Wagieh agrees but adds the counterweight: a sovereign issuance alone doesn't fix a structurally stuck market. “A sustainable market also requires a stronger pipeline of bankable projects, greater private-sector participation, a broader investor base, and incentives that encourage issuers to come to market,” she adds.

Abdel Aal offers the softest reading of the market: “Rather than facing a crisis, the sustainable debt market is undergoing a strategic repositioning in response to evolving global and domestic economic conditions.” His closing view is more diagnostic than the framing suggests. “The future of Egypt's sustainable debt market depends less on launching another transaction than on moving from isolated deals to a sustainable market ecosystem,” he says.

Our take: The consensus is striking: the framework works, the macro doesn't, and the pipeline isn't ready. Egypt has closed three sustainable finance transactions of scale since its 2020 sovereign debut, each leaning on a development finance institution to get there. The pattern we read says less about appetite, and more about timing. The promised USD 500 mn green bond follow-on still hasn’t materialized, and another sovereign green issuance could reset the benchmark. But until the cost of capital eases, isolated deals will remain the market’s default, not its exception.