As Kenya prepares to float a Green Bond, here’s what it is

August 9, 2016
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In the next six to eight months, Kenya intends to float the first ever private sector green bond whose proceeds will go solely to green projects/FILE
In the next six to eight months, Kenya intends to float the first ever private sector green bond whose proceeds will go solely to green projects/FILE

, NAIROBI, Kenya, Aug 9 – There’s good news for persons involved in green projects but lack the necessary funding to pursue them.

In the next six to eight months, Kenya intends to float the first ever private sector green bond whose proceeds will go solely to green projects.

What is a green bond, one may ask?

“A green bond is similar to a regular bond – a debt investment in which an investor loans money to an entity which borrows the funds for a defined period of time at a variable or fixed interest rate – only that the proceeds received will be dedicated to green projects,” Nuru Mugambi, Director of Communications and Public Affairs at Kenya Bankers Association says.

The bond will be floated following collaboration between the Kenya Bankers Association (KBA) and the Nairobi Securities Exchange, paving the way for Kenya to join its peers on the continent in tapping the growing investor demand for green investments.

The collaboration is in line with NSE’s commitment to develop sustainable capital markets through the United Nations-led Sustainable Stock Exchanges (SSE) Initiative, which provides a framework for innovation within the capital markets, and is reinforced by the Sustainable Finance Initiative championed by KBA on behalf of the banking industry and broader financial services sector.

Essentially, KBA will market the bond abroad and mobilise cheap money; these proceeds will then be loaned to commercial banks under the association who will in turn lend out to individuals or businesses involved in clean and sustainable development projects.

Broken down, viable projects include those with priority on energy, agriculture, transport, infrastructure, building and urban planning, water and waste management.

“Viable projects are especially those with carbon neutral projects. You could be working on an idea that will see buildings built with the lowest production of carbon, those are the kinds of ideas that stand to get loans,” Mugambi says.

Unlike usual bank loans whose interest rates are very high – 18 percent to some as high as 24 percent-, being cheap money, interest rates required from bank clients who benefit from the Green Bond will be low.

Even though Kenya will be the first East African country to raise a Green Bond, the model has been implemented elsewhere and worked successfully.

According to Climate Bonds Initiative, the climate-aligned global bond market stands at USD696 billion (Sh70.6 trillion) with green bonds making up 17 percent or USD118 billion (Sh11.9 trillion).

Closer home, Johannesburg raised a US$142 million (Sh14.3 billion) bond dedicating it to cleaning its roads and rectifying its sewerage system. “This was quite clever as they thought, why wait years and years to source funds through taxes to clean this city when we can mobilise cheap money and fix this problem once and for all.”

Mobilising the funds is bound to be easy, this is especially so because investors the world over are gravitating towards green projects. This follows initiatives such as the Paris Agreement 2015 which saw countries commit to supporting carbon neutral projects and shunning those deemed to degrade the environment.

“A green bond is the way to go as the world is very interested in supporting green projects. This is especially so because Africa is at this time industrializing meaning that there is so much to do here. With agreements such as the Paris one and the several sustainability causes launched by UNCTAD, then Kenya is bound to receive a lot of investments.”

The Kenya effort will be supported by, among other stakeholders, the Central Bank of Kenya, the Capital Markets Authority and the National Treasury and underpins Vision 2030, Kenya’s Green Economy Strategy and Implementation Plan, and the UN Sustainable Development Goal on Climate that calls for urgent action to combat climate change and its impacts by the year 2030.

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