ESG Investing – Green Bonds in Kenya

ESG investing, which stands for Environmental, Social, and Governance investing, involves assessing a Company’s performance in three crucial domains: its commitment to environmental responsibility, social responsibility, and strong Corporate Governance. These aspects collectively gauge a Company’s sustainability and ethical conduct, going beyond just its financial performance. Let’s delve into the significance of each of these elements:

1. Environmental – Environmental considerations encompass the evaluation of a Company’s influence on the natural world. This involves examining various factors like the Company’s carbon emissions, energy efficiency, resource consumption, pollution levels, and its initiatives aimed at minimizing or offsetting environmental damage. ESG investors are particularly interested in businesses that demonstrate a dedication to sustainable practices and actively work to minimize their environmental impact.

2. Social -The social dimension assesses a Company’s approach to handling interactions with a range of stakeholders, including employees, customers, suppliers, and the local communities in which it operates. This scrutiny encompasses aspects such as labor practices, inclusivity and diversity, employee welfare, community involvement, and product safety. ESG investors show keen interest in businesses that champion equitable labor practices, diversity, and a strong commitment to social responsibility.

3. Governance- Governance pertains to the manner in which a Company is administered and overseen. It entails the examination of elements such as the makeup of the Board of Directors, executive compensation, shareholder rights, the degree of transparency in financial reporting, and adherence to ethical business standards. ESG investors actively seek out companies with robust Corporate Governance frameworks that emphasize transparency, accountability, and ethical conduct.

Green bonds in Kenya

Kenyan green bonds represent a category of debt instruments issued by governmental bodies, local authorities, or corporations. They serve as a means to secure capital for projects and endeavors that prioritize environmental sustainability. These bonds are explicitly designated for endeavors that generate a favorable environmental influence while adhering to the tenets of environmental sustainability and societal responsibility.   Acorn Holdings successfully closed Kenya’s first green bond in 2019. The KShs 4.3 billion (USD40m) Climate Bonds Certified issuance will finance green and environmentally friendly accommodation for 5,000 university students in Nairobi.

The Nairobi County Government also declared that it will issue a green bond of KShs 150 billion. The financial instrument will be utilized to finance environmental infrastructure and accelerate green transition.

Let’s explore some essential facets of green bonds in Kenya:

1. Objective: Green bonds in Kenya are deployed with the aim of funding projects and endeavors that advance the cause of environmental sustainability. These endeavors encompass a broad spectrum of initiatives, ranging from renewable energy projects (such as solar and wind farms) and the construction of energy-efficient buildings to waste management and recycling schemes, afforestation and reforestation endeavors, and a variety of other environmentally conscious projects.

2. Certification and Guideline: In order to qualify as “green,” these bonds are required to conform to globally acknowledged standards and guidelines, exemplified by the Green Bond Principles (GBP) introduced by the International Capital Market Association (ICMA). This adherence serves to guarantee transparency and enhance the credibility of the funds’ allocation to environmentally advantageous projects.

3. Regulatory Control and Supervision: In Kenya, the issuance of green bonds is subject to regulation and oversight by the Capital Markets Authority (CMA). This oversight is implemented to confirm adherence to both local regulations and globally recognized green bond standards. Companies or entities intending to issue green bonds are obligated to satisfy particular criteria and maintain transparency when reporting on fund utilization.

4. Impact Assessment and Reporting: Entities issuing green bonds are obligated to consistently furnish reports detailing the environmental and social outcomes resulting from the projects financed by these bonds. Such reporting serves as a means for investors and the general public to evaluate how effectively the bonds contribute to the attainment of their sustainability objectives.

5. Investor Attraction: Green bonds in Kenya appeal to investors who have a keen interest in environmentally conscious and socially sustainable investment opportunities. These bonds enable investors to back projects that resonate with their ethical principles while also having the potential to generate financial returns.

The Green Bonds Programme Kenya

The Green Bond Programme – Kenya, a collaborative effort involving the Kenya Bankers Association (KBA), Nairobi Securities Exchange (NSE), Climate Bonds Initiative, Financial Sector Deepening (FSD) Africa, and FMO – Dutch Development Bank, aims to foster innovation in the financial sector by nurturing a domestic green bond market. At inception, the Programme had already identified KSh90bn of investment opportunity in Green Bonds in the manufacturing, transport and agriculture sectors in Kenya, a small but significant contribution to a global market that is already worth almost $400bn.

The primary objectives encompass:

1. Conducting research to evaluate the potential for green bond issuance in Kenya.
2. Cultivating a pipeline of green investments and engaging with both local and international investors.
3. Providing support for inaugural green bond offerings from prominent banks and corporations.
4. Advancing green Islamic finance options.
5. Establishing a pool of certified verifiers based in Kenya.
6. Formulating a cooperative fixed income fundraising platform that would enable smaller banks and companies to tap into wholesale debt capital markets.
7. Harnessing the Kenyan experience to inspire similar programs within the East Africa Community. Green bonds have a pivotal role in funding sustainable development efforts and tackling environmental issues, both within Kenya and on a global scale. They serve as a means to mobilize financial resources for initiatives that actively contribute to environmental conservation, climate resilience, and the realization of sustainable development objectives.