Experts’ opinion on challenges facing the development of green bonds on the Nairobi Securities Exchange

Master Thesis


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Climate change is arguably biggest challenge for 21st Century. Africa while being the least polluter in the world, is the most vulnerable to the effects of climate change. The Paris Agreement, Sustainable Development Goals (SDGs), African Development Bank’s strategy 2013-2022, Kenyan National Climate Change Action Plan among others all seek to achieve inclusive green growth by building resilience to climate shocks and providing sustainable infrastructure - this will require substantial financial resources. Government funds alone will never be enough to deal with the threat posed by climate change - the private sector must be involved. Green bonds allow both Government private sector to do their part. A green bond is differentiated from a regular bond by its 'Green’ label, which signifies a commitment to exclusively use the funds raised to finance “green” projects and infrastructure. The Climate Bonds Initiative projects that green bonds worth 250 Bn USD will be floated in 2018 compared to 155.5 Bn USD in 2017. In Africa, only South Africa and Nigeria have listed green bonds, signifying a commitment to the Paris agreement. More than a decade after the listing of the first green bond, Kenya is yet to float a green bond. The Kenyan bond market is underdeveloped with corporate bonds accounting for only 1% of all bonds listed with government bonds accounting for 99%. The bond market does not attract international investors which is completely opposite to the equity market. The government has been a key player in the stakeholder engagement process and will be central to by incentivizing issuers and investors. There is however a lack of education on green bonds along the value chain. This qualitative study employed a purposive sample of experts and through structured interviews, sought to pinpoint challenges to and opportunities for development of a green bond market in Kenya. The study concludes that rating of green bonds will be important mostly for international investors and does not hinder floating of green bonds. Reporting is a critical element to development of a green bond market being the only element that distinguishes a green bond from a vanilla bond. As such guidelines on reporting and building capacity in the area of green verification and certification among service providers will be crucial to supporting a local green bond market. Kenya will foreseeably look to international experts to assist in verifying, rating and reporting on green bonds. Kenya presents future opportunities in providing digital green bonds being a world leader in mobile money market.