Advantages of issuing green bonds

Infrastructure and energy development form part of the foundations of Kenya’s Vision 2030 economic blueprint.

Indeed, infrastructure development is currently a key driver behind the commendable GDP growth rates observed in numerous African countries, and investments in energy generation will hold a pride of place in these development strategies.

The government and the private sector have a key role to play in developing infrastructure projects that create long term and shared social and economic value. As with any other capital projects, various forms of financing exist – including green bonds.

A green bond, like any other bond, is a fixed-income financial instrument for raising capital through the debt capital market.

In its simplest form, the bond issuer raises a fixed amount of capital from investors over a set period of time, repaying the capital when the bond matures and paying an agreed amount of interest (coupons) along the way.

The key difference between a ‘green’ bond and a regular bond is that the issuer publicly states it is raising capital to fund ‘green’ projects, assets or business activities with an environmental benefit, such as renewable energy, low carbon transport or forestry projects.

Bonds can also be used to fund projects with a social or community benefit such as improving healthcare or social services, and these are typically known as ‘social’ or ‘social impact’ bonds.

For some issuers, labelling a bond as ‘green’ is a win-win, requiring little additional effort but improving the issuer’s credentials as a sustainable and responsible organization. For others, a green bond may not be the most appropriate or effective means to raise funds.

Green bonds can give issuers access to a broader range of investors than regular bonds or other asset classes. They can attract new investors focused on environmental, social and governance (ESG) performance.

Issuing a green bond is an effective way for an organisation to demonstrate its green credentials by showing its commitment to the environment and improving its own environmental performance.