Rufus is considered one of the most influential American funk bands of the 70s. But long before their hits and incredible run of classic albums, the group was a struggling outfit prior to the arrival of Chaka Khan - her joining pushed the band to super stardom and commercial success.
All their albums went platinum except one. Today, though un-associated, I can’t help but think of another struggling “band”; Kenya’s corporate bond market.
For years, it’s remained under the shadow of the Treasury bond’s market accounting for less than one per cent in total bonds annual turnover. In 2017, while Treasuries turned over Sh432 billion, corporate bonds accounted for only Sh3 billion.
I think its perfect time we consider a Chaka Khan-esque rescue; adding corporate green bonds to the bonds menu. But can these bonds re-invigorate this moribund segment? I don’t know but my bet is on these green-certified securities.
For starters, green bonds are created to fund projects that have positive environmental and/or climate benefits. Their bond market took off in 2014 when Sh3.7 trillion was issued. There is now approximately over Sh42 trillion in green bonds currently outstanding from over 1,500 green bond issues, 239 issuers and 37 countries participating.
In 2017, issuance reached Sh16.3 trillion. What’s noteworthy is that although sovereign and sub-sovereigns continue to dominate much of the green bonds market, corporate green bond issues are slowly grabbing attention.
So why do I think these bonds hold the key? One, investor demand for green bonds continues to outstrip demand. According to Principles for Responsible Investing (PRI) data, more than 450 investors allocated $1.3 trillion to impact investments worldwide in 2016. Further, investors with $45 trillion of assets under management have made public commitments to climate and responsible investment. Corporate green bonds can help them achieve their green mandates in fixed income. Two, integrated reporting requirements on Nairobi Securities Exchange-listed entities to disclose environmental data in their annual reports could incentivise issuance. Three, the types of projects being financed by green bonds is also widening – water, transport, waste control, green buildings, and so on.
It’s worth noting that South Africans have taken the lead - Johannesburg Stock Exchange is among the only 10 stock exchanges with established green bond segments. Mauritius is also making its own moves. Last year, according to Climate Bonds Initiative, two Mauritian corporates issued green bonds; Renew Power issued a five-year green bond worth Sh47.5 billion while Azure Power issued a five-year green bond worth Sh50 billion.
To have a dedicated segment would be a crucial development for our own market. In addition, developing a pool of Kenya-based verifiers would be another vital step. Glad that the Green Bond Programme Plan, a local Climate Bonds Initiative, is working towards speeding this plus developing green bond guidelines.
Are green bonds the answer? Again, I cannot tell. Whether they’re a passing fad or not is anyone’s guess. But that said, I’m sticking with my bet that if all works out, corporate green bonds could bring about the vibrancy this segment desperately needs.