Columnists

How to drive social impact through green financing

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National Treasury and Planning principal secretary Julius Monzi Muia (L), Kenya Bankers Association (KBA) director of communications and public affairs Nuru Mugambi and National Treasury and Planning senior policy advisor, climate finance during a breakfast event at the Intercontinental Hotel in Nairobi on October 3, 2019 to mark Kenya’s first ever certified corporate green bond. FILE PHOTO | NMG

Summary

  • While there are great projects funded by green bonds globally, Africa presents an untapped potential, with a lot of its infrastructure projects still at the budding stages.
  • The need for investors to put money in environmental and social projects represents the shift in the investment markets as conscious investors seek to play their part in responding to climate change.
  • Green bonds are accelerating this change in the capital markets as they offer a diversified investment option across the region with other benefits such as tighter yields, lower costs of capital and reputational benefits.

The green bond market has recorded exponential growth globally in the recent years.

Characterised by the same features of the traditional bonds, the ability for green bonds to raise capital for projects in sustainable infrastructure, renewable energy, energy efficiency, green transport and waste-water treatment creates a path towards achievement of Sustainable Development Goals for Africa.

While there are great projects funded by green bonds globally, Africa presents an untapped potential, with a lot of its infrastructure projects still at the budding stages. The continent has a wide array of prospective green projects.

The Acorn Project (Two) Limited Liability Partnership’s close of the final tranche with an aggregate subscription of Sh2.096 billion against the target of Sh1.438 billion, represents a growing appetite to finance infrastructure in a sustainable manner.

This green bond has been seen as a potential catalyst for the green bond market in East Africa.

The proceeds of this bond will be used to address a crucial social issue as Acorn aims to fund at a minimum, the construction of eight student accommodation properties with a capacity of more than 7,300 beds.

The need exists for countries to increase their climate change resilience measures.

One way to reach the global targets is through products such as green financing. Viable infrastructure such as Acorn’s student housing projects allows for the reduction in the use of energy by improving heating and cooling systems and upgrading electrical appliances.

Reduction in emissions is also possible via rooftop solar installations.

The role of green bonds in Africa cannot be denied as they are a driving factor for Africa to attain the sustainable development goals by 2030.

There is an underlying challenge to overcoming the stagnant corporate bond market in Kenya and East Africa.

This can be pegged to the fact that the market is trying to learn and understand the asset class and the opportunities that exist for green financing for low carbon infrastructure projects.

The policy environment is also still very minimal in several African countries.

Kenya and Nigeria have both developed frameworks for green bond to meet international certification standards, however, there is a huge room for growth and learning to ensure the space has the right framework to drive growth.

The need for investors to put money in environmental and social projects represents the shift in the investment markets as conscious investors seek to play their part in responding to climate change.

Green bonds are accelerating this change in the capital markets as they offer a diversified investment option across the region with other benefits such as tighter yields, lower costs of capital and reputational benefits.

Given the increasing interest in the space, and the positive outlook, financiers such as Stanbic Bank Kenya who were the lead arrangers of the Acorn green bond need to step up and accelerate the green bond market in Africa.

Jonathan Muga, Head of Investment Banking, Stanbic Bank Kenya.