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GREEN DEVELOPMENT

NSE rolls out carbon exchange to East Africa

It entails innovative financing to shore up environmental projects

In Summary

• Kenya's first-ever green bonds were issued by Acorn in 2019 and oversubscribed

• KenGen, Koko Networks, Mumias and farmers lining up to utilise the new exchange

Image: HOPE MUKAMI

Climate change mitigation efforts in Kenya have received new impetus after the Nairobi Securities Exchange inked a deal to set up Kenya's first carbon offset exchange.

The deal is with the AirCarbon Exchange (ACX) and the Nairobi International Finance Centre (NIFC).

ACX will develop the carbon exchange platform as part of innovative financing to shore up environmental projects, including reforestation and land restoration, according to the Nairobi Securities Exchange (NSE).

The Singaporean firm securitises carbon credits into tradable carbon asset classes. Thereafter, carbon credits held by the exchange are held in a trust.

For every credit deposited into the trust, a corresponding one-tonne token resides on the exchange.

A green portfolio at the NSE will create an investment value chain across Kenya's overall financial ecosystem to support climate change-mitigating projects.

“The NSE is today signing a collaboration agreement with the Nairobi International Finance Centre (NIFC) and AirCarbon Exchange Limited. This will lead up to the exploration and formation of the emissions trading platform in the overall financial ecosystem in Kenya,” the NSE said on the sidelines of the launch of NIFC.

Emissions trading is a market instrument for reducing emissions of CO2 and other greenhouse gases.

Businesses that cut their emissions can sell their excess carbon credits to other firms whose emissions have increased, thus commoditising carbon and creating a market.

Kenya is looking to attract more than $2 billion worth of investments through the NIFC over the next eight years, with Nairobi now joining Casablanca (Morocco), Cape Town and Johannesburg (South Africa) and Port Louis (Mauritius) as IFCs on the continent.

NIFC CEO Oscar Njuguna is upbeat about the potential for the carbon exchange to spur climate finance in Kenya by establishing a locally accessible marketplace for carbon offsets.

In Kenya, the companies lining up to utilise the carbon exchange include power generator KenGen, Koko Networks, Mumias and other smaller companies and farmers.

“Investments in clean green infrastructure are fundamental to Kenya’s continued prosperity and growth,” British High Commissioner Jane Marriott said.

ACX securitises carbon credits around market demand, allowing traders to gain exposure to an asset class as opposed to individual projects. Every token is backed by one tonne of CO2 equivalent (tCO2e) and the credit sits in the Exchange's Trust.​

The Capital Market’s Authority chair Nick Nesbit told Business Hub the move was an opportunity to grow trust in the market and to build a culture of ESG (Environmental and Social Governance) among regional companies.

“We are driving trust utilising technology and trying to ensure really robust mechanisms to ensure that businesses abide by ESG in Kenya,” he said.

Kenya is among the top providers of climate finance in Africa alongside South Africa and Nigeria. The country's first-ever green bonds were issued by Acorn Holdings in 2019. That issue was oversubscribed.