Green bonds open wider financing window

Tuesday April 11 2017

Mr Odundo, NSE chief. FILE PHOTO | NMG

Mr Odundo, NSE chief. FILE PHOTO | NMG 

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The popularity of ‘green’ bonds as a means of raising capital to finance eco-friendly projects is on the rise.

A green bond is like any other paper but with one key difference: funds raised by the issuer are used to finance ‘green’ projects.

Such projects could be in the areas of renewable energy, clean transportation and sustainable water management systems.

Green bonds enhance an issuer’s reputation as they help in showcasing their commitment towards sustainable development. It also provides issuers access to specific set of global investors who pump their money in green ventures.

Kenya, Nigeria, Morocco, Egypt and South Africa are among countries that have made strides in establishing standards, harmonising public and private sector efforts as well as building capacity in the green economy.

According to the Financial Sector Deepening Africa (FSD Africa) Director Mark Napier, the green  bond programme launched by Kenya is expected to improve access to a complementary source of long-term financing. This is alongside traditional short-term bank loans while contributing to the funding of green investments and improving the environment.

“It will further support the national agenda that seeks to reinforce Kenya’s role as a regional leader in financial services as articulated by Vision 2030 and Kenya’s Green Economy Strategy and Implementation Plan (GESIP),” said Mr Napier.

To catalyse investment in green economy, the Kenya Bankers Association (KBA) and Nairobi Securities Exchange (NSE) have joined hands to develop a local and regional market for the new capital raising instrument.

The partnership has been endorsed by the Central Bank of Kenya (CBK) and the Capital Markets Authority (CMA).
Equally, the National Treasury and GESIP has outlined policies that direct public sector investment towards green economy.

The national plan includes raising a sovereign green bond.

Moreover, the International Finance Corporation (IFC), a member of the World Bank Group, has identified Kenya as one of the 24 countries that will benefit from its maiden Green Bond Cornerstone Fund.

Emerging impact

KBA chief Habil Olaka last week acknowledged the emerging impact of green bonds as one of the primary sources of financing renewable energy projects and other green economy sectors around the world with issues amounting to approximately $46 billion (Sh4.738 trillion) in 2015.

He said globally, economies are fast growing and adopting sustainable financing initiatives.

“As a country, transitioning to a sustainable economy in areas of agriculture, manufacturing, infrastructure, energy among other sectors is vital as banks tap into investment opportunities brought about by developing the first green bonds market in Kenya,” said Mr Olaka.

NSE Chief Executive Geoffrey Odundo said the exchange is committed to developing a vibrant green market.

“Through the NSE, issuers and investors will have a platform where they can come together and fulfil their green objectives. The green bond programme is an innovative tool that will promote economic and climate resiliency for our country,” said Mr Odundo.

During the launch, KBA, NSE, FSD Africa and Climate Bonds Initiative (CBI) signed a co-operation deal to support the development of a green bonds market in the country.

FSD Africa committed $600 million (Sh61.8 million) over a period of three years to fund the programme with the objective of aiding KBA to be in a position to tap the growing investor demand for green investments.

Develop framework

In addition to the FSD Africa funding, FMO (a Dutch Development Bank), had earlier committed $350,000 (Sh36.05 million) to support KBA develop the framework to create the industry’s first pooled green bond facility.