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According to the World Bank, Kenya’s infrastructure funding gap stands at more than $1.8 billion. The Bank equally notes that Kenya requires an annual spend rate of about $4 billion over the next decade to close the infrastructure funding gap.
As a frontier economy, our ability to develop reliable and efficient infrastructure is crucial to accelerating economic and social development and the promotion of pro-poor growth.
Equally, the risk of inadequate and poorly performing infrastructure could pose a major challenge to Kenya’s productivity and international competitiveness.
Whilst the last two decades have seen the country make significant improvements, more needs to be invested in physical and social infrastructure including urban transit, energy, education, health, and housing amongst others.
As the country faces constraints in traditional sources of capital, leveraging on emerging financial markets products such as green bonds can help facilitate the mobilisation of low-cost and long- term private capital to finance or refinance sustainable infrastructure projects in Kenya.
Green bonds are fixed-income instruments issued by corporates, governments or quasi- governments and supra-national organisations to raise funds from investors interested in projects that generate environmental benefits.
Green bonds possess the same financial characteristics as regular bonds such as face value, yield and maturity date with the only distinguishing feature being a commitment by the issuer to use the proceeds of the bond for environmentally-sensitive projects.
Over the last few years, investor interest in green bonds has grown exponentially as witnessed through the oversubscriptions achieved through recent issuances in Africa.
Greenbonds have birthed a roadmap through which investors can support issuers — both public and private —fund projects that put the world on a long-term path towards a zero-carbon economy amongst other environmental benefits.
Green bonds have been widely credited to provide investors with opportunities that offer the potential to achieve a double bottom line of competitive financial returns, along with direct and measurable environmental benefits.
Institutional investors also continue to increase capital allocation to projects that have environmental benefits and have utilised green bonds to achieve the same across dedicated portfolios or as a component of their fixed income mandates.
Following the inaugural triple AAA investment grade issuance by the European Investment Bank and the World Bank in 2007, global green bonds issuance hit the half a trillion dollar mark to settle at $ 517 billion as at the end of 2021 (Climate Bonds Initiative).
The same trend is gaining traction in Africa as foreign capital trickles into the continent to fund projects that revolutionise the environmental scene. This has been seen through recent issuances in Nigeria, Kenya and South Africa that are now routinely using instruments to raise capital for corporates and county projects.
The remarkable growth over a relatively short period of time is a testament of the growing demand for green bond products by investors globally.
Kenya needs to leverage this alternative financial market product to mobilise domestic and international private capital to fund infrastructure development.
As green bonds exclusively fund projects with environmental benefits, it’s important to standardize what qualifies as green or rather what projects qualify to be financed through green bonds.
This could be done through the development of a continental, regional or country-based standardized classification framework for sustainable economic activities that can guide and spur allocation of sustainable investments through instruments such as green bonds.
There are various frameworks that Issuers can use to gauge the ‘green-ness’ of projects such as the Climate Bonds Initiative framework and Green Bond Principles amongst others. This process can also be supported by professionals called Green Bond verifiers who are certified to carry out their roles.
The taxonomy developed in line with international standards would provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable and can attract capital through green bonds.
It is important for stakeholders to establish a pipeline of ‘qualified’ investment grade opportunities by both the public, private and development finance institutions to enhance the uptake of Green Bonds in Kenya.
A better way of executing this would be the establishment of a deal platform where viable projects that can be financed through green bonds are uploaded and engagement with potential stakeholders supported on the platform.
This would significantly enhance a focused approach to potential issuances which can accelerate formation of capital for infrastructure projects in Kenya.
As a nascent product in a frontier market, it is critical for stakeholders to support the growth of technical capacity to facilitate the use of green bonds to finance infrastructure projects in Kenya.
Growth in technical capacity will go a long way in ensuring that potential issuers are well informed of the opportunities and supported through the issuance process and the aftermath to sustain successful issuances.
Being a frontier market, Kenya attracts the required interest from international organisations as a country with ability to raise the bar with technical expertise in order to support its growing capital raising needs most importantly at county level.
On 5th of February 2019, the Nairobi Securities Exchange PLC and the Capital Markets Authority jointly launched the revised listing rules incorporating listing requirements for Green Bonds on the NSE as well as the Policy Guidance Note on green bonds.
The launch of the revised listing rules as well as the Policy Guidance Note set up the necessary legal framework for the Kenyan Capital Market to offer green bonds as an asset class to issuers and investors.
It also marked a milestone in the securing the country’s future through providing a parallel option for financing development and supporting in climate change mitigation and adaptation.
Kenya has the potential to bridge the current infrastructure financing gap by raising capital through green bonds.
Writer is a senior officer, Communications at Nairobi Securities Exchange

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