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Is your company riding green bonds revolution?

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Summary

  • It is safe to say that history is no longer a predictable guide to the future with significant changes.
  • All these changes have driven investors to grow increasingly concerned about the impact of their decisions and increasingly focus on the green and sustainable growth agenda.
  • One of the tools to facilitate this agenda globally is through green bond issuances by governments and corporations.

There has been a dramatic shift from traditional thinking in the last decade and propelled by the Covid-19 crisis which is now driving focus on the environmental, social and health elements of investments globally.

It is safe to say that history is no longer a predictable guide to the future with significant changes in global climate, technological developments, changing demographics, widespread use of unsustainable resources, swings in global economic power and health crisis that affect the global integrated markets.

All these changes have driven investors to grow increasingly concerned about the impact of their decisions and increasingly focus on the green and sustainable growth agenda. One of the tools to facilitate this agenda globally is through green bond issuances by governments and corporations.

Green bonds are just like regular bonds with one distinguishing feature: the proceeds are allocated exclusively for projects with environmental benefits – which are understood to be intrinsically linked with social benefits and impacts.

In other words, financially, green bonds offer comparable risk/reward profiles and follow the same issuance procedures but the proceeds are used for a wide variety of climate and other environmental projects.

Guidelines have been developed globally as well as nationally to define what constitutes a ‘green bond’ and include issuer adherence to use of proceeds for environmental benefits, project evaluation and selection process to ensure the selected projects are certified as green, management and reporting of proceeds to investors on a quarterly, bi-annually or annual basis.

According to the Climate Bonds Initiative Q3, 2020 report, the quarter saw a record of green bond issuances, the highest in a single quarter in history at $69.4bn from a cumulative 314 deals from 191 individual issuers. This is in sharp contrast to the wait-and-see attitude from investors earlier on in the year and issuers who also shied away from the market for fear of low subscription rates.

Whilst the European Union is usually the largest source of green bond issuances followed by the US and China, it is well accepted that developing and emerging economies like India and some African nations who may contribute to less than four per cent of the world’s carbon dioxide emissions may be more severely impacted by climate changes if significant investments in infrastructure that aids mitigation and adaptation does not take place.

As a testimony to this, there has been noteworthy activity in a growing number of African nations, with 17 green bonds valued in excess of $2 billion across six nations since 2012.

Kenya has been leading in the development of the green bonds market in the East African region through the launch of the Green Bonds Programme Kenya in 2017. Efforts to develop a framework and listing rules for green bonds led by the Nairobi Securities Exchange with the support from the Green Bonds Programme Kenya partners facilitated the first issuance by Acorn Holdings Limited.

Acorn issued a five-year green bond worth Sh4.3 billion ($41 million) to build purpose built, resource efficient and affordable student accommodation in Nairobi. The successful issuance was a fundamental step in unlocking green bond potential in Kenya and the wider East African region.

Africa opens numerous possibilities for green growth and investors who want to invest in climate-smart agriculture, renewable energy efficiencies, waste management, transport and infrastructure developments. Green bonds, as a financial instrument can have a catalytic effect on Kenya’s Vision 2030 strategy with regards to sustainable development, the Green Economy Strategy and Implementation Plan (GESIP), the National Climate Action Plan, and the National Policy on Climate Finance and the Climate Change Act 2016.

These policies constitute the government’s efforts to advance the sustainable development agenda focused on addressing key challenges such as poverty, unemployment, environmental degradation, climate change, infrastructure gaps and food security. Corporations and the government alike should consider this as a call to action and take it upon themselves to commit to the sustainable growth and development of our economy through learning more about this capital raising tool which not only facilitates access to a diverse pool of long term investors, national and international exposure and profile, but also better pricing possibilities.

Ms Pattni is Business Development Manager, Nairobi Securities Exchange