By Alfred Nyakinda

The Capital Markets Authority (CMA) and Nairobi Securities Exchange (NSE) have released guidelines setting up the legal framework for the issuing of green bonds in Kenya, thus, paving the way for trade in a growing market in which bonds worth over US$155 billion were issued globally in 2017.

Green bonds refer to regular bonds whose proceeds are earmarked for projects with environmental benefits which deal with climate change, renewable energy, natural resources depletion, loss of biodiversity and pollution. The label facilitates growth in climate-aligned investments by enabling investors to easily identify them.

‘Over the next five years and beyond, green instruments will play an important but niche role in driving the growth of Kenya’s capital markets, in line with the Marrakech Pledge which calls for an increase in the volume, flow and access to finance for climate projects, alongside improved capacity and technology from developed to developing countries,’ said CMA Chief Executive Mr. Paul Muthaura during the launch of the guidelines.

The Kenya Electricity Generating company (KENGEN) has already expressed interest in issuing green bonds to finance renewable energy as it seeks to increase its capacity in wind and geothermal electricity generation. The company is set to redeem a 10 year bond estimated at US$ 250 million in October this year.

According to a document by the Climate Bonds Initiative for the Kenya green bonds programme, clear standards for green bonds form a basis for setting climate and infrastructure targets, market integrity through preventing ‘greenwashing’ of ineligible projects, targeted policy making and reducing transaction costs.

The new guidelines state that proceeds from green bonds should be used for the financing or refinancing of green projects and related expenditure such as research and development. They also say the issuer shall provide to bondholders, at least annually, a report containing the list of projects and assets to which the proceeds have been allocated for the duration of the bond.

The report should include expected impacts of projects and assets such as energy capacity installed, electricity generated, greenhouse gas emission performance of buildings, numbers of passengers carried by public transport, number of electric vehicles manufactured and volume of wastewater treated.

Projects to be considered eligible will fall under categories identified in the international Climate Bonds Taxonomy and the National Policy on Climate Finance. All fossil-fuel related projects are excluded; however oil and gas companies may issue bonds to raise capital for environmentally friendly projects.

Furthermore, issuers will be expected to maintain a definite, transparent selection process for potential projects and disclose details about management of proceeds as part of their green bond framework. An external review, such as a second party opinion or third party certification is also mandatory.

The bonds are attractive to buyers as they are transferrable, offer a secure investment and finance projects with positive and observable benefits. For the issuer, they provide access to long term funding and finance the payment of debts incurred from loans while waiting for green projects to start producing significant returns. Apart from local investors, green bonds also attract international investors interested in long term projects in emerging markets.

“To investors, green bonds offer a stable, rated and liquid investment with long duration. To issuers, they could tap the US$100 trillion global institutional fixed income investor base.” said Mark Carney, Governor of the Bank of England, “moreover, the shift to the capital markets from banks will free up limited bank balance sheet capacity for early-stage project financing and other important infrastructure lending.”

Kenya follows in the footsteps of South Africa, where the City of Cape Town issued a 10 year green bond in 2017 with the aim of funding water and sanitation projects. Nigeria has also issued a sovereign (government) green bond for the expansion of renewable energy. Contact: