It is well understood in economic circles that the pursuit of development requires heavy financing. This has led to the establishment of innovative financing options, one of which are green and social bonds. Simply put, green bonds refer to various finance raising instruments that promote, encourage and support climate-related or similar environmental projects. More particularly, green bonds assist in the financing projects such as energy efficiency, pollution prevention, and sustainable agriculture among others.
The Nairobi Stock Exchange, in partnership with the National Treasury, has recently noted the untapped value of green bonds, particularly in Kenya’s current rapid industrialisation stage. This led to the inclusion of green bonds in Kenya’s 2018/2019 budget statement, with the government committing to support the issuance of green bonds in the 2018/2019 financial year, including the issuance of a sovereign green bond. Should GoK’s plans see fruition, Kenya will become the third country in Africa to issue a sovereign green bond, after South Africa and Nigeria who beat us to the punch.
While the Big 4 Agenda, does not specifically target climate change, it is understood that managing climate change is a key component in achieving the four items of Food Security, Universal Healthcare, Affordable Housing and Manufacturing. Green bonds serve as an alternative fundraising option that will enable Kenya meet her overall developmental agenda, by making funds available in support of green activities and initiatives, be it renewable energy, afforestation projects or even infrastructure development projects.
In line with the above, various stakeholders, inclusive of the NSE, Kenya Bankers Association and the Central Bank of Kenya, launched Kenya’s green bond programme early last year. In line with the overall strategic plan, which sees the issuance of Kenya’s first green bond within the current financial year, the NSE, in conjunction with the Capital Markets Authority has rolled out a draft legal framework supporting the issuance of green bonds – the first step toward making the financial instrument available in Kenya.
However, while the development of a legal and institutional framework is progress in the right direction, more will need to be done to ensure that green bonds, once available, will be received positively by both local and foreign investors. This involves ensuring that the programme receives the proper marketing, and maintains international standards in terms of transparency and accountability, and other similar best practices. Particularly noting the dual purpose of green bonds, that is, as investment instruments as well as sustainable development instruments, it is imperative that the ‘green’ label is not simply utilised to ‘green-wash’ projects but rather stays true to its name.
Given the rapid growth experienced in the global green bond market since the first green bond issuance in 2007, we can only hope that similar success will be experienced in the Kenyan green bond market.